Jul 16, 2010

ADU's could Generate est $660,000/mo in GET

Legalizing Accessory Dwelling Units (ADU's) can generate revenue without raising taxes. Currently, many homeowners choose to build Recreation Rooms and use them as illegal Rental Units. Alternatively, ADU's would allow a homeowner to legally rent out the space as a legal 2nd dwelling unit.

If we substitute an ADU for each Ohana eligible property, we can run some preliminary revenue projections.

There are approx 15,000 Ohana eligible properties in Honolulu.

According to HUD, Fair Market Rent for a 1-bedroom unit (2-person household) in Honolulu is $1,397/mo. This includes utilities. If we deduct say $297/mo in ulitity costs, we get:
  • $1,100/mo Est. Gross Rent per unit
  • x 15,000 est# of Ohana Eligible properties
  • = $16,500,000/Gross Rent per month
  • $16,500,000 x 4% GE Tax = $660,000/mo in extra GE Tax  Revenue

Additional GE Taxes would be contributed by contractors, lenders, designers, labor and home furnishings and material suppliers to help build the improvements.

For City coffers, there would also be a one-time Sewer Connection fee (ongoing re-occurring Sewer Base and Usage charges), Building Permit fees, and an increase in real property tax assessed values for the addition of a 2nd dwelling unit. Also, 2nd dwelling units would pay a 2nd Sewer Base Charge.

Property Owners would be able to offset these added fees with the additional rental income they receive. Remember, if est average rental income is $1,100, then 4% GET is only $44/mo. And the added costs of utilities can be paid directly by the tenant if the utilities are separately metered, resulting in better cost control for the Landlord.

This ADU build-out across Honolulu would take place over many years (akin to a prolonged economic stimulus) as not all eligible properties would build an ADU unit immediately. And as the City upgrades its sewer capacity, hopefully this will expand the number of eligible properties.

Instead of just raising taxes, Government can help people make more money (ie allow ADU's) and take a % of the new Rental Income. That way, everybody gets to share a piece of the pie and private enterprise and innovation is not stifled.

ADU's are affordable or workforce housing, that generates revenue for the county. 
What other housing project is funded entirely by the private sector and actually MAKES MONEY for the government?