Report: Vacation Rentals Impact on MauiApril 25, 2018, 4:46 PM HST · Updated April 26, 1:05 PM 0 Comments
Over the last few years, Maui’s housing inventory has dropped to record lows and prices have reached near-record highs, for buyers and renters. A recent report by the Hawai‘i Appleseed Center for Law and Economic Justice states that vacation rental units put pressure on Hawaiʻi’s already-stressed housing market by reducing homes for Hawai‘i residents and driving up rents.
The report adds that 1 in 7 housing units on Maui is a vacation rental unit. In Lahaina, it is 1 in 3.
The report titled “Hawai‘i Vacation Rentals: Impact on Housing & Hawai‘i’s Economy” provides details on the proliferation of vacation rentals and the negative impact it has on Hawai‘i residents.
“With almost 9,000 estimated VRUs taking up 13.6% of its housing stock, Maui is an example of unfettered VRU proliferation. Maui is an example of what the state of Hawaiʻi could become if we do not enact stricter regulations,” the report states.
Hawaiʻi’s housing costs are among the highest in the nation with workers earning the lowest wages in the country after accounting for cost of living.
Data from the report shows that:
- 43% of Hawai‘i residents are renters, the fourth highest percentage in the nation
- Rent is more expensive in Hawai‘i than any other state
- In recent years, rents have been increasing at more than twice the rate of wages
- Hawai‘i has the highest rate of homelessness in the nation
- In 2016, almost 13% of homeless services clients came from homes they were unable to retain
The Appleseed report adds that the proliferation of short term VRUs—the majority of which are operated by nonresidents—has added another pressure point by further limiting the availability of housing for local families.
Nonresidents dominate Maui’s housing market
A 2015 study by Honolulu’s Office of Community Services indicated that at 80% occupancy, the average Airbnb unit would bring in about 3.5 times more revenue than a long-term rental. According to the Appleseed report, this makes VRUs particularly appealing for nonresident investors.
“Given the enormous economic incentives, it is inevitable that opportunists will use VRUs to commercialize Hawai‘i’s neighborhoods. Hosts are overwhelmingly speculators and investors who benefit from the escalating price of housing in Hawaiʻi, and our property tax rate, which is the lowest in the nation,” the report states.
“Hawaiʻi is a safe place to invest money for long-term security and a high return on investments, at the expense of our residents,” from the report.
Statistics from the Appleseed report:
- 60% of condos and 52% of homes on Maui are sold to nonresident buyers.
- 66% of nonresidents who own Maui property report renting out their units.
- Only 16.7% of these owners choose to rent to residents only.
- Maui has the highest percentage of residential units being used as VRUs in the state.
- Approximately 9,000 vacation rental units are active on Maui, only 223 are legal
The Appleseed report states that the available data is not sufficiently detailed to determine the full extent of nonresident ownership, but it does reveal that at least 52% of VRUs are owned by nonresidents. The true figure is likely much higher, the report states.
Vacation Rentals Continue to Increase/Entire Home vs. Shared Home
In 2017, the Hawaiʻi Tourism Authority estimated that 23,000 VRUs existed in Hawaiʻi, a 35% increase in the last two years. The Appleseed report found that up to 93% of the rentals are for entire homes and that 1 out of every 24 housing units in the state is a VRU. On Kaua‘i, one in eight homes is used as a VRU.
“Many of these homes once provided housing for Maui’s people, and their removal from the local housing supply is causing resident housing prices to skyrocket,” Maui Tomorrow Foundation states.
“There are condos that are permitted to do vacation rentals, but when there’s a home a local family can live in and the landlords choose to rent it out to visitors, it takes away from local housing,” said Albert Perez, Executive Director of Maui Tomorrow Foundation said. “Drive around Kahului, see how many cars are parked on lawns outside of one house—that’s a good indication of how many people are living in that house.” Perez added that there could be up to three families in one home in Kahului because residents can’t afford their own place.
In 2016, 20% of Hawai‘i’s households were crowded (a household has more than two people per bedroom) or doubled up (where multiple households live in a single home).
The Appleseed report adds, “Unless Hawai‘i takes action against illegal VRUs, their numbers will continue to rise as investors convert more homes built for residents into vacation rentals for visitors. Home prices and rents will rise, and Hawai‘i’s families, communities, and economy will suffer.”
“We need to get a handle on the illegal short-term rentals, otherwise the workers who make hotels run won’t have places to live,” said Perez.
Maui Tomorrow Foundation recently drafted the first workforce housing ordinance for Maui County due to the lack of affordable housing and the increasing popularity of vacation rentals.
“Even when new units are constructed they are often not affordable; Maui has the lowest share of affordable housing in the state. Median sales prices for homes on Maui saw the largest increase (24%) in the state from 2010 to 2014. Furthermore, less than a quarter of prospective Maui home buyers are able to make an adequate down payment,” the Appleseed report states.
“We’ve been talking about affordable housing for a long time,” said Perez. “The County’s definition of affordable is that it’s really not.”
The US Department of Housing and Urban Development released its income limits for 2018 — a calculation used to determine who can qualify for affordable and subsidized housing programs. As of 2018, low income for a single person in Maui County is someone making up to $52,850.
The area median income established by the HUD in 2018 for Maui County is $81,400, a $7,300 increase from the year before. Maui Tomorrow adds that the target group for Maui County’s Residential Workforce Housing Ordinance is families who make between 50 and 140% of the area median income established by the HUD, meaning that in 2016-2017, families whose annual incomes range from $37,050 to $103,740. According to the group, with 4% mortgage interest rates, the county’s policy states that a developer of market rate lots, lodging units, time share units, or dwelling units must provide workforce housing equal to only 25% of those units.
The 25% of each project that must be “affordable” is further split into the following categories by Maui Tomorrow Foundation:
“Below-moderate income,” are households whose gross annual family income is 80 to 100% of the area median income as established by HUD, or as adjusted by the department, for Hana, Lanai, and Molokai. 30% of the affordable homes must initially be reserved for this income group. Maui Tomorrow refers to these homes as “Truly Affordable.” The group adds that under the current workforce housing ordinance, after 10 years these homes will be able to be sold at market rates, and will no longer be available as affordable housing.
“Moderate income,” are households whose gross annual family income is 100 to 120% of the area median income. 50% of the affordable homes must initially be reserved for this income group. After eight years, these homes will be able to be sold at market rates.
“Above-moderate income,” are households whose gross annual family income is 120 to 140% of the area median income. This comprises the remaining 20% of the affordable homes that are reserved under the ordinance. After five years, these homes will be able to be sold at market rates.
According to the Maui Tomorrow Foundation, only 30% of the affordable 25% of the required workforce housing is required to be “Truly Affordable,” which comes out to 7.5%. The remaining 92.5% of the homes built are considered unaffordable to most working families.
“Almost a quarter of Maui residents are severely cost-burdened; this is the highest proportion of severely cost-burdened residents in the state,” the Appleseed report states.
Maui Tomorrow believes that addressing illegal transient vacation rentals should be a top priority, because – unlike new homes that need to go through the permitting process, the units are already built and returning them to the long-term housing market would yield immediate benefits.
“I believe that affordable housing is a real problem and we’re not addressing it properly,” Perez said. “We’re opening the flood gates which is going to make us the new O‘ahu, and our infrastructure isn’t ready for that.”
“Affordable housing is the most crucial issue affecting our residents’ quality of life and their ability to economically survive,” says Victor Geminiani, Co-Executive Director of Hawaiʻi Appleseed in the release of the report, adding:
“Speculators and investors have been eager to take advantage of the tremendously profitable vacation rental industry at the expense of our residents. We need to establish controls to protect our communities from fragmentation.”
“When you go out with a realtor to buy home a lot of them will say ‘this side entrance here, you can run this as a short term rental,’ and they encourage that kind of thing, so that makes people willing to offer more which also translates to higher rents,” added Perez.
Some officials argue that vacation rentals bring additional tourism, spending, and the potential for taxation. However, according to the Appleseed report, studies have shown that the negative impacts on cities’ economies and housing costs far outweigh the benefits.
The Appleseed report says that “San Francisco, which like Honolulu has struggled with high housing costs and a proliferation of VRUs, found that every housing unit withdrawn from the market to be used as a VRU produces a net negative economic impact, even if the unit generates host income, visitor spending, and hotel taxes.”
San Francisco estimates that their local economy loses up to $300,000 per VRU per year. The impact of VRUs in Hawai‘i is likely to be similar, the Appleseed Report states.
What is being done in other areas to combat the problem:
In 2016, the city required VRU platforms to verify that listings are registered before posting them online. Non-compliant platforms could face fines of up to $1,000 per day. The system was implemented in January of 2018, resulting in Airbnb listings decreasing by almost 50%, according to the Appleseed report.
New York City
In examining Airbnb data from 2014, the New York Attorney General’s Office found that nearly 72% of New York City listings were illegal. Additionally, while only 6% of hosts ran commercial-scale operations, these hosts collected 37% of the city’s Airbnb revenue. In 2016, New York City made it illegal to advertise an apartment for rent for less than 30 days on a VRU platform. Offenders could be fined up to $7,500.
A 2016 study revealed that 40% of Barcelona VRUs were illegal. The report also blamed Barcelona’s 33% rise in rent since 2013 on the increase in tourist accommodations. As a result, Barcelona doubled its VRU enforcement team from 20 to 40 inspectors. BY 2018, the city will have over 100 inspectors.
In 2017, New Zealand Prime Minister Jacinda Ardern pushed for a ban on foreigners buying existing homes in New Zealand, a law that could take effect in early 2018.
According to a Reuters article from October 2017, “Ardern campaigned in the recent New Zealand election to restrict foreign buyers to reduce demand, while the country tackles what her Labour party says is a housing crisis left unresolved by the previous National administration.” Ardern was quoted in the article by stating, “We are determined to make it easier for Kiwis to buy their first home so we are stopping foreign speculators buying houses and driving up prices. Kiwis should not be outbid like this.”
The Reuters article also added, “The politically sensitive housing crunch has seen prices rise more than 50% nationally in the last decade. In the city of Auckland, prices have almost doubled in that period.”
“I think (Maui County officials) are going to start making progress,” says Perez. He notes that officials say it’s difficult finding who’s been advertising on Airbnb and then advertising on VRBO, but that the county plans to get a software to track the listings.
“Start with the ones that advertise without a permit number, and then start cracking down,” is what Perez recommends. According to the Maui County website, all short-term rental homes are required to have a designated manager who is available by telephone at all times and can arrive onsite within one hour in case they are called, all parking is required to be onsite (no parking on the street), and all advertising must include the short-term rental home permit number indicated below.
“Illegal vacation rentals are the low hanging fruit, we need to solve it now and it will have positive results on our housing situation,” Perez concluded.
The report presents some key recommendations that would significantly improve the enforcement capabilities of the counties to end illegal vacation rental operations and improve the legal permitting system.
The report suggests Hawai‘i should consider adopting measures that will help reverse the damage caused by the proliferation of illegal VRUs in the state, including:
• Making it illegal to advertise a VRU that is not permitted and requiring all VRU advertisements to include a permit number (currently, enforcement agencies report that a VRU advertisement is not sufficient to prove that the unit is actually being used as a VRU);
• Requiring that internet hosting platforms identify and remove noncompliant hosts;
• Empowering local neighbors to enforce the laws against VRUs by granting them standing to file a complaint with the courts;
• Increasing the staff of the county enforcement office;
• Requiring owners or hosts to be present whenever they are hosting; and
• If, after cracking down on illegal VRUs, communities decide to modestly increase the number of VRU permits, dispersing permitted rentals unit in communities throughout the island to avoid oversaturation.
Maui Tomorrow Foundation recommends the following:
Email the county council members at [email protected] and ask them to:
- Fund new positions to enforce the short-term rental rules;
- Use the affordable housing fund to provide infrastructure to 100% affordable housing projects in areas that are designated for housing by the community plans;
- Stop approving unaffordable residential, commercial and tourist developments that use up infrastructure capacity that should be reserved for truly affordable housing
Conclusion from Appleseed Report:
Residents who have been struggling for years under the pressures of expensive housing and relatively low wages are reaching their breaking point. Families who have lived in Hawai‘i for generations are being displaced from their homes and their islands by a steady flow of short-term visitors. While Hawai‘i welcomes its visitors and recognizes their importance to our economy, tourism needs to be carried out in a way that is balanced and sustainable over the longterm. The current state of VRUs in Hawai‘i is not. Hawai‘i needs to take action before further damage is done.