There are between 8,000 and 10,000 vacation rentals on Oahu, of which approximately 800 are legally permitted, meaning the rest are illegal. No matter how many inspectors the city hires, enforcement is too challenging under the existing system. We have to catch scofflaws in the act, they have to admit guilt, or we take them to court. Even if the court fines them in violation, they continue the illegal activity because the fine is not an economic deterrent.
Enforcement is key to success. The city has proposed a bill that contains a bright line enforcement mechanism that uses technology instead of hiring hundreds of additional inspectors, which would cost taxpayers millions of dollars.
Upon passage of this bill, those with vacation rentals need a registration number on all advertising, including on social media platforms. If the registration number is not shown, it is an automatic violation. The fine is high: $25,000 per day for the first warning, up to $50,000 per day for the second warning, and $100,000 per day for the third warning. The fines become a lien on the property, after which the city may sell the property at auction and the liens paid off from the sale proceeds.
Under the bill, the city could also force the owner to pay all the ill-gotten revenue from the illegal vacation rental, called disgorgement. We won’t need an army of enforcement officers, just a small group of tech-savvy people to use the internet to find violators, or neighbors who report an illegal vacation rental operation.
The bill focuses on regulating: 1) unhosted single-family residences, where we get most of our complaints; and 2) hosted bed-and-breakfast units in homes where the owner resides and for which the city receives very few complaints.
In both, the owner must be a real person, not a corporation. We’ve seen corporations purchasing multiple unhosted vacation rentals. The owner must have a homeowner’s exemption. This further restricts vacation rental properties because an owner can have only one homeowner’s exemption.
The bill bans unhosted single-family vacation rentals completely from all residential neighborhoods. It only allows them in mixed-use, business and resort districts. It limits the number of unhosted vacation rental units to 1 percent of all residential housing units in Oahu’s eight sustainable communities or development plan areas. For example, on the North Shore, there are very few mixed-used, apartment and resort areas that have single-family residences that come even close to 1 percent of the total housing stock on the North Shore.
If a person operates an unhosted vacation rental in one of the limited areas, the tax rate would increase from $3.50 per $1,000 in value, to the resort rate of $12.90 per $1,000 in value.
If a person wants to operate a legal hosted bed and breakfast, the real property tax rate increases from $3.50 to $6.45 per $1,000 in value, which is one-half of the hotel and resort tax rate.
If the unhosted or hosted unit is in a condominium, the association of apartment owners may further restrict or prohibit such operations.
We introduced two companion bills to further strengthen our regulatory requirements. The “false statements” bill proposes that lying to officials is a misdemeanor violation of our criminal code with stipulated penalties. The “self disclosure” bill requires disclosure documents for any residential sales transaction indicating whether short-term renting is allowed on the property.
We urge the Honolulu City Council to take action on these bills expeditiously. Too many others have attempted to address this issue and failed. Now is our time to act and to create a better Honolulu for all.
Kirk Caldwell is mayor of the City and County of Honolulu.
