Honolulu’s Short-Term Rental Owners Will Pay Higher Property Taxes Soon. How Much Is Fair?
An estimated $16 million of revenue could come from these higher taxes, city officials said.
Short-term rental owners in Honolulu will start paying higher property taxes next fiscal year, but it’s up to the City Council to decide how much.
Their decision will impact not just short-term rental owners but revenue available for next year鈥檚 budget.
Like other places, Honolulu is still grappling with a rapidly changing real estate landscape in which homeowners choose to rent their properties to visitors.
Critics say that this trend is depleting the housing supply for long-term residents. Supporters say that the extra income can be crucial to homeowners, and that opposition is fueled by hotel interests.
Council members are debating how much to charge these revenue-generating properties that aren鈥檛 quite residences and aren鈥檛 quite hotels. Too low a rate would mean missing out on money to pay for city services. Too high a rate and they risk incentivizing owners to operate without being registered.
About a third of short-term rental owners still haven鈥檛 registered their properties, at least partially because of uncertainty over how much they鈥檒l have to pay in taxes, Jill Paulin of Oahu Short Term Rental Alliance said at a recent budget committee meeting.
鈥淭hey were afraid this would happen,鈥 she said.
‘We Were Prepared For Our Taxes To Double’
A little less than half of the city鈥檚 almost $4 billion in annual revenue .
Different types of properties pay vastly different rates. Residential properties not occupied by their owners, like many short-term rentals, are charged about a third of the rate for hotels and resorts: $4 for every $1,000 of assessed value up to $1 million, versus $13.90.
Most short-term rentals on Oahu have been taxed at the lower rate. would have taxed them at the higher hotel rate, but that language was removed before passage.
Last year, the council that created a new category for transient vacation rentals. Now it must determine a rate for that category.
The proposal last year was the rate now used for the bed-and-breakfast category, $6.50 for every $1,000 of assessed value.
But now the council is considering a higher rate. The first $800,000 of assessed value would be charged $9.00 per $1,000 and anything over that would be charged $11.50. The owner of a $1 million house in this category, for example, would pay $9,500 in property taxes.
鈥淲e were prepared for our taxes to double, but anything more than that seems punitive,鈥 Paulin said.
The proposed rate represents a middle ground between the bed-and-breakfast and hotel rates, said Carrie Castle, Department of Budget and Fiscal Services deputy director, during the budget meeting.
Kauai and Maui counties charge short-term rental owners about the same or even more than Honolulu鈥檚 proposed rate 鈥 and , respectively, she said.
But Paulin disagrees with the comparison. She said Oahu鈥檚 customer base, unlike those on the other islands, consists of more than just vacationers.
鈥淲e have a lot more traveling nurses, essential workers,” she said. Sometimes interisland visitors come for Honolulu’s medical services, and “they need to stay in a place that鈥檚 reasonable for a week that has a kitchen,鈥 she said.
Her group is arguing for the same rate as the bed-and-breakfast category.
But bed-and-breakfasts are not the same as transient vacation units, Department of Budget and Fiscal Services Director Andrew Kawano said in an interview. The latter gives visitors more privacy since there鈥檚 no owner on the premises, and so people are willing to pay more.
That means the property owners can be taxed at a higher rate, he said.
The city expects to collect about $16 million from short-term rental property taxes, and Blangiardi incorporated that number into his proposed budget.
At the budget meeting, council member Matt Weyer proposed lowering the first tier from $9.00 per $1,000 of assessed value to $7.50. That would result in roughly $1.86 million less in revenue, Real Property Assessment Administrator Steven Takara said.
Council member Radiant Cordero, chair of the budget committee, said any reduction in rates “will then in turn relate to how many further cuts to our budget we will possibly have to make.”
Council members are expected to continue to discuss the rates during Wednesday鈥檚 monthly meeting.
鈥Hawaii鈥檚 Changing Economy鈥 is supported by a grant from the as part of its CHANGE Framework project.
