The Low-Income Household Renters’ Credit was created in 1977 to provide meaningful tax relief to low- and moderate-income households in Hawaiʻi. However, it has not been updated in nearly three decades. In 1981, the LIHRC was set to $50 per exemption. The income eligibility cut off was set to $30,000 in 1989, which was just above the median household income at the time. Neither of those levels have budged since then.
72% percent of people in Hawaiʻi living at or near the poverty line now spend more than half of their incomes on rent, and more than half of Hawaiʻi’s renters are cost-burdened, spending more than 30% of their income on rent.
The Erosive Power of Inflation
The current value of the Renters’ Credit came into effect in tax year 1981, and the current eligibility cutoff (i.e., the amount a household can make and still receive the credit) took effect in tax year 1989. Presently, a qualified filer with a Hawai‘i Adjusted Gross Income (AGI) under $30,000 who has spent at least $1,000 on rent can receive a refundable tax credit of $50 per qualified exemption.
Catching Up to Inflation
We should update the Renters’ Credit to recover ground lost to inflation by increasing both the maximum value of the credit and the income eligibility limits. The maximum value of the Renters’ Credit should be raised to $150 per exemption, and the eligibility threshold should be lifted back to just above the median, up to $60,000 in annual income for joint filers.
Renters’ in Hawai‘i face a staggering housing cost burden. In a February 2016 survey of Hawaiʻi residents, 95% of people polled said that the housing costs in the state make it difficult for families to live a quality life. Approximately 43 percent of our households rent, the highest rate in the nation. More than half of them are cost-burdened, meaning that they pay more than 30 percent of their income toward rent (the standard definition of housing affordability).This is no surprise, as the fair market rent for a two-bedroom unit in Hawai‘i is $1,644 per month. A full-time worker would need to earn $31.61 per hour for this rent to be affordable — the highest housing wage in the nation. Yet, the mean wage for a renter is just $14.49. At this wage a family needs 2.2 full-time jobs to afford rent. Average rents in Hawai‘i increased by 45 percent from 2005 to 2012, more than twice the rate of inflation during that seven-year period.
The lowest-income households face a crushing cost burden: 72 percent are paying more than half of their income in rent. Even moderate income households struggle 65 percent of households earning 51–80% of the area median income face a housing cost burden. These households are generally ineligible for public assistance. These housing cost burdens leave families with precious little left over to make ends meet, let alone build assets or save for a down payment on a home.
In addition, the tax system in Hawaiʻi places extreme burdens on renters in the state, as renters don’t benefit from mortgage interest or property tax deductions, but still pay their landlords’ GET and property taxes in the form of higher rents.
Despite the acute need for affordable housing, the shortfall only continues to grow. A total of 64,000 housing units is estimated to be needed by 2020 to meet pent-up and future projected demand. Of these units, 23 percent must be rentals for households earning less than 80 percent of the area median income. The increasing scarcity of affordable housing means this number will likely continue to rise. Meanwhile, almost no affordable market units are being produced.
Even though renters do not own the property they reside in, they are affected by both county property taxes and the state general excise tax. Owners pay landlords pass these costs along to tenants. However, renters don’t benefit from the property tax home exemption granted to owner-occupied residences. The Renters Credit would provide some tax equity to renters who functionally pay their landlords property taxes and the GET without the benefits of home ownership.
In 2013, the last year for which data are available, the Renters’ Credit provided about $4 million in tax relief to low-income filers. Bringing the number closer to inflation as measured by the Consumer Price Index would benefit roughly 83,000 households and put an additional $11 million into the pockets of Hawaiʻi’s low and moderate-income families.
This legislative session, bills have been introduced in both the Senate and the House to update the Renters’ Credit and make it more equitable. House Bill 209 and Senate Bill 648 both include a Four-Part Plan to restructure and create a more equitable tax system in the state, which includes an update to the Renters’ Credit. Furthermore, several bills that have been introduced in both the Senate and the House call for an increase in the Credit: House Bills 123 and 361, which would adjust the Renters’ Credit for inflation; House Bill 207, which would expand the Renters’ Credit based on adjusted gross income and filing status; House Bill 931, which would both adjust the Renters’ Credit for inflation and expand eligibility based on adjusted gross income and filing status; and Senate Bill 1103, which would increase the maximum value of the credit and adjust the income threshold to allow more families to receive the credit.
Lawmakers OK Millions To Build Housing But Deny Renters Tax Relief Honolulu Civil Beat
Hawaii state lawmakers have agreed to set aside nearly $62 million of this year’s budget to subsidize the construction of rental housing units and $35 million to repair aging public housing units. But Sen. Jill Tokuda and Rep. Sylvia Luke, who lead each chamber’s money committees, said they don’t plan to hold a hearing for a proposal to increase a tax credit for renters, even though Hawaii renters are among the most cost-burdened in the nation.
The Conversation: Thursday, April 28th, 2016 Hawaii Public Radio
Advocates for more help for low income renters tried again this year to increase the housing credit. And up until the ten days ago that looked pretty good. But following the appointment of conferees to duke out the differences between the House and Senate versions of the bill, nothing happened. No conference committee hearing was scheduled and now time is running out. Final decking ends tomorrow. Victor Geminiani is one of 11 nonprofit leaders and advocates supporting the bill and who wrote to lawmakers earlier this week asking for HB2166 to be scheduled.
Adjusting low-income renters credit long overdue Honolulu Star-Advertiser
The Legislature has an opportunity to make a real difference in the lives of our low- and moderate-income renters throughout the islands.
Hawai’i Non-Profit Leaders and Advocates Urge Lawmakers to Move Low-Income Renters Tax Credit Bill Hawaii Appleseed
In a letter sent yesterday, eleven prominent non-profit leaders and advocates called on all Hawai’i state lawmakers to push a measure that would update the Low Income Renters’ Housing Credit, HB 2166, through the legislature’s conference process this week. “By updating the credit, HB 2166 is a modest but effective step toward addressing our affordable housing crisis, reducing homelessness, and improving the inequity of our tax structure,” they write in the letter. “It will not only keep more money in the pockets of our most economically challenged, but will help create a fairer, more just Hawaiʻi.”
Report: Hawaii’s economic recovery hasn’t helped state’s poorest Hawaii News Now
On the surface, Hawaii’s economy looks like it’s rebounded from the Great Recession. Construction and tourism are up, unemployment is low, and the housing market is booming. But dig a little deeper, a new report argues, and you’ll find a state where many working families are still struggling to get by – and, in some cases, are worse off than they were before the economic downturn.
Addressing Tax Credits For Low Income Renters Honolulu Civil Beat
Public conversations about tax policy are usually focused on tax rates. We are accustomed to thinking about tax policy as little more than a means for the government to raise revenues. This is unfortunate because these discussions too often overlook the important ways that we use tax policy to promote other state policy priorities.