Tovin Lapan
Tovin Lapan

Hawaii state lawmakers and the Honolulu City Council are giving serious consideration to new vacation rental regulation and tax ordinances that could have wide-reaching impacts on the accommodations stock in the Aloha State.

As Hawaii has gone from 8 million annual visitors to 10 million in the last decade, hotel growth has not kept pace with the increased traffic, and vacation rentals have absorbed much of the increased visitation, several reports and analyses indicate. 

But as residential neighborhoods have seen more short-term visitors and prospective tax revenue has gone uncollected, calls have increased for more regulations.

Both chambers of the state legislature have passed legislation regarding vacation rentals, and now the bills will go to committee for reconciliation. The legislation would require websites such as VRBO and Airbnb to collect taxes on behalf of the short-term rental hosts.

While there appears to be momentum behind the heightened regulations, previous attempts to pass similar bills have failed. Officials argue many vacation rentals in the state are running illegally, and tax collection has been difficult. The state levies transient accommodations and general excise taxes on short-term rental operators. Meanwhile, the permits for short-term rentals come from the counties, which have different regulations.

Honolulu, the most populous county and home to the Waikiki resort area, has not issued new permits since 1989. It's estimated to have 800 legal vacation rental and bed-and-breakfast units and about 10 times as many illegal ones.

Vacation rentals and the websites that support them have grown in popularity with travelers, while the increase in short-term rentals, many Hawaii residents complain, has changed the character of some neighborhoods and worsened a housing shortage.

Rep. Richard Onishi, chairman of the Hawaii House tourism committee, commented that while the counties are stepping up to craft permitting legislation appropriate for each island, the state's responsibility is to ensure tax revenue is collected.

The vacation rental platforms have criticized the potential new regulations, arguing that some of the reporting requirements potentially violate federal privacy law. Expedia Group, owner of HomeAway.com and VRBO.com, issued a statement arguing the new laws would threaten Hawaii's tourism industry, one of the state's top employers and economic engines.

Airbnb commented in written testimony that any tax bill should be written to help ensure the assessment, collection and payment of taxes and "not to use confidential tax information to facilitate the Department of Taxation's enforcement of county land use laws."

On the other side, Mufi Hannemann, president of the Hawaii Lodging and Tourism Association, said the state's hotel industry is looking for a "level playing field" that includes effective taxation and fee collection on short-term rentals.

Hotel units in Hawaii increased by 1%, to 43,857, between 2015 and 2018, while the number of officially recorded vacation rental units increased 21% in the previous four years, and doubled in the last decade, for a total of 13,082. Still, the total vacation rental units number is likely underreported using the standard survey methods, and supplemental reports analyzing the rental websites peg the actual figure at more than 30,000 units.

Meanwhile, in Honolulu the City Council is considering two separate vacation rental regulations. The first, Bill 85, enhances enforcement mechanism, offering residents the right to go to court to prompt the city to act against an illegal short-term rental. The other, Bill 89, would open up opportunities for people to run "bed and breakfasts" where they rent space on the same property where they live. In turn, the measure would further restrict vacation units where an entire home is rented by owners who reside elsewhere, also called transient vacation units.

Honolulu's current regulations generally limit renting properties for fewer than 30 days outside of resort zones, and there are approximately 800 units outside the resort zones that were grandfathered in when the prohibition was implemented. Yet research shows there are roughly 9,000 short-term rental units on Oahu.

In written testimony, Matt Middlebrook, Airbnb's head of policy for Hawaii, said Bill 89 would lead to the removal of thousands of those transient units from Oahu's inventory and severely damage Hawaii's economy.

"Instead of bringing short-term rental rules on Oahu into the 21st century and addressing market realities, Bill 89 would largely destroy the alternative accommodations market outside of the resort zones and inflict significant damage on small businesses and the local economy," Middlebrook said in his testimony.

Hawaiian Airlines, one of the largest employers in the state, also submitted testimony to the Honolulu City Council, with spokeswoman Ann Botticelli telling the body that greater regulation is needed while noting that short-term rentals have become an "expected part of the accommodations inventory in a tourism market, and a well-diversified portfolio of accommodations is an important part of a long-term, sustainable tourism strategy."

Hawaiian Airlines advocated for a "system for permitting, regulating and taxing short-term rentals," while arguing regulations limiting "the number and location of short-term rental units should be part of a broader and wider conversation about well-managed tourism."

The Honolulu City Council is in the process of debating and taking testimony on both of the vacation rental bills.

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