As Honolulu cracks down on illegal vacation rentals, registrations of units in sanctioned resort areas have more than doubled in the year since the process was streamlined. But neighbors complain some owners are still holding out — avoiding the higher tax rate and costing the city revenue.

Short-term rentals aren’t allowed in residential areas, a restriction intended to prevent neighborhoods from being overrun by tourists at the expense of local residents. Instead, the units can operate in the island’s five resort zones and some surrounding areas as long as their owners register with the city and pay an initial $1,000 fee along with $500 each year to renew.

Although making the registration process less cumbersome has helped, city officials say they’re focused on complaints about illegal short-term rentals in residential areas and don’t even know how many unregistered units may be operating in the resort zones.

Owners who followed the rules expressed frustration at having to pay the higher tax rate while others continue to rent their properties without regulation, underscoring the intractability of the problem as Honolulu grapples with how best to navigate the pressures of a tourism-driven economy.

“It really makes me feel angry,” said Kuilima Estates East short-term rental owner Michael Heh. He said he and his wife jumped through all the required hoops while others have escaped regulation, which also enables them to host more people than allowed by law.

“They’re escaping the higher property taxes, and they’re able to rent to six (people) instead of four,” he said as an example, bringing in more money per night and crowding communal spaces.

Simplifying The Registration Process

The city began requiring short-term rental owners to register in 2022 as Airbnb and other rental platforms grew in popularity, prompting complaints about rowdy behavior and parking as some neighborhoods became crowded with tourists.

But the process was cumbersome.

“It required a lot of documents,” said Pam Taylor, who with her husband Bryan Taylor owns a one-bedroom unit at Turtle Bay’s Kuilima Estates East.

The Taylors, who live in Utah, purchased the unit in 2019 after their Kahuku-based son got tired of them sleeping on his couch during their visits to the island. They said it took nearly a month to register their property in 2022. It helped that Bryan Taylor was familiar with some of the paperwork required through his experience in the mortgage business.

Honolulu passed a law to streamline the process last year, requiring fewer official tax certificates, instead allowing website screenshots and attestations that the city can follow up on if needed, among other changes.

The number of properties registered as short-term rentals rose from 680 on July 3 to just over 1,000 properties by Sept. 18, then to about 1,380 as of last week, according to Department of Planning and Permitting spokesperson Davis Pitner.

Like many cities, Honolulu’s biggest source of money is property taxes.

Different users pay different rates: Residential units where the owner doesn’t live on the property are charged one of the lowest rates, at 0.4% for their first million dollars of assessed value and 1.14% for everything over that. Hotels and resorts are charged the highest rate, at 1.39% of all assessed value.

Short-term rentals don’t fit neatly into either of those categories. That’s why the city recently created a new transient vacation classification, which it set last year at 0.9% for the first million dollars of assessed value and 1.15% for everything over that.

That means a million-dollar short-term rental unit should be paying $9,000 each year rather than the $4,000 required of non-owner occupied residences.

At that rate, city officials estimated last year, short-term rentals could bring in about $16 million of annual property tax revenue. That number is projected to rise to $17.8 million next fiscal year, spokesperson Ian Scheuring said in a text.

Scheuring said it’s difficult to know how many eligible properties aren’t correctly registered, so the city doesn’t have an estimated dollar amount of what it’s missing out on. 

Kuilima Estates East is in Turtle Bay, one of Oʻahu’s five sanctioned resort zones. The others are Waikīkī, Ko Olina, Mākaha and Hoakalei.

About 80% of the complex’s 168 units are used as short-term rentals, Bert Wilkinson, president of the Kuilima Estates East HOA, said Friday. Of that 80%, he said, a little more than half were registered with the city as of December.

Owners at Kuilima Estates East were reminded to register their short-term rentals during a recent homeowners association meeting ahead of a heavy tourist season. Like the city, the HOA doesn’t know exactly how many neighbors are supposed to register but still haven’t. 

Enforcement Is Coming

People don’t register their units largely because it would mean higher property taxes and because of a lack of city oversight, Oʻahu Short Term Rental Alliance director Jill Paulin said. 

“They’re not enforcing,” she said. “That’s the biggest reason.”

Enforcement against registration scofflaws is coming eventually. Pitner said the city is finalizing a template to give notices of violation to people who don’t register, but he declined to give an estimated timeline. 

Meanwhile, the city is picking its battles, focusing on complaints that point in the direction of illegal units operating where they shouldn’t in residential areas.

“If you’re in the resort areas, we presume that you’re able to do these things,” Department of Planning and Permitting director Dawn Takeuchi Apuna said at a council hearing last year. “Just pay the fee and let us know, and then we can be more focused on enforcing against illegal (short-term rentals).”

CORRECTION: Decimal points were misplaced in property tax rates stated in an earlier version of this story. Those figures have been corrected.

Hawaiʻi’s Changing Economy” is supported by a grant from the Hawaiʻi Community Foundation as part of its work to build equity for all through the CHANGE Framework.