Hosted Short-Term Vacation Rentals Could Ease Housing Crunch - Honolulu Civil Beat

About the Author

Joshua Montgomery

Joshua Montgomery is an entrepreneur, coffee farmer and former U.S. Air Force officer who arrived on the Big Island by way of Silicon Valley. He has spent his career building companies to advance universal broadband access and online privacy.

For those of you who missed it, Civil Beat recently ran a story about the 15,000 Maui County homes that are sitting vacant. That is one out of every five homes.

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At the same time, Maui County needs 10,000 housing units. So converting 66% of the vacant homes in Maui County into full-time residences would solve the county’s housing crisis. The same is true for the other islands.

Of course it’s easy to say “put vacant housing to use,” but achieving that goal is difficult. Strong demand for second homes, an influx of remote workers and a wave of retiring Boomers has driven the median price past $1 million. These high prices coupled with rising interest rates put home ownership out of reach for working residents.

Even if 10,000 homes were to come onto the Maui market next week, the people who need them wouldn’t be able to afford them. The monthly payment on a $1 million home is more than $7,000 and the Federal Reserve has been clear that rates will keep rising.

Given the economics, this problem seems intractable, but there is a solution. A solution that gives locals the financial means to purchase homes by converting vacant properties into affordable housing — hosted short-term vacation rentals.

Now, before the not-in-my-back-yard crowd starts clutching their pearls in anticipation of — gasp! — guests staying in their neighborhood, I want to point out the word “hosted.” Hosted rentals are different from the absentee STVRs that have caused conflict in residential neighborhoods.

Host Families

Hosted STVRs are what companies like AirBnB originally envisioned — a room in someone’s home or an ohana. The host serves as a guide and helps guests better understand the unique character of the neighborhood. The host also helps ensure that over-eager guests behave themselves and respect the neighbors’ right to quiet enjoyment.

If you live in Hawaii full time you probably know someone who runs a hosted STVR. An auntie who rents out a bedroom? Or a friend who rents an ohana?

They do this because the economics of a STVR make it possible for locals to make ends meet without the benefit of a retirement pension or a six-figure job on the mainland.

So this raises the question: If the unit economics allow auntie to survive by renting a bedroom, why not apply the same solution to the broader housing crisis?

Why not encourage families to purchase property and divide it in two? One part becomes the family’s home while the other becomes a hosted STVR. This allows the family to participate in the tourism industry as business owners.

Not as a maids, chauffeurs or a tour guides. Not as middle managers for some tax-dodging international hotel conglomerate, but as a small business owner who can use the one secured credit facility they have — their mortgage — to improve their financial outlook.

Healthy Communities

Let’s look at an example: a 4-bedroom, 3-bathroom 2,000 square-foot home selling for $1,150,000. Let’s assume the owner puts down 5% of the sale price and converts two bedrooms into an affordable hosted short-term vacation rental. The conversion costs $25,000 and includes the addition of a private entrance and lanai.

A property like this would cost $8,650 per month to operate and would generate nearly $6,500 per month in STVR income. This means that the host family only pays $2,150 per month.

The guests would pay 75% of the host family’s housing costs. As an added bonus the host would accrue more than $1,500 a month in home equity.

These economics would also work for investment properties where landlords would divide properties in two. One part becomes full time housing for a host family, the rest becomes a hosted STVR.

Of course, vacation home owners, investors and speculators are not going to wake up one morning and convert their properties into housing for locals voluntarily. So how would we take these very attractive unit economics and harness them to solve our housing crisis? By doing what the government in Hawaii seems to do best — raising taxes.

Those 15,000 empty homes on Maui represent a limited resource that our community needs to remain healthy. If those property owners are going to allow a critical resource to go unused, they should pay for that privilege. Today the property tax rates in Hawaii are far lower than on the mainland. For second homes and vacation properties that needs to end.

Property owners who are not living in the homes they own should be charged a substantially higher tax rate. This would encourage them to either sell the properties or convert a portion into year round housing for local residents (for which they would receive a lower tax rate).

The other change that would be needed is regulatory. The war on STVRs here in Hawaii has created an environment where banks are unwilling to acknowledge STVR income on loan applications. This means locals looking to use this on-ramp to home ownership would first need to show hundreds of thousands of dollars in other income.

It is time for us to try something new.

To enable families to access credit our state and county leaders would need to make it clear that hosted STVRs are legal, welcome and an important part of our future housing policy.

County leaders would also need to make sure that homeowners looking to convert portions of their properties into hosted STVR units are able to get permits, approvals and licenses in a timely way. Far from protecting us, our local government’s deference to NIMBYs is destroying Hawaii. It is making housing unaffordable to any but the very richest and pushing hard working locals to the brink of homelessness.

The housing crisis here in Hawaii is starting to impact every facet of our economy. To address it we’ve tried to build affordable units, we’ve tried subsidizing low income families and we’ve tried demonizing short-term vacation rentals. Yet the problem gets worse year after year.

It is time for us to try something new. Let’s look at solving our housing crisis by leveraging our tourism industry to create an environment where locals can become homeowners while guests can get an authentic Hawaii experience.

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About the Author

Joshua Montgomery

Joshua Montgomery is an entrepreneur, coffee farmer and former U.S. Air Force officer who arrived on the Big Island by way of Silicon Valley. He has spent his career building companies to advance universal broadband access and online privacy.

Latest Comments (0)

Short term rentals in residential neighborhoods destroy the local neighborhoods. Short term rentals belong in resort zoned properties. That is why zoning laws were created. We do not want small business in our neighborhood.

bc · 1 year ago

A few points and reality checks. I grew up in Manoa valley in the 70's when a family home meant one family to a house, many single car garages, still there where few cars on the street, so we could play in the road without vehicles to dodge. Today, there is no street parking left. Why, because every homeowner rents part of their home to make extra income. Not TVR's, but standard tenant rentals. Meaning this is the present housing market without TVR's already. I agree with the author that a home owner should be able to rent to whomever they want for how every long they want. Bill 41 is an infringement on a property owners right to rent, period. Government has no business dictating how long I need to have a tenant, it's discriminatory as well, but the belief that any property becomes a vacation rental is also unrealistic. Only homes that offer some proximity to attractions, or present uniqueness will regularly garnish tourists. Vacationers aren't looking to stay in Kalihi Kai, Wahiawa, or in most neighborhoods really, and that is why the TVR issue was a farce in the first place. Lastly, the landlord code needs to go because it disincentives the homeowner to rent locally.

wailani1961 · 1 year ago

If we want more rental units on the market, Hawaii has to rewrite its landlord-tenant laws to protect landlords. Current laws protect tenants while leaving landlords with very little recourse. I personally know of friends and realtors who have had horrific renters. These renters stop paying rent and destroyed the homes (doors smashed and cabinets ripped off the walls) and took the home's appliances. It takes months for landlords to evict a bad tenant (that's if court dates are available) and landlords can only legally collect one month worth in security deposit. So when a bad tenant stops paying and trashes a home, a landlord has no way to stop the damages immediately. The tenant has to be offered at least 30 days to move out. On top of that, one mistake on the landlord's part and the clock resets. Worse, the landlord may now face a lawsuit for his/her mistakes.There are "professional" tenants who exploit Hawaii's laws. Criminals rent a home then stop payment knowing that it will take months before they are evicted. And there is no protection for landlords.People who do not need the money, will NOT rent their homes. Not without better protections in place.

Mnemosyne · 1 year ago

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