Need housing? Tax vacation rentals

Two pending actions, one at the state level and one at the City and County level, have the potential to make a significant dent in the Oahu homeless problem as well as bring reasonable regulation to vacation rentals.

The governor’s office is working on an agreement with Airbnb that would provide for Airbnb to collect transient accommodations taxes (TAT) and general excise taxes (GET) from the owners of vacation rentals and remit them to the state.

The City Council recently asked the city Department of Planning and Permitting to draft bills that would enable the “legalization” of at least a portion of the currently unpermitted vacation rentals.

A study commissioned by the Hawaii Tourism Authority three years ago estimated there were 4,411 “nontraditional” rental units (i.e., vacation rentals and bed-and-breakfasts) on Oahu, about 20 percent of the statewide total, and that unreported TAT totaled $100 million statewide. Applying 20 percent of this to Oahu implies unreported TAT totaled $20 million on Oahu; $20 million of unreported TAT means another $8.6 million of unreported GET for the state (and another $1 million annually for the rail project).

Total: $28.6 million for the state, for Oahu only. This was three years ago. Likely higher today.

In addition to these state tax revenues, the City and County should not overlook applying hotel/resort real property rates to vacation rentals. Shouldn’t vacation rental operators pay the same taxes as hotels? The property tax rate for hotels is $12.90 per $1,000 of assessed value, more than triple the residential rate of $3.50.

Applying the hotel rate to the 4,411 “nontraditional” units on Oahu, at an average value (conservatively) of $750,000, produces $31 million annually in additional property tax for the City and County.

So roughly $28.6 million of TAT/GET for the state and another $31 million property taxes for the city — nearly $60 million annually — is the potential if all vacation rentals on Oahu were legalized and all operators decided to continue their operations even with higher taxes. Even if only half this were realized, it is a significant sum to apply to homelessness.

Again, these figures are three years old.

In October 2017, the state spent $516,000 to remove 180 homeless people from under the H-1 freeway viaduct in Mapunapuna. And only 12 of these were accommodated in shelters — more than $40,000 per person displaced who was subsequently sheltered. If the future follows the past, this “sweep” will not be a permanent solution for either those who were removed or for that location as a camp for the homeless. This is not the first time the state has removed homeless from this location and fenced it off to prevent re-occupation by the homeless.

Local economist Paul Brewbaker pointed out at a recent “Houseless Summit” sponsored by the Building Industry Association of Hawaii that the rising cost of housing in Hawaii is the result of years of too few housing units being built.

Honolulu housing director Marc Alexander said, “The only solution (to homelessness) is moving people into permanent housing.”

Shouldn’t we tax vacation rentals and use the revenue to build subsidized permanent housing for those who cannot afford market rents?

Randolph G. Moore is a retired business executive and former public schools administrator.