Thousands of illegal vacation rentals have been allowed to proliferate throughout the islands, likely contributing to a reduction in state tax revenue and a tightening of local rental markets, a new report by the Hawaii Tourism Authority suggests.

The report, released Tuesday, provides a snapshot of the visitor accommodation market. Out of a total of about 88,000 visitor accommodations, including hotels and timeshares, one-fourth of the units are vacation rentals, including homes or extra bedrooms marketed online as short-term rentals.

“While hotels continue to be the accommodation of choice, the popularity and demand for alternative accommodations have grown rapidly over the years,” HTA CEO Ronald Williams said in a press release.

View of homes in upper Manoa.  9 dec 2014. photograph Cory Lum

Homes in upper Manoa.

Cory Lum/ Civil Beat

Williams said that the data could help the counties make policy decisions about how to regulate vacation rentals.

The study, conducted by SMS Research, wasn’t intended to decipher how many of the vacation rentals are illegal, the subject of heated policy debates over the years. But the figures in the report provide insight into the scale of the problem.

On Oahu, there are only 828 permitted vacation rental units, according to November data from the city’s Department of Planning and Permitting. However, the HTA report cites a total of 4,411 vacation units that are being advertised through web sites including VRBO, AirBnB, Clearstay and TripAdvisor.

Vacation rentals totals

SMS Research report/Hawaii Tourism Authority

Natalie Iwasa, an accountant who is active in local politics, said that the numbers suggest that the majority of the units being advertised on Oahu are illegal. She said the state should be working to ensure that the operators are paying their fair share of taxes associated with such rentals, including the transit accommodation tax and higher general excise and income taxes.

The numbers may also invigorate debate in front of the Honolulu City Council over a resolution urging the city to allow ohana units, typically reserved for family, to be rented out to the general public. Resoution 14-200 is intended to increase the rental inventory and provide more affordable housing on Oahu, but critics have testified that such a measure will exacerbate the illegal vacation rental market.

“I can see how those who oppose allowing non-family tenants to stay in ohana housing would use this as support for their argument – that there are already several thousand units out there that are illegal, and why add more?” Iwasa said by email. “I think they have a good point – if the city can’t enforce the zoning laws that are already in place, how would they enforce a new one that allows additional tenants?”

Still, she said, renting out ohana units could help with the shortage of affordable housing.

City Planning Director Seeks to Toughen Enforcement

Officials at the Honolulu’s Department of Planning and Permitting have said in the past that they have struggled to close down illegal rentals because the law requires them to actually catch owners or renters in the act.

But the department is pushing to enact more aggressive measures to target the issue, according to DPP Director George Atta.

The department is seeking to increase the fine for operating illegal vacation rentals and bed and breakfasts from $1,000 to a maximum of $10,000 a day, he said. DPP is also considering re-introducing a bill to the City Council that would require rental operators to include information, such as their address or operating certificate number, on advertisements or face a penalty of $1,000 a day.

The Honolulu Planning Commission held a hearing on the bill in 2011, but failed to make a recommendation to the City Council and it never had a hearing, said Atta.

On Maui, the HTA data indicates that there are 8,840 vacation rentals, comprising 13.6 percent of the housing market — the highest rate of all the islands.

Michele McLean, deputy director for Maui County’s planning department, said that about 2,000 of these are likely illegal. She said the problem of illegal rentals has been particularly bad in Paia, Haiku and south Maui.

The department currently has a list of about 1,000 unpermitted vacation rentals and has started sending out warning letters to their owners, said McLean. Operators of illegal rentals can be charged $1,000 for every day that they continue to operate after an initial $1,000 fine.

Maui, Kauai Still Struggle to Shut Down Illegal Rentals

McLean said that Maui County has made it easier in recent years for owners to get permits to operate vacation units and bed and breakfasts, but many owners haven’t gone through the process, likely to avoid paying higher taxes.

Maui County successfully shut down a lot of its illegal vacation rentals in past years, but the rise in online marketing seems to have worsened the problem.

“The AirBnB and VRBO sites have played a big part because all someone needs to do is stick the property on the website,” said McLean, “they don’t have to find their own market.”

On Kauai, the study identified 3,614 vacation rental units, comprising 12.6 percent of the housing market. However, the county’s list of permitted rentals only includes about 450 properties. 

Vacation rentals_Hawaii Tourism Authority

SMS Research/ Hawaii Tourism Authority

There are four areas on Kauai where vacation rentals are legal and don’t require a permit, including Princeville, the Wailua Corridor, Kalapaki and the Poipu corridor, so it’s hard to gauge exactly how many of the units identified in the report are illegal.

Outside of these areas, the report indicates that in Hanalei there are 355 rentals.

At least a third of these are likely illegal, said Jay Furfaro, who works in the resort industry and is the former chair of the Kauai County Council. He noted that the illegal rentals reduce the amount of affordable housing available for locals. “That is where the challenge is,” he said.

The report also found dozens of vacation rentals listed for Anahola, Kilauea, Kekaha and Waimea. 

Kauai County has instituted measures to rein in the illegal vacation rental market. In 2008, the county banned any new vacation rentals outside of the designated areas.

However, since then the county has only shut down 13 illegal vacation rentals, according to Beth Tokioka, communications director for Mayor Bernard Carvalho. The county has collected about $100,000 in fines, but most of this is related to late renewals not unpermitted rentals.

On the Big Island, the study identified 4,986 vacation rentals, accounting for 6.1 percent of the housing market. However, owners or lessees don’t need a permit to operate vacation rentals, said Kevin Dayton, a spokesman for Mayor Billy Kenoi.

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