City considering a plan to better manage short-term vacation rentals on Oahu

The Honolulu Department of Planning and Permitting is proposing a measure to cut down the number of short-term vacation rentals on Oahu and boost the number of housing units available to residents.

The measure would allow all legal current bed-and-breakfast and transient vacation units to continue operating but would not allow any new short-term vacation rental properties in residential areas. The only new permits would be given in resort areas such as Kuilima, Ko Olina and Waikiki. It would also require the properties to display their certification registration number on all of their advertisements for the property.

The DPP measure would also change the definition of a short-term rental. Currently, a short-term rental is anything less than 30 days. Homeowners, without a special permit, are allowed to rent a unit for a minimum of 30 days under the current system. Some owners have used that rule to continue renting to visitors.

Under the DPP proposal a short-term rental would be anything rented for less than 180 days. The idea is to make these properties available for residents only.

DPP was originally looking at creating a lottery system to grant up to 1,700 permits for legal short-term rental properties. However, that plan was scratched after public pushback.

Mayor Rick Blangiardi estimated that about 3 million of the state’s 10.5 million tourists were staying in up to 14,000 illegal vacation rentals.

There are only 808 legal short-term rental properties on Oahu outside of resort areas.

“We have a housing crisis that more than anything, the short-term vacation rentals have really impacted that housing crisis and taken a lot of units off the market that could be available to local people,” Blangiardi said Monday at a news conference.

DPP Director Dean Uchida said that according to University of Hawaii Economic Research Organization Executive Director Carl Bonham, 5% of the state’s housing stock is being used by illegal short-term vacation rentals.

The measure plans to charge B&Bs and TVUs in residential areas at the B&B property tax rate, which is higher than the residential rate. The new nonconforming units would be taxed at the resort rate, which is even higher. The proceeds from the increase in tax revenue from the short-term rental units would then be used to staff the DPP’s special short-term rental enforcement unit.

Uchida explained that several years ago the City Council granted the department seven positions for this exact purpose. However, the positions were not funded and so were unable to be filled.

“It’s the first time we’re doing this type of focus because it’s such a big problem,” he said.

“Typically, our building inspectors would be the ones doing enforcement, but they got enough to do with just building code violations and things. So dedicating a staff, setting up a funding stream, just to take care of the enforcement branch — those are two critical steps in the right direction.”

During a City Council committee meeting Tuesday, Council member Esther Kia‘aina asked Uchida whether the bill could be amended to not allow the nonconforming use designation to transfer from one owner to the next.

Uchida said that he looked into including it in the measure, but that it would not be possible because it is a legal status of the property itself. That means that as long as the owner of the property registers the property annually, the nonconforming use status would not lapse if the property is sold.

Council Chairman Tommy Waters also suggested to Uchida that a new tax code could be implemented to create a disincentive for homeowners with nonconforming use permits to rent their entire property to visitors rather than just a room.

“The current tax code only has a tax for bed-and-breakfast, which is when you rent out a portion of the house, but it doesn’t have a category where the entire house is rented out,” he said.

“Really, the idea is … how do you get the tourists back into Waikiki, back into the resort areas?”

Uchida said he would be willing to create a new tax category.

“We’re trying to give communities their neighborhoods back,” he said.

“Put our housing stock back into the rental market for long-term rent for residents. Local families can rent and also help the visitor industry manage tourism and manage the numbers of people who visit Oahu.”

The DPP proposal will be heard by the City Planning Commission and then the full City Council.

This story has been updated to clarify that no illegal short-term vacation rentals will be allowed to continue operating.