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The Honolulu City Council will hear arguments for and against Mayor Rick Blangiardi’s proposal for short-term rental enforcement on Wednesday in what is shaping up to be another long and contentious debate on the issue.
Bill 41 is being pushed by Blangiardi’s Department of Planning and Permitting just two years after a previous council passed a crackdown on short-term rentals, such as those advertised on Airbnb and VRBO. Scheduled for a first council reading on Wednesday, the measure has already attracted written testimony from hundreds of stakeholders.
DPP says it wants to go further in reducing the number of vacation rentals that it says have overrun residential neighborhoods and are using up valuable housing stock. The proposal would further restrict the use of short-term rentals, impose new taxes and fees and use some of the proceeds for enforcement.
“Through the pandemic, we saw what neighborhoods became after keeping out all these vacation rentals,” DPP Director Dean Uchida said in an interview.
“I think residents really appreciated that … And so that was one of the things we set out to do, is try and restore some sanity back into the residential neighborhoods.”
Short-term rental operators, however, are arguing that DPP never gave the 2019 legislation a chance. They also contend that the bill will unjustly ensnare those who are currently operating legally and that it includes provisions that have nothing to do with curbing the number of vacation rentals in quiet neighborhoods.
“We’re all supporting getting rid of illegal short-term rentals,” said John Lisoway, who owns a Waikiki condo with his wife.
“We’re all supporting making housing more affordable for the island. People shouldn’t be abusing the system or their neighbors’ generosity. But what really is disturbing to me is they’re also attacking legal short-term rental owners like ourselves.”
A particular point of outrage is that people who operate short-term rentals in condo-hotel buildings would be compelled to hire the management company used by the building instead of using the company of their choice at a lower price.
Owners say the provision doesn’t advance the city’s stated mission of protecting residential neighborhoods. Instead, they say it seems designed to enrich hotels or make it so onerous to operate that they give up – a contention Uchida disputes.
“Nobody is talking about putting the legal operators out of business,” Uchida said.
Some critics have even questioned the city’s motives, pointing out that Uchida’s wife, Joy Uchida, is an executive at Aqua-Aston Hospitality, which manages more than a dozen Oahu hotel properties.
Dean Uchida told Civil Beat he doesn’t view the matter as a conflict of interest.
“But everybody else does,” said Mark Howard, a real estate broker and short-term rental manager.
Meanwhile, another contingent of island residents are cheering DPP on.
Resident Judy Bishop said in written testimony that she supports any effort “to curtail vacation rentals in the state of Hawaii, especially on Oahu, especially in Kailua. As a homeowner, it has devastated my neighborhood, it has devastated the quality of my life, it is unacceptable and must be stopped now.”
Bill 41 would change several aspects of the city’s short-term rental law.
Notably, it would forbid anyone from renting their property for less than 180 days. That’s up from the current 30 days, a loophole that some property owners have used to rent their properties to tourists in up to 12 one-month increments per year.
However, the latest version of Bill 41 includes several exceptions to the 180-day rule, including for full-time students, temporary health care workers, remote workers and homeowners in transition, among others.
Under Bill 41, roughly 800 non-conforming use certificate, or NUC, holders – 115 of which are in residential neighborhoods – would be allowed to continue operating legally.
Beyond those, bed-and-breakfasts and transient vacation rentals would only be allowed with registration in the Gold Coast area of the Diamond Head neighborhood, parts of the Kuilima and Koolina resort areas, resort zoned properties in Makaha, and in Waikiki, makai of Kuhio Avenue.
DPP seeks to tax bed-and-breakfasts at a B&B property tax rate and transient vacation rentals – or TVUs, in which the owner does not live onsite – at the hotel and resort tax rate.
And all short-term rental owners, including those NUC holders, would be required to pay a $5,000 application fee and a $2,500 annual renewal fee. And they could only rent to groups with no more than two adults per bedroom, the bill states. That’s to allay concerns about loud, disruptive groups in residential areas, Uchida said.
Many legal owners feel the new costs to operate are excessive.
Vicky and Grant Poland, a couple from New Zealand who moved to Hawaii in 1991, have owned the Rainbow Inn in Aiea since 2018. The Polands live upstairs and rent out the downstairs, which has an in-ground pool and a view overlooking Pearl Harbor.
Their guests include tourists, locals seeking a staycation spot and also families from neighbor islands visiting Oahu for medical procedures or athletic events, Vicky Poland said.
Under Bill 41, their property tax rate would increase from $3.50 per $1,000 to $6.50 per $1,000. They’d also have to pay the new registration and renewal fees, according to DPP. Their current annual fee is $200. Even with a non-conforming use certificate, the Polands said Bill 41 poses a significant burden.
“It’s going to make it very difficult for even us,” she said.
But Uchida said he believes short-term operators will still be able to make ends meet.
“I think when you look at the kind of income they’re getting versus how much we’re charging, we’re not putting anybody out of business,” Uchida said.
Except those who break the rules, of course. Those who violate the law could be assessed a $25,000 fine per violation – up from the current $10,000.
The bill has already been amended since it was first discussed at the Honolulu Planning Commission in September and October.
The latest version of the bill scraps an earlier idea to create a pot of over $3 million, funded by short-term rental property taxes, that would be used to enforce the new law.
The city determined that it could not divert property tax revenue to a special fund without a charter amendment, according to a letter from Uchida to the council.
Instead, the new bill proposes that all fees and penalties related to bed-and-breakfasts and transient vacation units will be deposited in an “STR enforcement fund.” DPP said it’s unclear how much revenue that would generate.
The new bill removes several parts of the original proposal, including a prohibition on ownership of more than one short-term rental property and a requirement that owners register units with their legal names, not LLCs or trusts, which are commonly used for liability purposes.
Bill 41 will have unique ramifications in Waikiki, which contains numerous buildings that operate as both hotels and apartments, Uchida said.
With this bill, Uchida said DPP is trying to force property owners to pick a lane: Are you a hotel or an apartment? Building associations will have to decide, he said.
“So we have this mixed bag of existing uses,” he said. “We’ve just got to recognize the people using it as a long-term rental, but over time, try to convert them into a hotel operation, which is what it’s supposed to do.”
Some condo hotels contain long-term residences but never paid impact fees associated with residential developments, Uchida said.
“It’s like they said they were going to do one thing, and they used it for another,” he said.
With that comes one of the most controversial provisions in Bill 41: a requirement that condo hotel units be managed by the building’s hotel operator and booked using a centralized hotel system.
In other words, instead of private property managers posting listings on Airbnb or VRBO for the owner, the unit would be part of the hotel’s inventory and booked by the hotel operator.
“We want to preserve the individual’s right to do what they want with their unit,” Uchida said. “But we don’t want them to rent out as a short-term vacation rental, unless it’s under a hotel umbrella.”
Putting non-residential units in the hotel inventory would make it easier for DPP to monitor rentals and enforce the law, according to Uchida.
“We wanted to try and get a handle on just the total number of units that are going to be considered to be short-term vacation rentals, and putting them in the hotel pool was the easiest way,” he said. “Not have like three different categories: long-term rental, short-term STRs and then the hotel.”
John and Karen Lisoway said they currently pay a local company an affordable rate to manage their unit at the Aston Waikiki Sunset, which is mauka of Kuhio Avenue. The Canadian couple, whose son goes to the University of Hawaii, said they bought the unit as an investment and to use when they visit Oahu.
If Bill 41 passes, they said they would have to give Aston 40% of their gross revenues, more than double their current rate, plus a $500 administration fee and an $80 furniture fee. Those expenses – combined with general excise tax, transient accommodations taxes, hotel and resort property taxes, and HOA fees – make the situation unworkable, they said.
“You can’t even break even,” John Lisoway said.
People who rent out their condo unit most of the year and sometimes stay it in for vacation have expressed concern that they may have to book their own unit back from the hotel. The bill doesn’t specify what those owners are supposed to do in that scenario, but Uchida said the owner should be able to pull the unit out of the hotel pool temporarily.
“They have to work that out with the hotel,” Uchida.
If owners live in their condo hotel unit now, they may continue to do so, but once they sell, the next owner would only be allowed to rent it as a hotel unit, not live in it, according to the bill.
Many owners of condo-tel units are livid about the proposal, which they say takes away their property rights and would force them to pay higher fees to companies like Aston for the same service.
NUC holders in apartment buildings may remain nonconforming, Uchida said. But NUC holders in buildings that operate as hotels stand to lose out, according to the Lisoways.
They bought their unit at a premium because of the non-conforming use certificate, they said. Forcing NUC holders to join the hotel inventory with everyone else makes their otherwise valuable certificate worthless, they said.
If Bill 41 passes, the Lisoways said they would probably sell their unit and look for units for sale on Maui, which they perceive as friendlier to short-term rentals.
Uchida acknowledged that hotels stand to benefit from the legislation his department is proposing.
“I think hotels benefit, and I think the residential neighborhoods benefit,” he said.
Hotel interests were not involved in developing the bill, according to Uchida, but he said they have been part of the conversation.
They include the Hotel Lodging and Tourism Association, the Waikiki Improvement Association, and BRE Hotels & Resorts’ Vice President Jerry Gibson, who is also a member of the Honolulu Police Commission, Uchida said.
But Uchida said one person who has not been involved in the talks is his wife.
“I don’t talk to my wife about what we’re doing,” he said. “I don’t think it’s a conflict. We’re just trying to fix a situation in the community. We have winners and losers, and I think the neighborhoods win, the visitor industry wins. The illegal guys are probably going to be upset.”
Still, rental operators continue to share their suspicions about the involvement of the hotel industry in online forums and written testimony.
“In my opinion, the hotel lobbyists are trying to squeeze out all the short-term rentals,” John Lisoway said.
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