Despite vacation rental crackdowns and looming legislative reforms, vacation rental supply statewide still accounts for a significant portion of Hawaii’s housing stock.

That’s why the conversion of vacation rentals into longer-term housing is seen by some as a solution that could satisfy critical housing demand in Hawaii. But so far, regulatory policies have not led to an aggregate shift toward the long-term market, as other short-term rental listings have entered the market in response, said Justin Tyndall, an author of the Hawai‘i Housing Factbook 2024, which was released in May by the University of Hawaii Economic Research Organization, where he works as an assistant professor of economics.

The fact book cites statistics from the state Department of Business, Economic Development and Tourism, which estimates that there are 32,000 STRs in the state, accounting for nearly 6% of the state’s entire housing inventory. While STRs aren’t necessarily in use daily, DBEDT data indicates that active listings increased 9% from 2022 to 2023.

Could vacation rentals play a larger role in solving the housing crisis in Hawaii, where UHERO noted that the ability to provide new housing remains extremely limited? The first test is at 9 a.m. Tuesday when the Maui County Planning Commission meets at the Council Chamber, in the eighth floor of the Kalana o Maui Building, at 200 S. High St. in Wailuku. The commission will be the first group to evaluate a proposal from Maui Mayor Richard Bissen to phase out transient vacation rentals on the so-called Minatoya list, a category of short-term rentals that were exempted earlier from going through the typical permitting process.

Bissen’s action seeks to phase out some 2,200 vacation rentals in West Maui apartment districts by July 1, 2025, and eventually all 7,000 units in apartment districts across Maui.

It came even before Gov. Josh Green’s signing of Senate Bill 2919, which became Act 017 on May 3, and clears up issues of state preemption of vacation rental management by allowing counties to craft their own policies, which “regulate the time, place, manner, and duration in which uses of land and structures may take place.”

Bissen said in a statement issued May 2, “We may rebuild our beloved Lahaina, but if we don’t return Lahaina to the people who represent that unique community — if we don’t recognize the faces of our friends and family as we repopulate Lahaina, we will have lost this fight for our people, and for my administration and I — even one more family lost is one too many.”

Fallout from the Maui fires upended Maui’s housing market and underscores the affordability crisis statewide. It also has drawn attention to the role that vacation rentals could play in augmenting housing stock, as well as the challenges.

Though Hawaii expanded its housing stock by 25,000 units, or 1.8%, from 2018 to 2022, UHERO noted that the growth was only on Oahu, which had a net increase of 23,000, and Hawaii County, which added 2,600 units. The report said Kauai and Maui saw a net loss of units, likely because “the rate of new construction has been unable to keep up with losses to the vacation rental market.”

That’s been true, even when the stakes have been high, as in the aftermath of the wildfires on Maui, where UHERO reports that vacation rental supply accounts for roughly 14% of the housing stock. Data in UHERO’s fact book shows that active vacation rental listings on Maui fell dramatically immediately after the Maui fires; however, they are now 2% higher.

UHERO’s Tyndall said in the case of Maui, a potential goal of the FEMA policy was to supply housing quickly for fire survivors, and another was to increase the overall supply of housing.

“It was somewhat successful in the first case; we managed to house a lot of fire survivors in former vacation rentals. But then we saw an equal number of new vacation rentals popping up elsewhere. The overall effect didn’t really change, and it will have a negative effect for the people who weren’t qualifying for the FEMA program and are still looking for a rental — it may have shifted to vacation rentals.”

Tyndall said policies banning vacation rentals from residential neighborhoods on Oahu took about 1,000 units from residential neighborhoods and probably returned them to the long-term housing market. However, “then we saw probably an equal number (of vacation rentals) popping up in Waikiki and the resort areas.”

He added that Oahu also saw “a hotel supply response to pick up the slack.”

Tyndall characterized Oahu’s vacation rental policies as “partially successful.”

“We have taken some of these vacation rentals out of residential neighborhoods where we didn’t want them, but sort of the other goal of increasing aggregate housing supply, there’s less evidence it was helpful to do that,” he said.

Tyndall said the scale of Bissen’s proposal could make a difference.

“I think there would be some compensating uptick in potentially hotel capacity or vacation rentals in other buildings, but the aggregate effect is pretty clear: There would be fewer vacation rentals on Maui,” he said.

There has been a loud cry in the wake of over-tourism concerns to reduce vacation rentals across the islands. However, the issue is controversial, and the impacts have not been fully vetted.

Tyndall said UHERO is still calculating the economic impact of the potential changes on Maui. However, he said the changes might cause an increase in hotel rates that incentivize hoteliers to open up more space or add rooms. Tyndall said it could lead lawmakers to consider property tax increases, which is probably beneficial for someone looking for their first home. He added there also could be price drops from the supply-side shocks.

While families aren’t likely to want the Minatoya-list properties, which are mostly one or two bedrooms, he said they could appeal to couples or singles who have single-family homes and want to downsize, thus freeing up a single-family home somewhere else.

But there will be trade-offs. The county could lose a significant amount of revenue if the Minatoya-list units are reclassified from vacation rentals, which have higher rates. Tourism also could take a hit, though Maui County lawmakers eventually might issue more permits for hotels to expand capacity.

Paul Brewbaker, principal of TZ Economics, said in an email about Bissen’s proposal, “The loss of up to 20% of all jobs in Maui County is what is at risk, if you include full multiplier impacts.”

Brewbaker added that the loss with multipliers is broadly “$1.5 to $2.5 billion in Maui County output — within a $12 billion Maui economy.”

He said such losses would leave “thousands whose employment and incomes are extinguished” and “can no longer pay the rent.”

So far, Maui is the only county to introduce a bill to amortize vacation rentals since the state gave the counties greater power to chart their own course. Kauai is staying the course. Hawaii island is working on vacation rental reforms but does not plan to amortize them. Oahu, which already had implemented strict vacation rental reforms in 2021 under Ordinance 22-7, is evaluating the new authority provided to the counties.

Scott Humber, spokes­person for Honolulu Mayor Rick Blangiardi, said in an email to the Honolulu Star-Advertiser, “The housing crisis is apparent through the increased outmigration of locals, number of houseless, and the relatively higher proportions of income paid toward rent/mortgage payments. Illegal and legal STRs is housing stock that simply can be used/converted for use by our local residents.”

The focus of Blangiardi’s administration is on enforcing current vacation rental policies rather than addressing previously grandfathered units. The city has some 800 short-term rental units units operating under nonconforming use certificates. However, unlike the units on Maui’s Minatoya list, they are not a significant portion of housing stock.

“Based on 2020 U.S. Census data, Honolulu’s 800 NUCs represents less than 1% of its total 370,665 housing units, compared to Maui’s 7,167 or 10% of 71,439 housing units,” Humber said.

The Minatoya list is taking center stage in Maui’s latest vacation rental policy discussion, which comes as the housing needs have increased on Maui. UHERO said the devastating Aug. 8 wildfires in Kula and Lahaina destroyed an estimated 3,000 homes and displaced over 6,000 households.

On Maui the advocacy group Lahaina Strong occupied Kaanapali Beach for months to raise awareness of Maui’s critical housing needs in the wake of the fire. During Lahaina Strong’s “Fishing for Housing” action, they urged Green and Bissen to force short-term rental conversions for long-term housing. Lahaina Strong members flew to Honolulu to support the passage of SB 2919 and were with Bissen when he held a news conference to propose a landmark bill, which could reshape Maui’s transient vacation rental landscape.

The bill was a collaboration between Maui County Council member Keani Rawlins-Fernandez, Lahaina Advisory Team’s Kaliko Storer, and Lahaina Strong leaders Paele Kiakona, Jordan Ruidas and Courtney Lazo, who as a result agreed to end their occupation of Kaanapali Beach.

Kiakona said in a statement that coincided with the news conference, “In Lahaina alone, we have over 2,200 units on this list. These mostly off-island owners have benefited immensely from turning our apartment-zoned housing into investments, displacing working-class local families from our communities long before the fire.”

COUNTY COMPARISONS

Short-term rentals as a percentage of housing differs across the islands.

>> Oahu: 2%

>> Hawaii: 8%

>> Maui: 14%

>> Kauai: 18%

Source: Hawai‘i Housing Factbook 2024