The administration says its enforcement focus is on illegal accommodations, but legal businesses would also be hit with significantly higher taxes and fees under the proposed bill. That includes the fewer than 800 non-conforming use, or NUC, rentals on the island that were grandfathered in from the 1980s and are allowed to operate short-term.
“They keep saying they’re going to leave the existing, legal NUCs alone,” said Foo, who holds several NUCs for units on her property. “But what they’re really trying to do is put everybody out.”
Under Bill 41, which has already passed a first reading at the Honolulu City Council, short-term rentals would be taxed at higher rates than residential homes, among numerous other changes to the city’s land use law.
Properties where the owner lives on site would be taxed at the bed-and-breakfast rate.
Transient vacation rentals, investment properties for owners who live off-site, would be taxed at the same rate as hotels and resorts – almost four times the lowest residential rate.
Foo falls into the latter category. By her calculations, Bill 41 would increase her tax bill from about $27,000 to over $90,000, more than a three-fold increase.
She would also be responsible for paying a one-time $5,000 registration fee, plus a $2,500 annual renewal fee, for each of her 13 units. That’s $32,500 per year in annual fees. Currently, she pays $200 per year per unit, or $2,600.
DPP Director Dean Uchida has said the intention of Bill 41 is to “restore some sanity back into the residential neighborhoods” and that he believes legal short-term rental operators should be able to comfortably absorb the new costs.
But Foo said that’s not the case.
To make ends meet, Foo said she may have to increase her rates, bucking her business’s affordability-focused mission statement. And if that didn’t work out, she’d have to convert to long-term rentals, she said, but she’s not sure long-term rental income could cover her mortgage payments.
Jill Paulin, Foo’s neighbor who also rents units out short term, said Backpackers’ price point fills an important niche for the area, particularly during surf competitions. The passage of Bill 41 would be “a real tragedy,” she said.
“There is not going to be a place for young surfers to come to the North Shore,” she said. “Their place is a part of the culture of the North Shore. (Their customers) can’t afford $300 a night at Turtle Bay condos or $1,000 a night at a hotel. I really believe it would change everything here.”
Meanwhile, Bill 41 has attracted support from residents and groups like Save Oahu’s Neighborhoods that argue the city needs to act to protect the character of residential areas and claw back needed housing units for locals.
Longtime North Shore resident Joe Wilson said in council testimony that his neighborhood has suffered from over-tourism and he supports the bill’s attempt to control it.
“It is a good beginning, and once passed, must be accompanied by strong enforcement,” he wrote.
Larry McElheny, a North Shore resident and former surfer, said the illegal rentals are the problem and should be the focus of enforcement.
“The illegal folks, in a sense, are spoiling it for the legal folks,” he said. “The authorities are clamping down across the board.”
For people with legitimate businesses like Foo’s who are permitted and can demonstrate they’re paying their taxes, perhaps Bill 41’s proposed fees should be negotiated down, he said.
“Two hundred dollars a year to $5,000 may be exorbitant,” he said. “So, what’s a fair fee? But to me, the least of our worries are the legal ones. The illegal ones, oh my gosh, they’re just killing us.”
Bob Leinau, who sits on the board of the local stewardship group Malama Pupukea Waimea, agreed. Perhaps NUC holders should be grandfathered in at a tax rate that is lower than the hotel/resort level.
“If someone has been established for decades, to sledgehammer them doesn’t seem right,” he said. “Everyone has to pay their fair share, but maybe there is a way to soften the blow.”
If Bill 41 passes, and Backpackers significantly raises its rates, McElheny, Leinau and Foo all agreed: surfers will just sleep on the beach or in cars.
“If there are good waves somewhere, the surfers are going to get there,” McElheny said.
Foo feels Honolulu should follow the advice of the Oahu Real Property Tax Advisory Commission, which in 2019 recommended the creation of a new tax category for short-term rentals with non-conforming use certificates. It should be lower than the hotel/resort rate but higher than the rate for homeowners, commissioners said.
“These properties are commercially operated and appear on the surface to be similar to hotels and resorts,” the commission wrote. “At the same time, these properties do not have many of the amenities and benefits common to hotels.”
Whether Bill 41 will make it through the City Council is unclear.
Council members Radiant Cordero and Andria Tupola both voted against the first reading. Council members Audie Tulba and Heidi Tsuneyoshi voted to advance it, but “with reservations.”
Tsuneyoshi, who represents the North Shore, was unavailable to comment for this story.
City Council Zoning Chair Brandon Elefante voted to approve the first reading but hasn’t taken a position on the bill. He recently noted on “PBS Insights” that Bill 41 needs work, and he supported an extension of time to consider it. The legislation needs five votes to pass.
Elefante was on the council in 2019 when the body passed a previous attempt to rein in short-term rentals, Bill 89. He said on “Insights” that he didn’t expect to have to address the issue again during his tenure, but he acknowledged that the bill is a priority for the Blangiardi administration.
“Hopefully we can get a bill that’s a compromise,” he said. “We do need better enforcement as one key component of it, but we have to also be fair.”
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