Based upon City and County of Honolulu Ordinance 19-18 adopted in 2020, by mid-summer the city Department of Planning and Permitting (DPP) is planning to start issuing nearly 1,700 permits for new bed-and-breakfast homes. Rules of procedure, required by law to do this, are expected to be adopted by the end of April.

This is happening even though our lifestyles and economy have been altered by the COVID-19 pandemic since 2019, when this ordinance was introduced. As a result, there are a number of reasons why adopting rules and issuing permits now should be reconsidered, or a moratorium placed upon implementation of the ordinance.

Our economy, which is so heavily based upon tourism, is in shambles; hotel occupancy is at low levels never seen before. Thousands of people are out of work; some hotels are closed. Our unemployment insurance system is overstressed and reliant, as many residents also are, on temporary federal bailouts. Much has been written recently about our need to build our economy back differently, with lesser reliance on tourism, but nothing significant has surfaced to do that in the foreseeable future.

According to the Hawaii Tourism Authority (HTA), average hotel occupancy in January 2021 was only 23.3%. State general excise tax (GET) and transient accommodations tax (TAT) revenue from hotels and related businesses have been devastated. In a March 3 article, the Star-Advertiser reported that, according to the University of Hawaii Economic Research Organization (UHERO), Hawaii GDP shrank by $7 billion in 2019, and is not expected to fully recover until late 2023.

Another statistic, derived from the Department of Business, Economic Development and Tourism’s Data Book, has been quoted many times and is definitive concerning the drag that the increase in the number of vacation rentals has on our economy. In 1989, we had 6.5 million tourists and $9 billion in tourist revenue, the equivalent of $18.3 billion in 2019 dollars. In comparison, it took 10.4 billion tourists in 2019 to reach $17.75 billion in revenue.

Many more tourists, but less actual revenue. Vacation renters spend about 20% less.

Clearly this is no time to promote activities that will result in less tourist revenue. The worst thing we can do now is create competition for hotels by allowing more vacation rentals to siphon off hotel revenue and hotel jobs.

An additional complication stems from the Honolulu City Council’s recent approval of an increase in the property tax rate for all vacation rentals from $3.50 per $1,000 of assessed valuation, to $6.50 per $1,000. While this increase for the thousands of existing short-term rentals is overdue, and justified by the pressures that they put on neighborhood infrastructure and city services, the DPP rules of procedure do not address, nor are rules being prepared by the Budget and Fiscal Department, to coordinate and identify properties subject to the new tax rate.

What will be the rules whereby the Budget and Fiscal Department ensures that permits issued by DPP will be properly taxed? Will permit holders lose their permit if taxes are delinquent? More importantly, how will the budget department interact with DPP to determine how and when illegal rentals will pay the new tax?

Other arguments include the existing loopholes in the enforcement process, the effect of possible COVID spread in residential neighborhoods, and certainly the potential reduction in the supply of housing that is already at crisis levels. These questions and others certainly go to the argument that issuing new permits is at least premature. Now is not the time to move forward with additional bed and breakfast permits.

Charles (Chuck) Prentiss, Ph.D., has degrees in economics and city planning, and was former executive secretary of the Honolulu Planning Commission.