The state passed a new law to expand counties’ abilities to control short-term rentals. The City and County of Honolulu is contemplating how to use the law to increase its enforcement on short-term rentals.
In 2022, the city implemented a law to increase the minimum amount of time that residential homes could be rented from 30 days to 90 days.
However, a federal court ruled that the city could not enforce its regulation.
That’s one of the reasons the Legislature stepped in. Lawmakers sought to clarify the existing rules and give counties the power to regulate the location and duration of short-term rentals.
The law made it possible to phase out non-conforming use permits, given to short-term rentals in residential areas that are grandfathered into new laws.
However, Honolulu Department of Planning and Permitting Director Dawn Takeuchi Apuna explained that the state law doesn’t automatically enact the city’s law.
”If they can make a case that they've been operating prior to the 2022 ordinance as a short-term rental, potentially they could say, 'No, I have rights,'” she said.
The city can technically enforce the 90-day rule on short-term rentals that started after 2022, but the ones operating before that could have standing for non-conforming use.
That’s where the new state law comes in. It now gives the city the ability to phase out those non-conforming use permits.
About 800 such permits have been given out to vacation rentals from the 1980s and 1990s. But the department hasn’t tracked those who may be renting for over 30 days, but under 90 days.
The way that the city would need to do this is by enacting a new ordinance, which would require Honolulu City Council to introduce a bill and move it through the legislative process.
Councilmember Tyler Dos Santos Tam said the city needs to prioritize long-term housing and should be thinking about how to best use the new state law to do that.
“I think that now that the state has given us these tools, I think we need to look back at what we can enforce, what is a bright line,” Tam said.
“What I'd like to see happen is we really start to focus on the bad actors first and foremost and then we look at what's reasonable. I think 30 days is probably fairly short, and it does create enforcement challenges," he said.
Apuna said the city is still weighing its options on how to use the state law. DPP has started the six-month process of implementing software to go after the most egregious offenders.
“We need to do an assessment of whether there will be certain areas that we would try to phase out the ones that have been operating or not,” she said. “That's important too, but I think it's all of these different things that we have to do together, figure out what would be the best solution or in what order we would try to pursue them.”
Apuna added that the worst offenders, who are being fined $10,000 a day for violations, often appeal. The city will have to go through a long legal process, but she says they’ve been almost always successful in the end.
“We are enforcing and you can appeal, but I don't think your chances are that good,” she said. “We want people to just comply and consider using their properties for long-term rentals versus short-term rentals that are impacting our neighborhoods and don't necessarily help the residents here.”
Another factor is the economic effects of phasing out short-term rentals. It’s difficult to know how county and state revenue would be impacted if more short-term rentals are phased out.
The city and state both apply their own Transient Accommodations Tax on hotels and properties that rent for less than 180 days.
However, the 180 days does not align with the city’s short-term rental definition of 30 or 90 days.
Honolulu Budget and Fiscal Services Director Andy Kawano explained that the city wanted to make its definition aligned with the tax definition at 180 days, but there was too much public pushback.
It’s also complicated to separate hotel and short-term rental TAT revenue. But Seth Colby, the state’s Tax Research and Planning Officer, roughly estimates that short-term rentals make up about 35% of the state’s TAT.
TAT is a significant source of revenue for the city and brings in about $90 million a year.
Colby explained that if counties do implement stringent short-term rental laws, revenue will be impacted because the number of people who will rent out their properties will decrease.
“Tourism is a very important part of our economy. We do not build new hotels in Hawaiʻi anymore and so, over the last five to 10 years, most of the growth has come from short-term rentals. There is a trade-off between local housing, or housing that is available for locals, and short-term housing. And that's something that we're trying to figure out."
He added that the neighbor islands would see a greater financial impact from further regulation on short-term rentals because they rely more on tourism revenue.
