A proposal to crack down on housing speculation in Hawai'i is likely to die at the state Legislature in the face of opposition from real-estate brokers, investors and ordinary homeowners.

House Bill 1002 would have imposed a tax of 15 percent to 60 percent on capital gains realized from real estate sold within two years of purchase, and put the tax proceeds into an affordable rental housing trust fund.

The bill was designed to address an affordable-housing crisis that has emerged as home values doubled over the past five years.

Though normal supply and demand has been the chief cause of the home price boom, speculators who buy and relatively quickly sell homes for profit, a practice known as "flipping" properties, have contributed to soaring prices that have put home ownership out of range for many prospective owner-occupant buyers.

A tax on flipping would discourage speculation that "is one of the root causes of our housing problem," according to testimony on the bill from the Hawai'i County Planning Department.

DERISIVE TESTIMONY

The bill had advanced smoothly, until recently, despite little supportive testimony. Most testimony derided the bill as a misdirected effort that could actually further increase home prices, and that would do little to curb real-estate speculation while hurting nonspeculators.

"This bill will only result in increased housing prices," state Tax Director Kurt Kawafuchi said in written testimony. Kawafuchi noted that no analysis was done to show whether the proposed tax would deter speculative property deals. It is more likely that prices would rise from sellers factoring the tax into sales, said Kawafuchi.

The Hawaii Association of Realtors said the state should instead focus on increasing the supply of housing to provide more affordable options for workforce and low-income housing, and also said a loophole would allow professional short-term real-estate traders to avoid the tax.

"HB 1002 ... is basically a trap for unwary taxpayers who sell properties on a limited basis," the association said in written testimony.

Even the Hawai'i Housing Finance and Development Corp., the state agency administering the Rental Housing Trust Fund that would benefit from the tax- penalty revenue, did not support the measure out of concern that the tax would be passed on to buyers and thus make homes more expensive.

Other bills that would generate significantly more money for the Rental Housing Trust Fund have continued to advance in the Legislature.

In an effort to make HB 1002 more acceptable, it was amended to exclude the tax from applying to the sale of property that is the principal residence of a seller.

Still, other concerns remained, such as the tax applying to commercial real estate but not applying to unimproved land or property to which "substantial" improvements were made.

Last week, the Senate Committee on Economic Development and Taxation deferred the bill, which had initially been part of a House Majority Caucus package.

Sen. Carol Fukunaga, committee chairwoman, said her office over roughly a week received hundreds of e-mails expressing concerns about the bill.

The bill isn't necessarily dead, but passage probably is a long shot, given the level of opposition. Fukunaga, D-11th (Makiki, Pawa'a), said it is possible that the bill still may be passed to the Senate Ways and Means Committee to allow that panel to craft a more agreeable form of the measure.

"I think the goal is good," she said of the bill. "How you get there is really the question."

House Bill 1002 would impose a new tax to discourage short-term real-estate buying and selling.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.