The city has sent 20 delinquent vacation rental accounts to its new collection agency, Aargon Agency Inc., as part of efforts that began two weeks ago to ramp up enforcement against illegal vacation rentals on Oahu.
Honolulu Mayor Rick Blangiardi first put owners and operators of illegal vacation rentals on notice in November that the city planned to hire a collection agency to handle fines levied at up to $10,000 a day. The move was a major part of the tougher enforcement policies outlined in Ordinance 22-7 (Bill 41), which took effect in October.
The Department of Planning and Permitting said Thursday that Aargon Agency reported that notices on all 20 accounts had been sent, “although they are very early in the process.”
The department said its contract with Aargon Agency is for one year and may be renewed. DPP is not paying the vendor anything upfront, but upon successful collection of delinquent fines, the agency will get to keep 18% of the total collected.
Previous administrations had taken the tack that the main goal of fines was compliance rather than punishment, and outstanding balances were sometimes waived or settled for pennies on the dollar. However, under Blangiardi’s administration DPP is establishing that property owners are expected to pay 100% of the fines levied against their properties, barring exigent circumstances.
Before imposing a fine, DPP first issues a notice of violation to the property owner, who has 30 days to correct the problem. If the owner doesn’t comply, a notice of order is issued. Owners then have two months to pay any fines issued in the order; after that comes a demand letter granting three more months to pay. If no payment is forthcoming, DPP will move to put a lien on the property.
The department said it has also hired three more investigators to work on enforcement of the ordinance, which since it took effect Oct. 23 has resulted in 512 notices of violation, 71 of which have escalated to notices of order.
The new hires bring the department’s dedicated short-term rental enforcement team to six. The city also has software that actively scans advertisements on websites to find violators.
“We are happy with the progress of the team and will continue to improve and show force in the community. We anticipate the efforts of the collections agency will further augment our efforts,” DPP said in an email.
To be sure, Oahu’s vacation rental market has been shrinking over the past couple of years of crackdowns, though enforcement has been hampered by court action.
The nonprofit Hawaii Legal Short-Term Rental Alliance filed a lawsuit in June claiming that Ordinance 22-7 is unconstitutional because it interferes with owners’ vested rights to own and rent property and violates state zoning law.
U.S. District Judge Derrick Watson on Oct. 13 issued an order in the lawsuit enjoining the city “from enforcing or implementing Ordinance 22-7, signed into law on April 26, 2022, insofar as it prohibits (30- to 89-day) home rentals, or the advertisement of such rentals, in any district on Oahu, pending further order from this Court.”
Five concerned community groups — Hawaii’s Thousand Friends, Save Oahu’s Neighborhoods, HI Good Neighbor, Keep It Kailua and Save North Shore Neighborhoods — had asked to intervene in the case, but Watson issued an order Dec. 12 denying their request.
Legal counsel for the Hawaii Legal Short-Term Rental Alliance has since raised a concern that the city’s enforcement efforts are in contempt of the preliminary injunction, according to a Jan. 20 court document.
According to the Jan. 20 filing, in 2019 the alliance and its members participated in the Kokua Coalition v. Department of Planning and Permitting complaint challenging Ordinance 19-18, which made it illegal to rent or advertise unpermitted short-term rentals that are outside a resort district and increased fines to $10,000 a day from the previous $1,000 a day.
The proceeding, now referred to as Kokua II, concluded with a stipulated court order in which it was agreed that an advertisement that “offers stating daily rates, and/or less than monthly rates, and/or a minimum stay of less than 30 days does not cause a dwelling unit that is rented for thirty days or more to be a ‘transient vacation unit’ or ‘bed and breakfast home’ within the meaning of Ordinance 19-18 if such advertisement, solicitation, or offer states that the minimum rental period for the rental property is thirty days.”
The filing said, “Based on the volume of (notices of violation) that the City has issued recently where all the advertisements contain the required Kokua II disclaimer and the DPP’s refusal to adhere to Kokua II agreements it appears that the city is trying to circumvent the (preliminary injunction) and obtain its Ordinance 22-7 objective of eliminating the 30-day rentals.”
The city has not addressed the plaintiff’s Jan. 20 court filing. However, according to court records, both parties are working on a factual stipulation agreement, with a telephone conference set for April 6.
The constant back and forth in vacation rental rules and enforcement has caused some shrinkage in Oahu’s vacation rental market over the past several years. In February, hotels filled more of their available units than vacation rentals.
Oahu vacation rental supply in September, the month before Ordinance 22-7 began, was 181,500 available unit nights, which was 25.9% lower than in September 2019 and 11.3% higher than in September 2021, according to a Hawaii Vacation Rental Performance Report produced for the state Department of Business, Economic Development and Tourism.
Oahu had the largest vacation rental supply of all four counties, according to the latest performance report, which was released Thursday. However, unit demand was at 118,000 nights in February, which was up 6.3% from 2022 but down 38.6% from 2019. Occupancy at available units was 66.2%, down 5.5 percentage points from February 2022 and down 14.6 percentage points from February 2019.
The average daily rate rose at a vacation rental in February to $251, up 13.2% compared with February 2022 and up 58.6% from February 2019.
Oahu hotels reported an average daily rate of $266, up 13.5% compared with 2022 and up 13.3% from 2019.
Hotel occupancy on Oahu rose 7.4 percentage points to 78.9% in February, which was 7.6 percentage points lower than in February 2019.
