Honolulu City Council panel discusses sliding fee scale for vacation rentals

Vacation rentals in areas that command the most bookings would be hit with higher permit fees under a proposal being considered by one City Council member as a way to address the proliferation of illegal units on Oahu.

Honolulu City Councilwoman Kymberly Marcos Pine is considering requiring owners of vacation rentals to pay a fee based on a sliding scale, with the higher-value homes in oceanfront and other desirable locations paying more.

Pine, who heads the Council’s Committee on Business, Economic Development and Tourism, discussed the approach to Oahu’s vacation rental problem at a committee briefing last month titled “Balancing the Visitor Boom.”

The fee would pay for a conditional use permit, to operate the vacation rental. The application process for the permit would include presentations to local neighborhood boards or associations. It also would require a “good faith effort” to notify property owners within 300 feet of the vacation rental.

The city has had a moratorium on issuing vacation rental permits outside of resort zones since 1989. Department of Planning and Permitting records show that since then the number of legal vacation rentals has fallen to 816 units outside of resort zones. However, the department estimates there are between 6,000 and 8,000 illegal units on Oahu.

Pine said the idea of using conditional use permits to regulate vacation rentals was passed out of the Council’s Zoning and Housing Committee in the past. It’s the concept of a sliding- scale approach that is new.

Proponents say vacation rentals, even illegal ones, are good for Oahu because they add capacity to the isle’s tight accommodations market, generate taxes, fuel visitor spending and create jobs. For some, the choice to turn homes into vacation rentals is a property right that allows residents and investors to tap into Hawaii’s lodging market, which gets the lion’s share of visitor spending. While vacation rentals have morphed into businesses for some owners, they have allowed others the flexibility to rent out units so they can better afford their homes.

Critics say the spread of illegal vacation rentals is bad for tourism because it makes it harder to monitor the quality of the tourist experience and protect visitors from scams. They argue it also makes it more difficult to ensure that hotel workers keep good- paying union jobs and benefits. They argue the vacation rentals drive up housing prices and change the character of residential neighborhoods for the worse.

Though vacation rentals are credited with bringing more visitors to the state, the challenge is making sure they are paying their fair share and covering the cost of the additional strain extra visitors bring.

Inflation-adjusted tourism spending in Hawaii hasn’t grown for 30 years even though the statewide visitor count has risen by 50%, said Paul Brewbaker, principal of TZ Economics. “This outcome — more visitors, not more dollars — would seem to be the opposite of what policymakers aspired to 30 years ago.”

In 1990 some 6.7 million tourists came to Hawaii and spent the equivalent of $18 billion in today’s dollars, Brewbaker said. In 2018 more than 9.9 million visitors came to Hawaii but spent the same amount, he said.

“We have to change the visitor-volume-to-visitor- spending ratio,” said John Foti of the Kaulana Corp., who is in property management. “Visitor spending is the root of the problem, not vacation rentals. We have to find a way to get more out of the visitors that are coming.”

Brewbaker said one way to do that is to sell permits to vacation rental owners.

“If you don’t pay, you don’t play,” he said. “People are turning to lodging because that’s where you make money. Hotel receipts adjusted for inflation have consistently risen over the last 30 years.”

There have been decades’ worth of debate about whether the city should permit more vacation rentals, which Brewbaker said have played a vital role in the growth of visitor arrivals past hotel capacity.

The City Council was scheduled last month to vote on a bill allowing for 1,715 permits for “hosted” bed-and-breakfast establishments but none for rental of an entire home. Ultimately, the Council punted, and the measure was referred back to the Zoning, Planning and Housing Committee for more work.

Pine said issuing the conditional use permit with sliding-scale fees could be incorporated into current proposals under consideration. She anticipates her committee will focus on these solutions and more at its next meeting at 10:30 a.m. June 18.