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    Advocacy Series: Honolulu Rejects Overreaching Vacation Rental Bill

    For a city-county like Honolulu — where tourist spending in 2017 was $16.8 billion, which added $1.96 billion overall to Hawaii’s tax revenues — one would imagine the rules and regulations around short-term rentals would be defined and welcoming.

    Alas, that’s not yet the case. The island of Oahu, which by another name is the consolidated City and County of Honolulu, is wrestling with an antiquated ordinance in effect since 1989 that fails to address the rapid rise of alternative accommodations and vacation rentals, otherwise referred to as short-term rental (STRs) and transient vacation units (TVUs).

    As of late September, the Honolulu Planning Commission rejected a proposal by the city-county mayor, Kirk Caldwell, which sought to impose several new and significant restrictions: There would be no cap placed on units in the Waikiki resort precinct,  non-owner occupied TVUs would be limited to specific mixed-use and commercial zones, and a 1 percent cap on homes used for such purchases would effectively mean less than half of current operators could remain in business (about 4,000 STRs vs. the estimated 10,000 currently operating on the island). Owners of such properties would need to be registered with the city, and pay initial registration fees of $800 to $1,200 plus lower annual renewal fees.

    What’s clear is vacation rental properties have significantly boosted the local economy while the hotel industry has continued to grow. Even an argument that STRs cause a housing shortage is unfounded and went unaddressed by the bill. For example, a $9 million home that rents for almost $11,000 per day and generates $1,000 per day in occupancy taxes would be disallowed by the bill, while doing nothing to add to the affordable housing inventory.

    The proposal seemed to ignore research conducted in 2016 and 2017* by the Hawaii Tourism Authority (HTA), studies which found that STRs play a significant and positive role in the island’s economy while serving the interests of travelers. The two studies found:

    • Non-hotel accommodations have existed for more than 20 years, before the rise of online platforms.
    • 15 percent of visitors would not visit Hawaii if such accommodations were not available.
    • Spending by STR visitors added $1.87 billion to the economy in 2016.
    • Between 5 and 9 percent of Hawaii residents currently use their properties, second homes and primary residences as vacation rentals (statewide).
    • “Shared economy” housing – where rooms in homes are rented to non-family members – affects only 0.4 percent of the state’s housing units.
    • 51 percent of visitors using an STR are staying in secondary/investment properties (e.g., condos that are owners’ vacation properties).
    • 60 percent of residents renting their units do so out of financial necessity.
    • To any argument that hotels are losing business to STRs, hotels’ share of that market has decreased by 6 percent since 2000. But total visitor arrivals grew 23 percent over that same time period, which indicates the hotel business is still growing.

    The Honolulu Planning Commission’s rejection was unanimous. While it might still go before the larger Honolulu city council, passage remains uncertain.

    But that then puts the matter back into limbo, which is unfortunate for all concerned. An estimated 9,600 properties are operating outside of the old legal definitions of what’s permissible, and it’s likely the municipality is not collecting occupancy taxes, fees and penalties from all STRs.

    Lesson learned: The commission rejected the proposed bill based on public testimony provided by supporters and opponents of the bill, siding with the latter — demonstrating the importance of local activism and legislative relationships by vacation rental advocates. The issue is almost certain to be revisited in the future.

    *Hawaii’s Home and Vacation Rental Market: Impact and Outlook (JLL Hotels & Hospitality Group) https://www.hawaiitourismauthority.org/media/2006/hawaii-home-and-vacation-rental-market-impact-and-outlook-december-2016.pdf

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    Key Takeaways:

    • Home and vacation rentals appear to be growing the pie rather than purely taking share from hotels.
    • Those who stay in home/vacation rentals seem to do this on most visits; there does not seem to be as much overlap between hotel users and those who stay in home/vacation rentals.
    • The two most common reasons for using home or vacation rentals are the relatively lower cost and more flexible/larger accommodations, which suggests those travelers would be less likely to travel to Hawaii if this option were not available.
    • Given that home and vacation rentals are an “accordion” of supply, there can be positive implications for the meetings and conference industry that place a high demand on all types of accommodations.
    • The ability to retain homeownership tends to be positively impacted by income generated by shared accommodations.

    *The Impact of Vacation Rental Unites in Hawaii, 2016, by SMS Research and Marketing Services https://www.hawaiitourismauthority.org/media/2005/impact-of-vacation-rental-units-in-hawaii-2016.pdf

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