Since October, Hawaii’s vacation rental market has come back from the COVID-19 shutdown, outperforming statewide hotel occupancy every month.

Vacation rental owners and operators say the gains have been driven by pent-up demand for travel. Pandemic-related attitude changes also have sparked a desire in some for lodging that offers more private amenities and kitchens large enough to allow people to prepare their own food and socially distance while they eat it. Also, the coronavirus- related reduction in some hotel services, such as daily housekeeping, has reduced the service gap between hotels and vacation rentals.

Matt Beall, CEO of the full- service real estate brokerage Hawai‘i Life, said the company is enjoying its best year on record for vacation rentals.

Hawai‘i Life’s vacation rental segment took 794 reservations last month, which seriously trumped the usual high of around 200 reservations per month. The company also has more than double the year-to-date rental revenue on the books compared with the same time in 2020.

“I don’t know statistically if we are sold out for March, but we have to be close. It’s the same demand that’s kind of flooded the housing market,” Beall said. “It’s people wanting their own private space with their family and their crew that they know to be safe — and there’s this overlap of this pent-up demand.

“It’s not lost on them (travelers) that we are in a pandemic. Now there’s at least enough safety to move, but it comes with this overlay of like, ‘OK, we can navigate the travel, but once we do let’s still be cautious,’” he said. “So it makes total sense that they are wanting to be in a vacation rental, especially a single-family unit, as opposed to a hotel.”

Andreea Grigore, senior vice president of property management for Elite Pacific Properties, said in an email that the state’s short-term vacation rental industry began recovering in October upon creation of the Safe Travels Hawaii program, and is finally starting to recover to pre-pandemic levels.

Munro Murdock, founder of Love Hawaii Villas and Love Hawaii Realty, said Hawaii’s vacation rentals are experiencing unprecedented demand but only now are catching up to the mainland destinations, which already “were rocking it in June, July and August.”

“Our numbers are on track to far surpass 2019 numbers,” Murdock said. “We’re still in recovery mode but it’s very aggressive.”

The improvement in travel demand is good for Hawaii’s vacation rental industry, which after nine months of coronavirus shutdowns has been reborn. It’s also good for Hawaii’s economy as short-term rentals contribute to the tax base, generate visitor spending, support other local businesses and create jobs.

But they come at a time when vacation rentals continue to be a lightening rod issue throughout Hawaii, where the counties have struggled to regulate the industry to varying degrees.

Companies like Hawai‘i Life, Elite Pacific Properties and Love Hawaii Villas/Love Hawaii Realty take seriously their due diligence to operate legally and to ensure that the owners and property managers that they work with are compliant.

However, historically, all of Hawaii’s counties have grappled with illegal owner/operators who have conducted vacation rental business outside of legal zoning or permits or haven’t paid their fair share of taxes.

On Oahu, regulation of short-term rentals has been an especially contentious issue, which some hope will soon come to a head — especially given the rebounding market.

There’s a chance for both sides to contribute to bringing additional clarity to the issue Tuesday when the city Department of Planning and Permitting holds a public hearing on the draft rules to regulate and register short-term rentals on Oahu.

The hearing will be held at 10:30 a.m. in the Mission Memorial Auditorium, 550 S. King St., and in-person testimony will be accepted. However, because of social distancing restrictions, the public is encouraged to submit written testimony, or provide oral testimony by computer or phone. More information on the draft rules and how to participate remotely is available at bit.ly/3riLofY.

The hearing stemmed from Ordinance 19-18, which required that the DPP adopt rules to regulate the short-term rental industry by limiting the number of rentals outside of permitted areas, such as resort areas of Waikiki, Ko Olina and Turtle Bay.

The process allows for the first granting of permits for Oahu short-term rentals outside of resort areas since 1989.

The aim of Tuesday’s DPP hearing is to gather input on draft rules that have been proposed to regulate the operation and advertising of short-term rentals of less than 30 days. The short-term rentals up for discussion include bed-and-breakfast homes, which are occupied by an owner or manger, and transient vacation units, where the entire unit is rented.

DPP expects to review comments from the public hearing and adopt a final draft prior to Aug. 1.

The draft rules as proposed would:

>> Prohibit a short-term rental that is outside of the permitted areas from being within 1,000 feet of another short-term rental.

>> Allow homeowners to apply for a limited number of new B&B certificates of registration to legally operate. The application process will be open Aug. 1-30 annually with an eligibility determination to be made by the DPP director by Sept. 30 each year. The number of certificates shall not exceed the limitations outlined in their respective development plan or sustainable communities plan. The order of processing applications will be determined by lottery.

>> Require all advertisements for STRs include a valid certificate of registration number.

>> Require the DPP to publish a list annually of permitted STRs.

Economist Paul Brewbaker said government decision-makers must keep in mind that vacation rentals have begun to emerge as the most resilient lodging category and that suppression could lead to post-COVID tourism recovery impairment. Brewbaker said the city’s passage in 2019 of enforcement enhancements to its 1989 ban of undocumented vacation rentals already during the first year had contributed to a drop of about $300 million to $400 million in forgone tourism receipts.

Mufi Hannemann, president and CEO of the Hawaii Lodging and Tourism Association, said he’s not surprised that vacation rentals are doing so well in Hawaii or that they are poised for additional growth. The robust performance trends, however, are why he views DPP’s hearing as particularly important.

“Enforcement of vacation rentals has been our No. 1 peeve,” Hannemann said. “We can’t turn a blind eye, especially when they are coming back. We need to make sure that they are operating legally and doing all the things that they need to do, including making sure that guests are wearing their masks.”

Longtime hotelier Jerry Gibson said regulation of vacation rentals will continue to be an important part of managing Hawaii tourism, maybe even more so while the state’s visitor industry is still recovering from the pandemic.

“Vacation rental occupancy was 7 percentage points higher than hotel occupancy in 2020,” Gibson said. “The current situation is impacting job recovery for hotels. It’s also affecting resident sentiment. The general public would rather have people in the tourism zones than in their neighborhood.”

Cade Watanabe, Unite Here Local 5’s political director, said illegal vacation rentals aren’t the main reason that hotel jobs haven’t returned to higher levels, but they represent another pressure point.

“The hotel industry is not doing itself a favor by not providing the amenities that it should,” Watanabe said, adding that workers are trying to educate the community to request daily room cleaning, which supports housekeeping, one of the most labor- intensive parts of any hotel.

“Even though I may not be a fan of vacation rentals, I don’t think it would be fair to say that they are the reason hotel jobs aren’t coming back as much as they should,” he said. “Our employers are continuing to use the pandemic as an excuse to cut jobs.”

Grigore, who is also a co-founder of the Hawaii Legal Short-Term Rental Alliance, said it’s important to remember that short-term rentals “are a viable and valuable part of our economy and that they can be managed responsibly and in a way that benefits our local communities and residents.”

Grigore said every island now has resort zones as well as an ordinance that limits legal vacation rentals outside of resort zones, thereby setting reasonable limits for the legal vacation rental supply.

“Our goal is to work hand-in-hand with government officials to stop the proliferation of illegal vacation rentals and therefore contribute to the responsible management of tourism in Hawaii,” she said.