The long and winding road to managing Oahu’s wayward vacation-rental industry is getting more regulatory signposts — and that’s a good thing for residents of many residential neighborhoods long frustrated at being overrun by illegal, nonconforming rentals.
In a positive move, Bill 4 now advancing in the City Council aims to create a new property-tax classification for transient vacation units (TVUs). These are short-term, nonhosted “whole home or unit” rentals that should be taxed at a rate higher than owner- hosted bed-and-breakfasts residences — but not quite as high as hotels and resorts that are owned by deeper-pocket corporations and offer a fuller array of housekeeping and amenities.
Two weeks ago, the Council’s Budget Committee unanimously passed the latest version of Bill 4, which reasonably proposes two property-taxation tiers for TVUs, effective July 1, 2024. Within the new TVU tax class, $800,000 would be the threshold of tiered taxable value, either above or below. Even if the full Council passes this bill in its Wednesday meeting, which it should, the actual rate of taxation would be set later in a separate city process.
Property Tax Administration Chief Steven Takara previously offered a possible methodology for the TVU rate that makes sense: in between the B&B and the hotel rates. For reference, Oahu’s residential owner-occupant property tax rate is $3.50 per $1,000 in property valuation — while the bed-and-breakfast rate is $6.50 per $1,000 valuation, slightly less than half of the hotel/resort rate of $13.90 per $1,000 valuation.
“If you look at the tiering, it’s the logic of 50% (for B&B), 75% (for TVU) and then hotel at the 100%,” Takara told Council members last April, around the time Bill 4 was introduced.
This bill would apply to legally registered TVUs — estimated at about 3,000 operators — as well as to properties granted a nonconforming use certificate (NUC), a grandfathered-in cohort of short-term rentals allowed to operate up to 30 days in residential areas after a legal battle with the city decades ago.
Under Oahu’s new vacation-rental law that went into effect last year, TVUs are permitted in resort- zoned areas and in two specific apartment-zoned areas, including Ko Olina, Kuilima, Makaha and parts of Waikiki. To be legal, TVU operators must register their properties with the city or face fines — a necessary requirement that, hopefully, will aid enforcement against scofflaws operating businesses in residential areas in violation of land-use rules.
In addition to registration fees, the cost of doing business as an Oahu short-term rental — B&B and TVU alike — includes paying the state’s 10.25% transient accommodations tax (TAT) and the city’s 3% TAT.
All of this is part of a complex, ongoing effort to exert long-overdue regulatory guardrails and taxation over a vacation-rental industry that had exploded out of control, abetted by social media platforms such as Airbnb and Vrbo. Hawaii was not unique in being swept up in this tourist-accommodation evolution that gave travelers a boon in lodging choices — but came at the expense of residents who saw their quiet neighborhoods turning into commercialized hubs of noise, traffic and activity.
The policy crackdown on illegal lodging needs to continue apace — with today’s stricter zoning laws, tougher enforcement against violators, and new property classifications for legal operations that are taxed at levels commensurate with their uses.
