New vacation rental plan needed for Hawaii
Recent findings in the Hospitality Advisors’ report for Airbnb stated that the economic impact of Airbnb on the State of Hawaii was $353 Million last year - nearly a million dollars per day! This highlights the fact that the State needs to come up with a new comprehensive plan to address vacation rentals. Currently, there are a handful of properties (825 on Oahu) that were granted Non-conforming Use Certificates back in 1989 when the process was established, and the large majority of those are condos in Waikiki. The rule currently is that if you are on the Makai-side of Kuhio Ave, you are automatically allowed to have transient accommodations. On the other side, you still have to apply for the NUC (Waikiki Sunset, Waikiki Banyan, etc). No one seems too bent-out-of-shape on the Waikiki condos but they are upset about having residential vacation rentals in their community.
So here are the real issues:
1) Waikiki can’t handle all the all the visitors. Even at 100% occupancy, we don’t have enough rooms.
2) Waikiki’s visitor plant (hotels) are too old and no one is building new inventory to be operated as straight hotels. All new construction is geared towards some percentage of timeshare or condo-hotel. Why? Well, the private-equity funds and investors want their money back fast on construction and selling the units will give them back 2-3 times their investment AND leave them with a highly occupied property to service their restaurants, retail and front desk (which they retain ownership of). More importantly, it pushes the maintenance expense back to the buyers via the maintenance fees. This results in larger, more expensive rooms and changes who can actually come to Hawaii when the average-daily-rate (ADR) is ever-increasing.
3) Visitors with groups or families are looking for a more residential vacation experience. They want to enjoy having their entire family in one home, cook for themselves and be in a single space. Hotels don’t offer this ability.
4) The State needs the tax revenue. By legalizing more vacation rentals we can ensure that those parties engaged in the practice will pay the TAT and GET taxes on those rents.
5) The City could create a new class of property tax so they win too! The hotels pay the commercial rate of $12.40 per thousand of value. Homeowners are paying either $3.5 or $6 (depending on if they reside in the home).
6) The property owners need the revenue. The use of your home or some portion of it as a vacation rental in Hawaii is often borne out of necessity. It creates income that allows homeowners to afford their home.
7) Technology is the great equalizer. A generation ago, if you owned a hotel, you needed to hire an operator (Outrigger, Hilton, Marriott, etc) to manage your property. The primary function being – to fill the rooms. Waikiki has always been largely a wholesale booking market (meaning travel agents book the rooms for the hotel). Today, with increasing regularity, guests can book directly with the web.
What is the solution?
1) We need to re-examine the NUC program and allow more properties to handle legal vacation rentals. Some suggestions:
a. If the home is in a residential area, the homeowner needs to get permission from his direct neighbors to allow the transient usage.
b. The NUC can restrict occupancy based on the square footage of the home.
c. The NUC can restrict certain activities (loud parties, functions, weddings).
d. The homeowner can pay the commercial property tax rate.
e. The homeowner shall pay the TAT and GET taxes.
f. The property shall be actively managed and operated by a local representative (no absentee management)
g. The property can be managed by the Inn Keeper’s Law, not he Landlord Tenant Code.
We need to come up with a workable solution to accommodate our visitors and to allow our Kama’aina to afford their homes. If a homeowner can afford to pay all the taxes that the hotels have to currently pay, then we can create a nice alternative experience for our visitors while generating revenue for our municipal services.