State bill would add tax to short-term home buys
The proposed law is intended to slow speculative purchases
A real estate bill working its way through the state Legislature would put a damper on people who sell their properties between six months and 24 months of buying them.
Proponents of House Bill 1002 say it dissuades speculators from inflating Hawaii's market. Opponents say it won't really help, and will add to the property owner's tax burden.
The measure proposes a new tax on top of the existing capital gains tax from sale of real estate -- an additional 60 percent of the capital gains tax on property held less than six months, 30 percent if held less than a year, and 15 percent if held less than two years.
The additional tax revenues would be deposited into the state Rental Housing Trust Fund.
The bill is being considered in the Senate. If it passes, it would go into effect on Jan. 1, 2008.
A new bill making its way through the state legislature would place additional tax burdens on homeowners selling their properties between six months to two years of buying them.
Proponents of House Bill 1002 say it would dissuade speculators from inflating Hawaii's real estate prices, while opponents say it would add to the cost of real estate and end up hurting those it purports to help.
The bill has been passed by the state House and is now being considered in the Senate, where it has survived its first committee vote.
The measure proposes a new, graduated tax pegged to the existing capital gains tax on sale of real estate -- 60 percent if held less than six months, 30 percent if held less than a year, and 15 percent if held less than two years.
If passed, it would go into effect on Jan. 1, 2008. The amounts realized would be deposited into the state Rental Housing Trust Fund.
House Majority Leader Kirk Caldwell (D-Manoa) said the bill was introduced to prevent speculation from getting out of hand in the long run.
"We have seen reports that show people who speculate in a rising market tend to inflate the market more quickly, therefore affecting affordability at all levels," he said.
Speculators, he said, are investors who play the real estate market as if it were a stock market -- those who bought brand-new units at Kakaako condos, for instance, and sold them before they even moved in.
However, he said, the bill is designed to only target real estate speculators.
A number of exemptions are in place, he said, for homeowners who lived in their properties, faced a change in employment, health or other unforeseen circumstances.
Relocating military personnel are also exempt, as are those passing their estates on to family.
"Clearly, speculation's been a problem that's lead to our housing crisis," said Rep. Maile Shimabukuro (D-Waianae-Makua), who introduced the bill. "This doesn't stop speculation, but it's a deterrent."
Shimabukuro said she's seen neighborhoods that used to be affordable be pushed out of reach for longtime residents.
"I would hate to see the day that Waianae becomes a place where local people can't afford to live any more," she said.
SLOWING MARKET
The bills are proposed at a time when the residential housing market is in a downward trend -- homes are on the market more days, while inventory is growing. The Hawaii Association of Realtors and National Federation of Independent Businesses in Hawaii are opposed to the bill.
"It's absolutely the wrong direction," said Scott Bradley, president of Coldwell Banker Pacific Properties. "You don't lower the cost of housing by taxing it. The reason housing prices are so high and way out of control is because we don't have enough supply to meet demand."
Instead of imposing more taxes, said Bradley, the legislature should focus on how to create more incentives to build affordable housing.
Jim Wright, CEO of Century 21 All Islands, said the law, if passed, would impact more than speculators.
"When the market is hot, all kinds of people get involved in real estate investment," said Wright. "It's not some rich cloth of people, but your average, everyday, U.S. citizen, most of them saving to increase their retirement. Why would you want to take that away?"
Sen. Sam Slom, R-Diamond Head-Hawaii Kai, said the bill is not truly an "anti-speculation bill," but an additional tax.
"This would clamp down on investors, who make the market go, and provide additional housing including rentals and affordables," said Slom, who voted against it in committee."The whole thrust of the bill is basically anti-development, anti-real estate. It really hurts the people the sponsors say they want to help ... but it provides more tax money."
The bill is paired with House Bill 1001, which gives developers expedited permits for building 100 percent affordable rentals. Rep. Caldwell said the bills address affordability from both the supply as well as demand side.
Another house bill, supported by the local chapters of the Sierra Club and Nature Conservancy, increases conveyance tax rates for second-home buyers.
House Bill 1002 was approved by the Senate Committee on Commerce, Consumer Protection and Affordable Housing, and will be scheduled for a hearing in the Economic Development and Taxation Committee later this month.
