Few residents will notice the sneaky tax increase that lawmakers approved this year.

No, it isn't the 0.5 percent rate hike in the general excise tax for Honolulu's mass transit system.

In fact, most taxpayers will encounter this "sneaky" tax directly perhaps once or twice in their lifetime. This tax hike is usually hidden in the documents new homeowners sign at the title company.

This tax is the conveyance tax, levied at the time real property changes hands.

Enacted in 1966 for the sole purpose of providing the tax department with information to determine market value of properties for the real property tax, the department stated that the conveyance tax was not intended to be a revenue-raising device and the rate was set at 5 cents per $100 of value transferred.

In 1993, the rate was increased to 10 cents per $100; 25 percent was earmarked for the rental housing trust fund and another 25 percent to the natural area reserve fund.

Because the collections of the tax depend on the rise and fall of the real estate market, collections ebbed and flowed with the fortunes of the market in the 1990s, evidence that this source of funding is hardly dependable.

This year, in the shadow of the affordable-housing issue and the drive to set money aside for the land conservation fund, combined with the frustration of constituents lamenting that they were being pushed out of their homes by rich nonresidents buying up homes at exorbitant prices, the stage was set for an increase in this little-noticed tax.

Lawmakers made sure not to step on the toes of their constituents by carefully crafting the increase to seemingly punish the rich who could afford the tax hike. But that increase will affect all of us as consumer/taxpayers.

The increase targets all transactions over $600,000 but under $1 million by doubling the tax rate to 20 cents. For transactions over $1 million, the tax is tripled to 30 cents.

But lawmakers did not stop there.

They singled out purchasers of single-family homes or condominiums who do not intend to be owner occupants for an even higher increase, beginning at 15 cents per hundred dollars of value up to $600,000, then to 25 cents for transactions over $600,000 but under $1 million and finally to 35 cents for transfers of more than $1 million.

Lawmakers probably gleefully said: "We'll get those filthy rich people who are buying for investment or as second homes."

There are several problems with the scenario now created by the increase in the tax. This increase will make it more expensive to live and do business in Hawai'i.

That is because most transactions of nonresidential property, i.e., commercial, industrial, agricultural and unimproved residential property fall into the highest-rate bracket of 30 cents per hundred dollars of value.

In fact, if the increased rates had been applied to transactions last year, 42.7 percent of the increase would have come from business properties.

Raw land that may one day become a new tract of homes, some of which may be affordable, starts out at values exceeding well over a million dollars. Commercial property sold for a new shopping center or office building is in the lofty million-dollar range.

And here's something many people don't realize:

This tax does not apply solely to sales. It also applies to leases, such as commercial leases of property.

Any lease with a term of more than five years is subject to the tax. That means the lease of business properties will be subject to the highest rate as the tax is levied against the total amount of rent expected over the life of the lease.

That added cost will be folded into the goods and services produced or sold in or from that property.

Proponents argue that Hawai'i has among the lowest conveyance tax rates in the nation, but they ignore the fact that Hawai'i has among the priciest real estate in the nation.

So while a new homeowner in Vermont purchasing a three-bedroom home on a quarter acre for $144,000 can afford that state's 1.25 percent transfer tax of $1,800, the same new Hawai'i homeowner can probably barely afford the $593 after coming up with the financing, points and closing costs on O'ahu's median-price home of $593,300.

Even more ironic is that this increased tax is supposed to help increase the inventory of affordable rental housing. Thirty percent of the proceeds are earmarked for that purpose.

Where do lawmakers think the current inventory of rental housing comes from? Did it somehow magically fall out of heaven?

No, it was private investors who took a risk and borrowed the money to build many of the three and four story walk-ups that are the backbone of the rental housing supply. It was also individuals who may have purchased apartments in developments like the King Manor or Admiral Thomas who then put them into the rental pool to help pay the mortgage.

Purchases of condominiums or single-family homes by nonowner occupants will be hit with punitive higher rates from dollar one. So why would someone want to invest in residential property?

So instead of reducing the cost of living and doing business in Hawai'i, the increased conveyance tax rates will do just the opposite.

The confiscatory rates on purchases of residential dwellings for investments will discourage expansion of the rental housing pool no matter the price level.

Finally, what the increase in the conveyance tax represents is the unwillingness of lawmakers to set priorities for what hard-earned money taxpayers already give state government.

Earmarking of this tax, which was never intended to be a revenue source, is an indicator that affordable rental housing and preservation of conservation lands are such low priorities in the budget that they don't even merit consideration as part of the overall state spending plan.

What does that tell you?

Lowell L. Kalapa is executive director of the Tax Foundation of Hawaii.