Short-term rentals: Proliferation of vacation rentals burdens renters, communities

The proliferation of illegal vacation rentals is putting significant pressure on Hawaii’s already stressed housing market and hurting local residents. Internet-based platforms have made it possible for anyone to advertise housing for short-term illegal rentals regardless of state or county laws. In just the last two years, the number of housing units advertised for vacation rentals has increased by 35 percent.

Best estimates indicate that there are more than 23,000 units currently advertised throughout the state as vacation rentals. The vast majority of these short-term rentals are illegal. This has resulted in 1 out of every 24 homes in the state being used as a vacation rental and withdrawn from the local need for housing. The ratio is even more alarming on neighbor islands. On Kauai, the figure is 1 in 10, and on Maui it is 1 in 7. Some communities like Lahaina have been overwhelmed, with 1 out of 3 units of available housing being used for vacation rentals.

The incentives for investors and speculators to purchase and convert homes into vacation rentals are irresistible. The City and County of Honolulu has estimated that an owner of a vacation rental will generate approximately 3.5 times more profit renting to a tourist than from a long-term rental to a resident. These profits are leaving our state, with the majority of vacation rentals owned by non-residents. The purchase of homes by non-residents for use as vacation rentals means a loss of housing stock for families who live and work in Hawaii. Twenty-seven percent of all homes sold in the state are purchased by non-residents. On Maui, 52 percent of homes, and 60 percent of all condominiums, are sold to non-residents.

The vacation rental industry has tried to portray hosts as owners renting out a room or two to help make ends meet. The reality is far different, with up to 93 percent of rentals advertised on the internet platforms being for entire homes. These entire-home rental hosts are likely not renting their primary residences but rather are commercial businesses generating huge profits. In fact, one recent study found that managers with 20 or more units earned approximately 27 percent of the total revenues generated by multi-unit hosts.

An unusually high number of our residents are renters — 43 percent, the fourth-highest percentage in the nation. Rent is more expensive in Hawaii than any other state. In recent years, rents have been increasing at more than twice the rate of wages. It’s no surprise that Hawaii has the highest rate of homelessness in the nation.

Although Hawaii derives some benefits from vacation rentals through increased tourism spending and tax collection, the benefits are far outweighed by the costs. Renters face ever-escalating rents while the price of homes for sale increases annually driven by investors and speculators. The very character of our communities are changed and families who have called Hawaii home for generations are being priced off the islands.

San Francisco, which like Honolulu has struggled with high housing costs and a proliferation of vacation rentals, found that every housing unit used as a vacation rental produces a net negative economic impact to the local community of approximately $300,000 per year. The impact in Hawaii is likely to be similar.

Our state Legislature and counties must begin bringing some order to controlling the proliferation of illegal vacation rentals. We need to invigorate efforts to enforce our laws. We should simplify enforcement by creating a presumption that owners who advertise units without a permit are, in fact, operating illegally. And we should give neighbors the right to enforce vacation rental prohibitions in court. We can’t afford to wait longer to address this rapidly growing problem.

Victor Geminiani is co-executive director of the Hawaii Appleseed Center for Law and Economic Justice.