As the date approaches for a decision on amending rules for short-term rentals (STRs), coverage of the issue has often been overly simplified in nature. The debate has been framed as a choice between profits and jobs for those who own and service short-term rental properties on one side, and peace and quiet for neighborhood residents on the other.
The real issue is how much economic harm STR owners are allowed to impose on the state of Hawaii. Those who are in favor of strong, stable neighborhoods on Oahu should support the proposed rules to constrain STRs.
STRs allow property owners to increase their profits, while dumping significant costs on local communities. These are called externalities by economists and include:
1) The loss of income tax receipts from homes no longer occupied by full-time residents who leave the state.
2) Rising wealth inequality through the removal of affordable housing from the market.
3) A decline of civic involvement in the community due to a smaller, more impoverished population base.
Almost every residential home within two blocks of the beach in any Oahu neighborhood has a higher economic value if converted to an STR, rather than when utilized as a long-term rental property or lived in by a full-time resident. In a free market and with the current ease of listing vacation properties on the internet, a large percentage of makai homes on Oahu would eventually become an STR. The entire island would increasingly become one of visitors frolicking along the coast and residents confined inland.
Oahu is not the only place where residents have fought back against the rapid growth of STRs, which have negatively impacted vibrant areas famous for their climate, architecture or culture. Cities as diverse as New York City, Santa Monica, Las Vegas and New Orleans have successfully imposed rules that significantly constrain STR activity.
Studies from Harvard Business Review, McGill University and the Economic Policy Institute show that STRs drive up the cost of residential housing; that a very small percentage of STR owners reap the majority of rental income received in a market; and that STRs reduce the stability of tax receipts. These are important reasons to effectively regulate and limit STRs in residential neighborhoods and should be mentioned along with residents’ commonly cited complaints about noise, garbage and parking issues by visitors who “party” when renting houses or apartments in residential areas of Oahu.
Accurate reporting should also question spurious statements made by STR proponents who raise the specter of job losses if this industry is constrained. Assertions that many housekeepers and landscapers would be thrown out of work if Oahu regulates STRs in residential neighborhoods make little sense, as full-time residents of houses and apartments are at least as likely to make use of such services as STRs that are often empty for a portion of each month.
Similarly, arguing against effective STR regulation due to “edge cases” — such as the “plight” of travelling nurses, military contractors or Oahu homeowners renting temporarily during renovations — can easily be alleviated through minor carve-outs in the rules, rather than allowing entire residential neighborhoods to morph into a sea of single-unit hotels.
James Ellman is an author and investor who lives in Kailua with his wife and sons.
