Caldwell proposes new bills affecting short-term rentals

The mayor Thursday unveiled a bill that allow homeowners to set up bed-and-breakfast establishments where they live but bans nonowner transient vacation units in residential zones.

Mayor Kirk Caldwell emphasized the urgency of addressing the explosion of short-term rentals, brought on largely by online booking platforms like Airbnb and Expedia.

“It’s having a major impact on our neighborhoods and also on our visitor industry,” the mayor said. “We’re trying to be as fair and balanced as possible.”

New short-term rentals have not been permitted since the city imposed a ban on new ones in 1989, but that hasn’t stopped thousands of them from coming up and being advertised across the globe in the nearly three decades since then. Caldwell estimated there are 10,000 such rentals on Oahu although only about 800 are legal.

Those who support vacation rentals say they provide an alternative means of lodging for visitors and fill a niche while providing homeowners a way to earn extra cash. Opponents say they detract from the island’s tight housing market and overtax infrastructure in quiet residential neighborhoods.

The “omnibus” bill attempts to balance all interests involved in the issue, Caldwell said.

Foremost, it divides short-term rentals between transient vacation units and bed-and-breakfasts.

TVUs are defined as dwellings rented to guests for less than 30 days when owners are not present. B&Bs are defined as single-family homes rented to guests for less than 30 days when the owners are present.

Under the bill:

>> TVUs would be banned from residential zones except through a permit system in apartment, business, resort and mixed-use zones. They would be capped at no more than 1 percent of the number of dwelling units within each of the city’s eight development plan or sustainable community plan areas. The city says that would mean a cap of 4,000 of them islandwide.

>> B&Bs would be allowed in residential zones as well as apartment, resort and mixed-use zones in unlimited numbers provided they meet necessary criteria.

>> Operators of both TVUs and B&Bs would need to show proof of a homeowner exemption in order to apply for permits and permit registration numbers from the city.

>> Requirements to qualify for either type of permit would include paying general excise and transient accommodations taxes, insurance coverage, one off-street parking stall per bedroom rented, quiet hours and smoke and carbon monoxide detectors.

>> A B&B could have no more than two guest rooms and four guests total.

>> Operators would need to pay property taxes at a rate greater than the $3.50 per $1,000 of value they now pay as single-family-class property owners. TVUs would be taxed at the hotel/resort-class rate at $12.90 per $1,000, while B&Bs would pay $6.45 per $1,000 of value.

Current operators “are going to have to make a business decision where ‘we’re going to be having to pay at a higher property tax rate, is our income going to be sufficient for renting two bedrooms, or one bedroom, or renting an entire home in a nonresidential area going to be sufficient to cover our real property taxes and still make a profit,” Caldwell said.

The bill proposes initial registration fees of $1,200 for a TVU and $800 for a B&B with annual fees of $500 and $200, respectively.

Illegal operators would be fined $25,000 a day for a first offense, $50,000 for a second offense and $100,000 for a third offense. Subsequent violations would lead to liens. The bill would also let the city take away profits gained from the illegal business, Caldwell said.

“Heavy, draconian type of fines to send a clear message to folks that they need to comply with the law,” he said.

The city will likely retain a third party to review advertisements on the internet for illegal operators, Caldwell said.

Two other bills are being introduced by Caldwell. One cracks down on those who make false statements about vacation rentals to building inspectors. The other requires people selling their homes to disclose whether the dwellings are in neighborhoods where vacation rentals are permitted.

The slate of bills was supported, at least in concept, by Councilman Ikaika Anderson. “I have long advocated for and continue to believe that the best and fairest way to address this issue is to a llow for permitting of owner-occupied bed-and- breakfasts … and that we also have coupled with that very strict and swift enforcement,” he said.

The bills now go to the Council and city Planning Commission for review.

Representatives from both sides of the debate reacted cautiously to the bills.

Brynn Rovito, vice president of the Oahu Alternative Lodging Association, said her group is pleased that Caldwell is seeking to reopen the permitting process. “We do have some concern about the restrictions on (transient) vacation rentals in residential neighborhoods,” Rovito said. “I do think that we should have some kind of limitation on them so we can preserve the characters of our neighborhoods.”

Matthew Kiessling, vice president of short-term rental policy at the Travel Technology Association (Travel Tech), said his organization also supports opening up the vacation rental permit process. Kiessling noted that a recent report by his group estimates that over-regulation of alternative accommodations could cost Oahu $1.2 billion annually.

Larry Bartley of Save Oahu’s Neighborhoods said the city should not put forth a plan for new permits until it can prove it can enforce the illegal ones now in existence. “The idea that legalizing more will improve enforcement is false,” he said.

Chuck Prentiss, spokesman for Keep It Kailua, said Caldwell and Council members are contradicting themselves when they talk about the city’s housing shortage “while proposing to transform much-needed residential-zoned homes into hotel-like businesses for vacationers.”