Editorial: Vacation rental plan should pass

It’s encouraging that Mayor Kirk Caldwell’s third bid to secure the Honolulu Planning Commission’s backing for an omnibus bill that tackles thorny short-term vacation rental issues, has proved the charm.

An initial version, submitted by the city Department of Planning and Permitting, was denied in September. Caldwell’s in-person request for reconsideration was rejected last month. But now, the commission’s unanimous vote on Wednesday recommending the revised draft to the City Council stirs optimism that Honolulu could be poised to add long-overdue bite to vacation rental regulation.

On paper, the city’s inventory of bed-and-breakfast (B&B) and transient vacation unit (TVU) rentals totals 816. That count has not budged since the late 1980s, when Oahu banned the opening of new B&Bs and limited new TVUs to hotel-resort zones. However, due to decades of toothless regulation and weak enforcement, the city estimates the island’s inventory of illegal units at between 8,000 and 10,000.

By failing to either expand the legal inventory or effectively shut down outlaws — largely TVUs — the city has missed out on a steady stream of tax revenue as well as income from fines. The Council should move quickly on Caldwell’s wide-ranging measure as current regulation is a disservice, and government coffers cannot afford further inaction.

An apparent deal-breaker in the bill’s initial draft was its vision for short-term rentals in residential areas. It would have allowed an unlimited count of hosted B&Bs. In response, commission members rightly asserted that caps are needed to maintain neighborhood character. Such strategy could also help address Oahu’s ongoing housing shortage by opening up more long-term rental opportunities for residents.

The latest version of the bill would cap the number of permitted B&Bs and TVUs on Oahu at about 4,000 by limiting the combined total of vacation rentals to 1 percent of all dwelling units in each of the island’s eight Development Plan areas. Short-term rentals with legal, existing noncon- forming use certificates (NUCs) would continue operating as a TVU or B&B.

A combination of that regulatory change and stepped-up penalties for illegal operators could prompt thousands of property owners now in the illegal bracket to go legit. Given the possibility that applicants could far outnumber available certificates, if this bill passes, a lottery system should be considered.

Also among the bill’s promising elements: Underground operators would be hit with a penalty starting at $25,000 per day, ramping up to $100,000 a day. Failure to pay would result in liens against the property and other penalties. Stiff penalties are needed to discourage would-be illegal operators.

Currently, both types of short-term rentals are taxed as residential use. But due to the transient use of the properties and the amounts charged — several thousand dollars per night for a luxury TVU — there’s a glaring imbalance in real property tax policy that must be corrected.

Commissioners are asking the Council to consider requiring owners of vacation rentals in resort areas to pay property taxes at the same rate as hotels and resorts. But the two types of lodging business are not apples-to-apples. Hotels and resorts have on-site workers handling everything from housekeeping to pool maintenance, while TVUs may be unhosted. The Council should create new tax categories for B&Bs and TVUs as they are different from the rest of the lineup.

The bill’s vision for enforcement hinges on technology rather than an army of enforcement officers.

Rentals would need a registration number on all advertising, including on social media platforms. If the registration number is not shown, a violation is issued. Sensible regulation and effective enforcement. With both in place, the city could pull itself toward a better balance between collecting taxes owed and deterring further invasion of illegal vacation rentals.