HILO, Hawai'i — Hundreds of Big Island landlords have been filing for special tax breaks under a new county program that can slash property taxes by 30 percent or more for owners of affordable rental units.

County officials don't know yet how much the new program will cost the county in lost property taxes or how many landlords will file for the benefit, but they are hoping the program will stabilize what has been a rapidly shrinking number of affordable rentals.

Under the Affordable Rental Housing Program, affordable rentals will be taxed at the same rate as owner-occupied homes, which enjoy the lowest tax rates under the Big Island county tax code. Tomorrow is the deadline for landlords to apply for the program to claim the special tax breaks for the fiscal year that begins July 1.

"It has been definitely well received," said Sharon Hirota, housing and community development specialist for the county. "The rent prices have steadily gone up over the past few years, so this is a way, we believe, to stabilize the rental market and make it more affordable."

The Office of Housing and Community Development sent information about the program to about 1,000 landlords who provide affordable housing to about 1,800 Big Island families under the Section 8 rental housing voucher program, and many of those property owners are expected to file for the benefits.

To qualify for the program, landlords must commit to keeping their rents at or below "affordable" rates as defined by the county for the coming year. For 2008, the ceiling for a three-bedroom rental is $1,016 per month in Hilo, and $1,160 in the Kona area.

The program is expected to attract more takers in the Hilo and Puna areas than in Kona because market rents in Kona are so much higher than the rent ceilings set for the program. Housing officials suspect most Kona landlords will opt to collect higher market rents rather than take the tax breaks.

Tax savings can be substantial under the new program.

Today, a landlord with a three-bedroom rental with an assessed value of $300,000 would be classified as an improved residential property, and would be taxed at $8.10 per $1,000 assessed value, for an annual tax bill of $2,430.

If that same landlord files an application under the Affordable Rental Housing Program and pledges to keep the rent at or below $1,016 next year, the home would be taxed at a rate equal to the homeowners' rate, which this year is $5.55 per $1,000 valuation. That would work out to a tax bill of $1,665.

The program also will cap annual increases in the landlords' property tax assessments at not more than 3 percent a year.

Landlords who fail to keep rents at the required levels for the full year would have to pay back any savings plus a 10 percent penalty, said Wesley Takai, administrator for the county's real property tax division.

As prices rapidly increased in the Big Island real estate markets in recent years, many landlords chose to sell their rental units to cash out, and housing construction surged at the same time. Rents also went up "tremendously" during that period, Hirota said.

Now many of the newly built homes or rental units that had been sold off are once again appearing on the rental market, meaning the supply of rentals is growing, Hirota said.

Still, rents remain high, and the program is supposed to encourage property owners to lower rents or defer rent increases, she said.

Reach Kevin Dayton at kdayton@honoluluadvertiser.com.

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