Next week, the Honolulu City Council will begin a historic discussion that hopefully will result in a grand bargain resolving the frictions fueled by the spectacular expansion of illegal short-term rentals (STRs) on Oahu.
The residents of our state have been challenged over the past decade by the dramatic escalation of the costs we must pay to buy or rent our housing. A good part of that escalation is due to the proliferation of STRs, which have been spreading at a rate of almost 20 percent annually for the last four years. Large segments of our housing stock are being bought for investment purposes by non-resident individuals or corporations and immediately withdrawn from the local rental market. The incentive driving this practice is clear: investors make up to 3.5 times more in profits by using properties as STRs than they do by renting to residents long-term.
The figures are startling. According to recent studies, approximately 80 percent of STRs in Hawaii are entire homes or apartments, and the vast majority are owned by non-residents. Several mainland booking agencies each manage hundreds of properties bought by investors as second homes or speculative investments.
This problem in not unique to our state. Destination cities across the world have been searching for a way to balance the positive economic effects of STRs on the tourism sector, against their negative impact on the character of our residential communities and the cost of housing for our residents. Successful models for achieving such a balance can be found relatively close to home, with cities like San Francisco and Santa Monica pointing the way forward.
Both bills that will be considered by the City Council are based on sound principles that will help us take a major step in the right direction. Bill 89 would permit 3,000 B&Bs, restrict ownership of these units to natural people (i.e., not corporations), and limit each operator to one permit. Each B&B would be allowed to rent out no more than two bedrooms to no more than four guests at a time. No unhosted, whole-home rentals would be permitted. We currently have approximately 6,000 illegal STRs on island. Reducing that figure to 3,000 through limited permitting would begin to drive illegal STRs out of business by vigorous enforcement while requiring legal operators to conform to our laws and pay required county and state taxes. It also would unleash thousands of units back onto the long-term rental market.
To succeed in striking the right balance, any expansion of legal STRs must be joined with an effective, efficient and proven enforcement mechanism that can be easily and successfully implemented by the City & County. Fortunately, the enforcement provisions in Bill 85 carefully follow the process that was recently used by San Francisco to reduce the number of illegal STRs in that city by 70 percent. It is also one of the few effective enforcement procedures that has withstood legal attack by Airbnb.
The bill would require that prior to providing booking services, hosting platforms such as HomeAway and Airbnb verify that the unit being rented is operating under a valid certificate of registration. The platform would also have to commit to making available the names of operators, the addresses of properties and dates of use for each unit. Hosting platforms that violated the requirements would be subject to a fine of between $25,000 and $50,000 for each violation. These regulations would hold the platforms accountable for profiting from illegal transactions.
Joining together the strengths of the two bills by pairing limited permitting with an effective enforcement mechanism would be the grand bargain we have been searching for.
Victor Geminiani is executive director of the Hawaii Appleseed Center for Law and Economic Justice.
