Several facts regarding vacation rentals seem beyond dispute:
1) Renting a house to a tourist for a day or a week is more lucrative than renting the same house to a resident for a year, so a number of landlords have switched from long-term rentals to short-term rentals.
2) People are buying houses for express purpose of turning them into short-term rentals, expecting to profit despite knowing it is against the law.
3) The result has been a reduction in the number of long-term rentals available to residents and an increase in the rents of the remaining long-term rentals.
4) The proliferation of vacation rentals has changed the character of neighborhoods where there is high demand for vacation rentals.
5) The state ought to be collecting the transient accommodations tax from the owners of short-term rentals.
6) The counties ought to be enforcing their zoning ordinances relating to where short-term rentals are permitted.
7) The counties have the ability to tax homes used for short-term rentals at a higher property tax rate than applies to long-term rentals. But the City and County of Honolulu does not have different tax rates; property used for short-term rentals is taxed at the same rate as property used for long-term rentals. A higher tax rate for short-term rentals would discourage the conversion of long-term rentals to short-term.
8) While contractors are required to put their contractor’s license number in their ads, owners of short-term rentals (or their agents such as Airbnb) are not obliged to put their transient accommodation license number in their ads or to disclose the address of the property they are renting.
It is puzzling that there is opposition to a bill passed by the Legislature and now on the governor’s desk seeking to address some of these issues. Senate Bill 1292 would allow vacation rental platforms like Airbnb to deduct state general excise and transient accommodation taxes from the vacation rental income they collect and turn it over to the state, sparing the owners the necessity of paying the state. The opponents of this measure say it will simply allow more illegal vacation rentals to proliferate, because their illegally-operating owners can hide behind Airbnb, et al., and the county will not be able to find out who they are.
However, the status quo has brought us to where we are: An estimated 8,000 illegal vacation rental units on Oahu alone, with the deleterious consequences outlined above and owners avoiding more than $40 million annually, by the state’s estimate, in state taxes. Continuing the status quo will not stop or reverse the trend of more houses being converted to short-term rentals and the underpayment of taxes.
There is also opposition to a Honolulu City Council bill related to vacation rentals recently sent back to committee “for further study.” Bill 89 (2018) would have provided an avenue for the legalization of some of the currently illegal short-term rentals while reducing the overall number of short-term rentals. Some say it went too far in curbing the proliferation of short-term rentals; others said it didn’t go far enough.
It’s time for our public officials to address the issue. Something that is criticized, on the one hand, for going too far, and on the other hand, for not going far enough, sounds like something better than the status quo.
It’s better to proceed with something less than perfect, and fix it with subsequent legislation, than to continue what doesn’t work.
Randolph G. Moore is a retired business executive and Department of Education administrator. He now is a University of Hawaii regent and Hawaii Housing Development Corp. board chairman.
