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Questionable Increase in Conveyance Tax

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By Lowell L. Kalapa

It is certainly pathetic that while Hawaii residents continue to rank in the top 10% of the most heavily burdened taxpayers in the nation that lawmakers would find even more ways to turn up the tax heat.
Not only did lawmakers authorize an increase in the general excise tax rate, but they also adopted an increase in the conveyance tax. However, they were careful not to step on their constituents’ toes by setting what they think is a reasonable floor so that the tax rates would remain the same for resident voters, or so they think.
Adopted in the name of supposedly providing additional funding to create affordable housing, the legislature is raising the tax rates on all conveyances of properties where the transaction is greater than $600,000 or where the property is being purchased other than for occupancy by the new owner. The current rate of ten cents per hundred dollars of value (or $1 per thousand dollars of value) would apply only to transfers of property of less than $600,000 for use by the owners as his or her new home.
While proponents of the increase argue that Hawaii has amongst the lowest tax rates on the conveyance of property, they tend to ignore the fact that Hawaii’s real estate is amongst the priciest in the nation. With the median priced family home selling for about $550,000 on Oahu to more than $632,000 for the median priced family home on Maui, these values have no competition perhaps with the exception of Southern California and Silicon Valley. When home prices sky rocket, every dollar counts at closing, from points to fees and that includes the conveyance tax.
What proponents also seem to ignore is that when they say only 7% to 10% of the transactions taking place will be affected with the higher rates is that those transactions probably represent some major exchanges of land that will be developed sometime in the future for housing. Thus, the increased rate will be folded into what might eventually become “affordable housing.” The higher rates will apply to all transfers of commercial, industrial, and agricultural property where a building or farm acreage will more than likely be worth more than $600,000 and, of course, the purchase is not for the purchaser’s use as a home.
Indeed, the proponents of the hike are up-front about the higher rates applying to investors – read speculators – who they said have driven up the cost of housing. Of course, they simultaneously ignore the fact that it is investors who create the rental housing for those families who either choose not to buy or cannot afford the high cost of housing in Hawaii.
In a sense this is a rerun of the same pandemonium that pervaded the late 1980’s and early 1990’s when the purchase of property by Japanese investors sent lawmakers off the deep end calling for a tax on speculators. Thankfully, cooler heads prevailed and Hawaii avoided a horrendous mistake of imposing confiscatory taxes on “speculators.” Unfortunately, this proposal to increase conveyance tax rates will have the same effect as those proposals to impose punitive taxes on speculators. It will send a message to any and all investors that Hawaii is not a place to do business and they will take their money elsewhere.
What is so pathetic about this exercise is that it is obvious that lawmakers have either spent every dime we as taxpayers have given them or else they just do not see affordable housing as a priority for the money they already collect. Instead, they have resorted to a tax that was never meant to be a source of revenue to pay for affordable housing.
If it is a matter of the former, that they have already spent every dime we give them, taxpayers should be alarmed as there is no doubt that costs will grow. If such is the case, then are we, as taxpayers, being set up for a general tax increase because what we give state government is already not enough to cover all the needs?
If it is a matter of the latter reason, that affordable housing is not a high priority, then one has to ask whether or not lawmakers are truly serious about addressing this problem. If increasing the inventory of affordable housing in Hawaii will take tax dollars, then why are lawmakers not taking existing funds and applying it to solutions?
The current run-up in housing costs is not necessarily a matter of speculators as much as the historically low interest rates which allow buyers to bid up the cost of housing because they can afford a higher price tag for the same monthly payment. Punishing purchasers of property with higher conveyance tax rates only contributes to the already poor image Hawaii has a place to do business.

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