Airbnb and a number of other internet-based companies are offering to help in collecting taxes for their illegal short-term rentals in Hawaii that are using their platform.

These companies profit heavily from property owners engaged in this illegal rental activity. Applying taxes to these otherwise illegal rentals gives the appearance of legitimacy. It also creates an economic disincentive that discourages enforcement of rental laws designed to protect our residential neighborhoods.

Authorizing internet platforms to collect taxes on the illegal short-term rental of local housing units would be tantamount to provide an aura of legitimacy to this illegal practice. The result would be to further deplete the precious supply of housing available to our residents.

Over the last year, Airbnb has spent hundreds of thousands of dollars on television and digital advertising to perpetuate a myth that its Hawaii hosts are simply local families who occasionally rent a spare room to a visitor to help pay their mortgage.

This Airbnb listing in Lahaina is one of hundreds for short-term rentals in Hawaii on the rapidly growing website.

Airbnb

The truth is that 70 percent of all the short-term rentals in Hawaii are owned by out-of-state residents, while almost all of Airbnb’s revenue, over 85 percent on Oahu alone, comes from multi-unit investors and entire-home rentals.

Every renter who needs access to housing that they can afford should be worried. If illegal short-term rentals are legitimized and allowed to continue the significant proliferation in residential neighborhoods, an already out-of-reach housing market will get much, much worse.

A Profitable Market

Seventy-one percent of all extremely low income households (those at 0-30 percent of the area median income) pay more than half of their income toward housing. The desperate need for affordable rentals is undeniable with the Honolulu Department of Community Services estimating that 71 percent of all projected need of over 14,310 units are required by those with incomes below 80 pecent of AMI.

In some areas, advertised rental housing listings have dropped by 80 percent, threatening these vulnerable renters. The number of single-family listings in Kauai is less than 10 percent of the number of listings available three years ago.

If Airbnb is serious about helping residents in Hawaii, a simple remedy is to begin checking their owners’ compliance with our laws.

If we do not effectively regulate vacation rentals, at best we risk disrupting communities when residents are forced to chase a shrinking pool of affordable rental units. At worst, we contribute to Hawaii’s already severe homelessness epidemic.

A closer look at the economics of the short-term rental industry in Hawaii reveals that the average Airbnb short-term rental can generate over 70 percent more a month in revenue then the unit would generate as an apartment for locals.

For example, there’s a currently listed studio unit in an affordable housing high rise in Salt Lake that generates almost $30,000 annually or the equivalent of $2,500 a month. That same high rise lists a comparable studio unit at $1,161 per month.

A recent study by the Hawaii Tourism Authority paints an even more disturbing picture suggesting that a unit occupied only 80 percent of the year will generate over 3.5 times the rent charged for a rental of over 30 days. The economics helps explain why the HTA has determined that the number of vacation rental units in the state grew 13.2 percent from 2015 to 2016.

Second-Home Owners

What is particularly frightening about this scenario is the fact that almost half of all Oahu households are renters and almost all the rental units available on Oahu are owned by investors or second-home owners.

So, what happens when government legitimizes the illegal short-term rental industry by allowing taxes to be collected, in a market where short-term rentals yields significantly higher returns than apartments?

The stakes are way too high to get this wrong.

We can all agree that people should pay the taxes they owe but the consequences of doing it by legitimizing illegal activities will be disastrous for our local residents. The little that will be collected will easily be offset by the dramatic loss of critical housing units and the resulting increase of rents for the fewer remaining rentals available for our own residents.

The real urgency is for enforcement, not taxation. If Airbnb is serious about helping residents in Hawaii, a simple remedy is to begin checking their owners’ compliance with the laws of both the counties and the state.

It is not complicated for Airbnb to require proof of compliance with laws governing rentals in Hawaii instead of trying to convince the governor and the Legislature to legalize their destructive illegal activities. Legislation at the state and county level must put enforcement first, then explore taxation structured to curb the proliferation of short term rentals.

The stakes are way too high to get this wrong. We all seem to agree that the lack of affordable housing is well beyond a crisis stage.

It’s time for our political leaders to begin making some hard decisions to begin resolving this problem rather than significantly adding to the crisis by creating a revenue stream based on illegal vacation rentals in our residential communities.

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