(Source: Honolulu Star-Advertiser)
Oahu’s more restrictive short-term rental rules, which take effect today, have come to the attention of investors and economists who warn the county is in danger of not having enough lodging for visitor arrivals to continue to grow.
“I have a strong feeling that there is this train wreck that is unfolding,” said Paul Brewbaker, principal of TZ Economics, who advised the Honolulu City Council not to pass Bill 89.
Council members unanimously passed Bill 89, which became Ordinance 19-018 when it was signed June 25. The new law bans advertising of unpermitted short-term rentals and enacts penalties that can result in fines of up to $10,000 for persistent violators.
It’s not known how many homeowners and investors on Oahu are involved in illegal short-term renting, but the city Department of Planning and Permitting identified 5,000 possible violators during a preliminary investigation. DPP spokesman Curtis Lum said possible violators were sent letters last week reminding them that a ban on advertising properties for short-term rentals of less than 30 days takes effect today.
The new law has been cause for celebration for supporters who were concerned that illegal short-term rentals were depleting affordable housing and changing the fabric of local communities. However, even supporters from the state’s visitor industry are now theorizing that, without adjustments, the law could have unintended consequences.
Mufi Hannemann, president and CEO of the Hawaii Lodging and Tourism Association, said he supported the new ordinance, but is concerned that it’s being applied to hundreds of units in resort districts.
DPP has ruled that the new law applies to most of the Waikiki properties mauka of Kuhio Avenue, which are in apartment and apartment precinct zones. DPP has said the new ruling also applies to the Kuilima Estates townhouses at the Turtle Bay Resort.
“We supported Bill 89, but this was an unintended consequence that was never made clear to us by DPP. We are appealing to them and to the Council members in these districts to take another look at this,” Hannemann said.
Jerry Gibson, vice president at Turtle Bay Resort and president of the Hawaii Visitors and Convention Bureau board, said he supports Bill 89, but was surprised that units in Kuilima Estates were not in Turtle Bay Resort’s resort zoning.
“We don’t manage Kuilima Estates, but certainly, having less short-term rentals will affect the resort’s activities, golf, food and beverage” sales, Gibson said.
Jessica Kuo, who since 1983 has owned a Waikiki Sunset unit that is rented as a hotel room by Aqua-Aston, said she was shocked Friday when the hospitality company told her that it would no longer manage her unit, a move that will significantly affect her retirement income.
“I was told they are dropping owners without nonconforming use certificates. It’s about one-third of the building,” Kuo said. “I’ve always paid my general excise and transient accommodations taxes. It’s a ridiculous law. Hawaii as we all know depends on tourism, especially Waikiki. I see ordinances to control short-term rentals in Los Angeles where I live, but nothing as drastic as this one.”
Oahu Alternative Lodging Association (OALA) has estimated that the new law could cause Oahu to lose between 50,000 and 80,000 visitors per month.
“We need vacation rentals to add capacity,” said Brewbaker, who issued warnings in 2013 that Hawaii’s tourism industry would run out of rooms for visitors at around 8 million visitors. The state hosted 9.9 million visitors last year.
While Oahu’s hotel inventory stayed relatively the same, Brewbaker said the spread of vacation rentals added to the lodging supply, contributing to Oahu’s last six years of tourism growth. Now, he’s concerned that Bill 89 will unwind those gains.
“Bill 89 also is coming at a time when all the low-hanging fruit in a long economic expansion has been harvested. Also, you can’t even build a telescope next to a telescope. What signal has Hawaii sent that investors should double-down on Hawaii?”
To be sure, Oahu’s regulations have caught the attention of investors outside of Hawaii. Bill 89 was brought up during recent earnings conference calls for Alaska Airlines and Hawaiian Airlines. And, Southwest Airlines, which is poised to expand in Hawaii, said the ordinance is on its radar.
Southwest spokesman Brad Hawkins said Wednesday that the carrier “is closely monitoring the city’s work to address unregulated and unlicensed short-term rental units.
“As a carrier growing our service for island communities, we are heavily invested in an accurate landscape of available lodging for overnight visitors in Honolulu so that our flight activity can accurately reflect the marketplace,” Hawkins said.