KAPALUA, Maui — A startup that buys luxury houses and sells shares in them to buyers interested in owning second homes has started operating on Maui, alarming some local residents who are tired of wealthy investors buying up property on the island.

Maui County locator map

And at least one County Council member says she’s received a number of complaints from neighbors and is researching whether the business model is legal.

Pacaso, which describes itself as an “innovative luxury second home co-ownership platform,” announced Wednesday that it’s selling its first home in Hawaii, a Kapalua condominium that can be split between either two or four owners starting at $1.45 million per share. It also has three other “prospect” homes advertised on its website — one in Paia and two in South Maui.

Pacaso, which was launched in October 2020 by former Zillow executives, buys homes, lists them online and sells shares to multiple owners. Customers are given the chance to own vacation homes “without all the hassles,” the company says, because it serves as the property manager, vets other potential buyers, arranges their stays and takes care of repairs and utilities.

The company says its model is a more sustainable and less wasteful way to own vacation homes, since multiple owners can share a single multimillion-dollar house instead of individually buying units that are likely to sit vacant for much of the year.

A beach near Lahaina in West Maui.
Home prices have been climbing on Maui and costs escalated during the pandemic as out-of-state buyers snapped up properties. Nathan Eagle/Civil Beat/2022

But even before the company publicly announced its plans on Maui, where the median home price reached more than $1 million during the pandemic, some residents were raising alarms about the company.

“They like to claim it won’t hurt the housing market because they will only target luxury homes,” said Tiare Lawrence, a longtime community activist who was born and raised in Lahaina. “But the reality here in Hawaii is any time homes are sold at luxury prices, property values go up for everybody on this island.”

Justin Tyndall, an assistant professor at the University of Hawaii Economic Research Organization, said he doesn’t think Pacaso is likely to drive up housing costs for the average Maui family as long as it sticks with a small number of luxury homes. But regulating businesses like Pacaso could pose a challenge for county leaders since the company found a creative way to classify its real estate.

The county, however, does have one tool, Tyndall said. It raised property tax rates for hotels and timeshares last year, and it could look to raise rates on second homes, too.

“I really see no downside to increasing property taxes on particularly high-end second homes,” Tyndall said.

Maui County officials have recently taken steps to curb the growth of hotels and vacation rentals, in hopes of improving residents’ quality of life. Right now, there are more short-term rentals and non-owner occupied homes on Maui than there are owner-occupied houses, according to county data.

Working families have always struggled to make ends meet in a place with one of the nation’s highest costs of living, but things have gotten worse in the last few years. Out-of-state buyers flooded Maui’s housing market during the pandemic, often offering cash over the asking price.

Local families haven’t been able to compete: In 2016, about 50% of homes were sold to investors or vacation homeowners, a figure that climbed to 70% by 2020, according to a recent analysis by a researcher from the Hawaii Appleseed Center for Law & Economic Justice.

At the start of 2020, the median sales price for homes stood around $777,500. Within two years, it rose to $1.16 million — meaning the typical Maui family, earning about $91,000 a year, might not be able to afford buying a house.

A Different Business Model

Pacaso, however, says it’s not interested in disrupting Maui’s middle-class housing market; it only wants luxury properties priced over $4 million.

Pacaso spokesman Cesar Fernandez says the company promised Maui leaders it would “never buy a home that’s less than four times the median price point,” a self-imposed rule geared toward protecting the availability of homes that working families might be able to afford.

“In the middle of the housing crisis, those are the homes in highest demand, right?” Fernandez said. “We would never want to even get close to making the issue worse.”

The idea of co-owning property isn’t new. It’s common in Hawaii and elsewhere for investors to create limited liability companies, or LLCs, to purchase property so multiple people can serve as owners.

What’s different about Pacaso, Fernandez said, is that its website connects buyers who don’t already know each other. In a promotional video on its website, one of the company’s founders said after buying his vacation home in Lake Tahoe, he started Pacaso to make the joys of vacation home ownership more accessible for a greater number of people.

“We were inspired by the revolutionary artist, Picasso, and in particular, his work with cubism, which is about bringing together individual elements to create a more beautiful collective whole,” Pacaso CEO and co-founder Austin Allison explained in the video.

Since late 2020, Pacaso has bought up homes in 30 different communities — from Napa, California, to Aspen, Colorado to Ibiza, Spain. Of about 50 properties currently listed for sale or as “prospects” on its website, the estimated entry into co-ownership ranges from $370,000 to $3.9 million, depending on the location and size of the home.

Pacaso has “gone out of our way” to be a good neighbor since starting business in Maui, Fernandez said, including making a $10,000 donation to a water quality lab at University of Hawaii Maui College.

The company says it works to educate each of its customers and bars them from throwing big parties and using properties as short-term rentals — or they risk being suspended from visiting. Since the average U.S. vacation home sits empty 10 months out of the year, the company argues that having its owners fill homes year-round is more beneficial to local businesses and communities.

Local Pushback

Tiare Lawrence is one Maui resident who opposes the sale of more vacation homes since local residents have a hard time affording a place to live. Courtesy/2016

Other communities, including those in California Wine Country and Palm Springs, have tried to stop Pacaso from moving in.

Pacaso acknowledges that a few communities have fought to regulate or ban their presence. But since buyers own real estate — not just time at a resort — the company argues that they should be treated like any other second homeowner.

Pacaso usually allows up to eight different owners to share a home, which has spurred outrage among residents who’ve said that vacation homes don’t belong in residential neighborhoods. When the California city of St. Helena said a ban on timeshares barred Pacaso from operating there, the company sued the city in federal court, the St. Helena Star reported.

Pacaso says its model is not like a timeshare, although it typically allows co-owners to stay at properties for two to 14 days at a time. Maui buyers who own one-fourth of the properties will be able to stay up to 28 days, according to the company.

“The economics are not terribly different than that of a timeshare,” Tyndall noted. “Perhaps from the perspective of the person investing, it’s a different framework that’s maybe better for them; they get to enjoy the upside risk of housing appreciation.”

“But from the perspective of the county and the people that live there,” he continued, “that’s not that important.”

On Maui, timeshares pay the highest property tax rate — $14.60 per $1,000 of a property’s assessed value — followed by hotels and resorts at $11.75, short-term rentals at around $11 and non-owner-occupied homes, which can pay up to $8 per $1,000 in value if homes are assessed at more than $1.5 million, according to the county. Visitor lodging — like hotels, timeshares and Airbnbs — pay additional state and county taxes, on top of property taxes.

Maui County Council member Tamara Paltin, who holds the seat for West Maui where Pacaso bought its first home, said she’s already received complaints from neighbors. Wealthy owners who can afford multimillion-dollar homes by themselves, she said, aren’t necessarily keen on a revolving door of people next door.

Last week, she asked county attorneys to begin researching whether Pacaso’s business model is allowed under existing law and what, if anything, can be done to bar it. In the process, she found out about another company called Cohana running a similar business on Maui, although it’s unclear how long it’s been operating in the state.

Michele McLean, director of Maui’s planning department, said the county looked into fractional homeownership — when multiple owners divide shares of a home — a few years ago and found that it wasn’t legal under the county’s code at the time. It’s unclear whether Pacaso’s model is different enough, she said.

“It’s just this ongoing evolution of the industry that is purposefully working to stay just barely in balance of our laws,” McLean said. “It’s very trying.”

While county leaders figure out what to do next, Paltin said residents owning property in communities with homeowner associations and condominium rules can look to change their policies. And with the county planning to put together a new annual budget this spring, she also agrees that one of the easiest things officials can do is raise property tax rates on the priciest non-owner occupied homes.

Hawaii has the lowest property tax rates in the country, according to WalletHub. In a recent study commissioned by the county, researchers suggested that Maui could raise property taxes for non-owner-occupied homes valued at $3 million or more, as a way to boost funding for affordable housing projects and desperately needed upgrades to roads, sewers and water systems.

“It’s not similar to the continental U.S. where second home proliferation is the only problem,” Paltin said. “It’s also our resources — water resources, wastewater capacity, road capacity — so cramming more owners into one second home is not a realistic solution.”

Civil Beat’s coverage of Maui County is supported in part by a grant from the Nuestro Futuro Foundation.

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