Oahu surge frustrates neighbors, government

Brad Leach, a Waialae-Kahala homeowner, deals with the aggravation of having a new visitor knock on his door asking to borrow his surfboard about once every other week because a guest who stayed at his neighbor’s vacation rental said in an online review that Leach was “cool with sharing.”

“Yes, I am cool, but no. I did it once because I live aloha,” Leach said. “When my neighbor moved away, he turned his place into a hotel. I was OK with him renting an occasional room, but I’m so over this. He’s gone, so it’s like I’m the property manager. We’ve got cannonballs in the pool at 3 a.m. I’m constantly telling drivers to watch out for the kids. It’s a nightmare.”

The spread of vacation rentals into neighborhoods also is frustrating government officials and lawmakers who have spent decades trying to ensure zoning laws are upheld and taxes are collected. The quest for a solution has pitted neighbor against neighbor and challenged politicians, who must answer to divided constituencies.

Supporters want to see legislation that maintains property rights while allowing individuals and the community to profit from expanded tourism and increased revenues. Meanwhile, critics who are concerned with rising housing prices and changing neighborhoods want to know that trade-offs are worth the cost.

Resolution has been a long time coming.

In 2015, Gov. David Ige signed into law Act 204, requiring transient-rental owners to post their tax identification numbers on advertisements. Proponents said the law would provide county officials with more enforcement teeth, but the state Department of Taxation has not implemented the new law. Several hosting platforms notified the state that the requirement violated the federal Communications Decency Act, said Mallory Fujitani, department spokeswoman.

Last year, state lawmakers touted a tax solution in House Bill 1850, which allowed online travel businesses like Airbnb to collect taxes from hosts and remit them to the state. Proponents said the bill would yield more taxes since some short-term-rental owners were ignoring zoning laws. The state Department of Taxation supported the intent of the bill, but Ige vetoed it, saying it provided a shield for owners who weren’t complying with county laws.

State lawmakers introduced three vacation-rental bills this session. The only one still moving is House Bill 1471, which is similar to HB 1850 and is slated to be heard Wednesday at 2:45 p.m. in Room 414 of the state Capitol.

Different perspectives

Hawaii’s Airbnb hosts have told lawmakers that they rent rooms to supplement other income and to make their properties more affordable.

But several recent studies point to a residential-based visitor industry that’s larger and more investor-dependent than previously thought. That’s especially concerning on Oahu, where growth is happening despite a strict city moratorium set in 1989.

The state Department of Business, Economic Development & Tourism released a study March 9 estimating that out-of-state owners paid about a third of Hawaii’s real property tax in fiscal year 2016. When it came to the hotel/resort and tourism-related category, payments from out-of-state owners jumped to 68 percent of the tax collections.

An American Hotel & Lodging Association study released March 9 found revenue growth generated by Oahu homeowners who rented their entire homes to Airbnb visitors was second only to Nashville. Revenue by these homeowners rose nearly 139 percent to $31 million in the year ended October 2016, according to the study, which was conducted by the commercial real estate firm CBRE.

At the same time, revenue from Airbnb hosts who owned multiple units increased to $52 million, a 227 percent hike.

“The new study by the American Hotel & Lodging Association shows a trend that has become increasingly clear to city officials — illegal short-term rentals place a burden on Oahu’s residential neighborhoods,” Mayor Kirk Caldwell said.

AHLA’s report is “misleading” and “inaccurate,” said Matt Middlebrook, Airbnb public policy manager. A study conducted for Airbnb showed entire-home listings represented a minuscule percentage of Hawaii’s housing. On Oahu, Airbnb estimates that 47 percent of its entire-home listings, or 1,494 out of 3,185 total, were in Waikiki for the 12 months ending Oct. 1.

“These are far from illegal hotels but rather are long-standing condo/hotels that have been in existence for decades, like units in the Ilikai, Waikiki Grand, Ala Moana Hotel,” Middlebrook said, adding that studies show Airbnb is a valuable tool that can be used to make Hawaii more affordable for residents.

That’s true of Hawaii Kai residents Asparo and Reny Matcheva, who use their legally zoned Waikiki vacation rental to supplement their Hawaii living expenses. The one-bedroom unit is occupied 90 percent of the time, they said.

“We have three children, and until last year two of them were in preschool — which cost us about $1,000 for each child,” Reny Matcheva said. “Eventually, we hope that we can purchase two more vacation rentals to help pay for their college.”

Asparo Matcheva said the growth of vacation rentals is good for Hawaii tourism and for the community, which benefits from trickle-down impacts. “I think Hawaii’s tourism industry would be in big trouble if vacation rentals stopped. The number of tourists has increased because they have options,” he said.

Solution ideas

Mufi Hannemann, president and CEO of the Hawaii Lodging & Tourism Association, said Hawaii’s accommodations industry agrees that tourists need choices. However, the industry wants regulators to put hoteliers and hosts on a level playing field, he said. Hannemann said lawmakers should gut House Bill 1471, keeping the best of its provisions but also enhancing it, including by setting aside some money for homelessness.

“The sooner the governor shows his hand, the better off that we’ll be,” he said. “We still need to work on transparency and accountability in the current bill. But there are some things that I like such as the five-year sunset provision that puts the onus on Airbnb to comply. ”

Middlebrook said Airbnb is working with lawmakers to “strike a balance.” In the new bill, tax collection and remittance is mandatory for large transient accommodations brokers like Airbnb, VRBO and Homeaway. Implementing a surcharge for the rental housing revolving fund and providing enforcement money to counties also has been discussed.

In the meantime, Caldwell said growth of multi-unit operators of vacation rentals must be managed. His new budget adds three Department of Planning and Permitting positions dedicated to vacation rental enforcement. Caldwell said remedies also could include making vacation rentals pay resort property tax rates and comply with hotel rules.

“This could help with our housing inventory because we know these multi-unit investors are taking homes off the market that could be used by local families,” Caldwell said.

County and state intervention is needed, said Karen Gallagher, a North Shore resident, who became homeless last fall after the home that she rented was sold and turned into a vacation unit.

“Everywhere I go, it’s all vacation rentals,” said Gallagher, who didn’t get a place to stay until she teamed up with her sister to split costs. “Where are all these people who are making minimum wage going to be living in the next decade? The solution is to enforce the law.”