Bill 63: Will Honolulu’s New Tax Break Really Incentivize Affordable Long-Term Rentals?

Honolulu policymakers are again looking to private rental housing providers to help ease our housing crisis. Bill 63 (2025), CD1, is the latest attempt to make an existing, but unused, affordable rental tax program more attractive to landlords.

On paper, it sounds promising: if you dedicate your Residential A property to affordable long-term rental use, you can be taxed at the lower Residential rate. For some owners, that could mean thousands of dollars in annual tax savings.

So why hasn’t a single landlord used this program in the last 10 years?

Even the City acknowledges that the savings have not been enough to offset what an owner gives up by renting below market. Hawaiʻi Public Radio recently highlighted that reality, noting that the program has sat dormant for a decade because the math just hasn’t penciled out for landlords.

What Bill 63 would change

Under current law, a qualifying property must be rented at affordable levels to households earning up to 80% of Area Median Income (AMI). Bill 63 raises that cap to 100% AMI, broadening the pool of renters and easing the rent restriction slightly. It also removes an outdated rule that only allowed owners who purchased their property for under $1 million to participate—an unrealistic limit in today’s Oʻahu market.

To participate, an owner would:

• Dedicate their property as an affordable long-term residential rental for at least five years.

• Charge no more than the City’s maximum rent for 100% AMI, based on bedroom count.

• Rent only to “eligible tenants” who do not own another dwelling, use the unit as their principal home, and certify both in writing.

• File initial and annual paperwork with the City, including leases, tenant certifications, and proof of rent levels.

In return, the property would be taxed at the Residential rate instead of the higher, tiered Residential A rate.

Bill 63 also improves the treatment of sales and transfers. Right now, if you violate the dedication, you can face rollback taxes all the way back to the beginning of the dedication period. The CD1 draft limits rollback to the tax year before the violation and waives rollback if the new owner re-dedicates the property within 30 days and is approved.

Where this falls short for mom-and-pop housing providers

For the large, institutional owner, a 5-year dedication might simply be another line item. But for the typical HRHPA member—the couple with one or two rentals they self-manage—the risk profile is very different.

• Rent caps plus rising costs.
  Even at 100% AMI, capped rents may sit below market. Meanwhile, insurance, association fees, repairs, and financing costs continue to climb. The tax savings help, but they do not fully compensate for that gap.

• Five-year lock-in with automatic renewal.
  Once you dedicate, you’re locked in for at least five years unless you hit the narrow cancellation window at the end of the term. Life changes—death, divorce, kids moving back home—aren’t accounted for in a meaningful way.

• Vacancy and repair risk.
  If your unit is vacant or under repair for 45 consecutive days, you risk a violation, rollback taxes, and penalties. For a DIY landlord who needs time to do quality repairs or carefully screen tenants, that’s an enormous financial risk.

• Paperwork and compliance.
  Annual filings, tenant certifications, and detailed rent documentation add ongoing administrative burden. One missed form or misunderstood rule could trigger serious consequences.

In short: the tax savings do not fully incentivize, nor do they mitigate the risk a housing provider assumes by dedicating a property to this program. That’s why the program has seen zero participation so far—and why Bill 63, while an improvement, may not be enough on its own.

What would make this program workable?

As an organization representing everyday rental housing providers, HRHPA supports the goal of creating more stable, affordable long-term rentals for local families. But to bring mom-and-pop owners to the table, the program must better balance risk and reward.

Potential improvements could include:

• Shortening the initial dedication period or offering hardship exits for major life events.

• Extending the vacancy grace period to account for repairs and thoughtful tenant screening.

• Exempting owner-occupant buyers and family trust transfers from harsh penalties.

• Increasing the AMI threshold or pairing the tax break with additional incentives, like small rehab grants or permit fee reductions.

• Simplifying compliance through standard forms, calculators, and clear guidance.

With those adjustments, more small owners might realistically consider entering the program and keeping their units in the long-term rental pool for local families.

HRHPA’s role

HRHPA will continue to engage with the City Council, Budget and Fiscal Services, and community partners to:

• Share real numbers from actual small landlords.

• Explain why the current program has had no takers.

• Propose practical changes that make participation safe and worthwhile for everyday housing providers.

If you’re a rental housing provider who has thoughts about Bill 63—or if you’d like help understanding how it might affect your property—please connect with us. Together, we can advocate for policies that support both housing stability for local renters and fair, workable rules for the people providing those homes.

Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Rental housing providers should consult with their own attorney, tax professional, or financial advisor regarding their specific situation.