Vacation rental phase-out study warns of $1.3 billion hit to Maui’s economy, but glosses over housing for residents

A study funded by a group representing “travel technology innovators,” including short-term rental platforms, is forecasting vast amounts of tax income and economic losses for Maui County if Mayor Richard Bissen’s proposed bill to phase out 7,000 vacation rentals in apartment districts were enacted to make way for resident housing.

In response Friday evening, Bissen questioned the study’s facts, objectivity and underlying assumptions while pointing out it makes no attempt to gauge the economic impact of housing Maui’s residents.

“This report has not yet been fact checked and was commissioned by the Travel Technology Association, which has a clear financial interest in a robust STR industry, and no compelling interest in housing Maui’s residents,” he said. “The County is working to engage the University of Hawaiʻi Economic Research Organization to provide a more balanced economic analysis, which we certainly think is warranted given the significance of tourism to Maui’s economy.”

Under the bill referred by the mayor to Maui County planning commissions, apartments now used for short-term vacation rentals would switch to long-term housing for residents as of July 1, 2025, for West Maui, and Jan. 1, 2026, for the rest of Maui County.

Bissen’s announcement of the phase-out bill came May 2, a day after the state Legislature’s passage of Senate Bill 2919. That measure, now signed into law by Gov. Josh Green, allows counties to regulate grandfathered vacation rentals by clarifying that transient vacation rentals are not considered residential uses in state law and may be phased out.

According to a news release from the Travel Technology Association, the conversion of short-term rentals to residential apartment dwellings would cost Maui County from $53.3 million to $91.8 million annually in real property, transient accommodations and general excise taxes to Maui County.

The news release’s “key findings” from the study also include $1.3 billion in annual economic output and 7,800 jobs. The study forecasts that Maui County earnings would drop $370 million annually.

If other counties in Hawaiʻi were to follow Maui County’s lead, the phase-out of short-term rentals statewide could lead to losses of $554 million in annual tax revenue statewide, according to the association’s release.

Hawaiʻi economic consultant Kloninger & Sims conducted the study at the behest of the Travel Technology Association. The 26-page study and the methodology used to render its conclusions can be found here.

Bissen questioned the underlying assumption of the association’s study.

“This analysis assumes that all economic activity generated from tourists who currently stay in Minatoya short-term rental units will leave the island. This is simply not true,” he said. “Since 2022, monthly hotel occupancy rates have ranged between 60% – 75%; so we expect a significant fraction of these visitors to instead stay in existing hotel inventory and the more than 7,400 STRs that will remain. Also, decreased inventory for tourists will lead to higher rates, which will also reduce the loss to GET and TAT revenue.”

The association’s study focuses its analysis on forecasted reductions in Maui County’s tax base if the short-term rental units returned to residential use — taxed at a lower rate — in apartment-zoned districts. There’s no substantive analysis of the economic impacts of how Maui County’s now historically low, post-wildfire housing inventory has priced residents out of the market for buying or renting homes.

In May, nine months after the Lahaina wildfire disaster, an estimated 75% of more than 1,400 fire-displaced residential households reported remaining in temporary housing, according to a report published by the Council for Native Hawaiian Advancement. Of the 25% of households that found permanent housing, some had moved away from Maui, although precise information was unavailable.

The association’s study includes a note about residential use of converted short-term rentals in its conclusion on Page 24. It says:

“We note that the residential use that would have the smallest negative impact on the county’s property tax collections, the Non-Owner Occupied classification, does not increase Maui County’s housing supply. Rather than being rented out short-term during periods when owners are not using them, these units would sit empty, generating none of the visitor spending that is the lifeblood of Maui’s economy. Conversion to owner-occupied units would increase the available housing supply but result in the greatest decrease in property tax revenue.”

Bissen said: “It’s important to note that this study makes no attempt to measure the economic impact of housing Maui’s resident population. While the County is working to encourage the construction of more housing for residents, we cannot simply build our way out of this housing crisis. Especially in West Maui, new housing construction is already severely limited by infrastructure, particularly water. Given the reality of limited resources, it is imperative to question whether our allocation of housing between residents and non-residents is appropriate.”

In its conclusion, the association’s study states that consideration should be given on the “suitability” of using grandfathered apartment units for residential housing.

It refers to the so-called “Minatoya List” of properties. The moniker stems from the legal opinion by the late former Deputy Corporation Counsel Richard Minatoya. His opinion paved the way for allowing apartment units previously used as vacation rentals to continue, or be grandfathered, as visitor accommodations, even though they had become non-conforming to current apartment district zoning. The exception applies to properties built or approved prior to 1989. Their use can continue as long as they do not stop for more than 12 consecutive months.

The association’s study concludes, saying: “Since the intent of the proposed legislation is to increase the supply of housing on Maui, the suitability of Minatoya List properties to address Maui’s housing shortage should also be considered. Papakea, a 364-unit project on 13 oceanfront acres in West Maui built in 1977, has a mix of studios, one-, two- and three- bedroom units. Units in Papakea would generate about $5 million in 2024 based on being taxed at the Short-Term Rental tax rates. While the studio units could house individuals or couples, families with children will require multiple bedrooms. Whether the mix of unit types in Papakea and other projects matches the residential needs of the community should be evaluated.”

According to its news release, the “Travel Technology Association empowers traveler choice by advocating for public policy that promotes marketplace transparency and competition. Travel Tech represents travel technology innovators ranging from dynamic startups, small and midsize businesses to leading online travel agencies, metasearch engines, short-term rental platforms, global distribution systems, and travel management companies.”

The association said the study’s analysis found that all short-term rental guests, including those outside apartment districts in Maui County, directly spent $2.2 billion in 2023, resulting in $4 billion in economic activity. Across Hawaiʻi, short-term rentals generated $11.3 billion in economic activity in 2023 and 66,000 jobs.

“Roughly a third of all visitors to Hawaiʻi use short-term rentals. On Maui, that ratio is even higher,” said Erik Kloninger, economist and partner of Kloninger & Sims. “Reducing the number of short-term rentals would limit accommodation options and likely lead to a decrease in visitors, resulting in job losses across various sectors of the economy and a significant shortfall in tax revenue for Maui County and the State.”

“Short-term vacation rentals have been a staple of the Maui economy for decades,” said Laura Chadwick, president and chief executive officer of Travel Tech. “They’ve opened the island’s beauty to countless visitors and provided jobs and tax revenue to support the local community.  We hope Maui and Hawaiʻi leaders will consider other options to balance the economic benefits of short-term rentals and housing needs of the community.”

Bissen concluded by saying that: “Any economic impact from phasing out the Minatoya STRs will likely be significantly less than reported by the study, and we expect a more balanced economic analysis to be completed before the County Council takes up the measure. It’s imperative that we account for the value of housing our residents, even at the expense of reduced tax revenues.”

Kloninger & Sims, led by principals Erik Kloninger and Mimi Sims, focuses primarily on market and financial analyses for Hawaiʻi’s hospitality and real estate industries. The firm has worked on projects for the Hawaiʻi Tourism Authority, Hawaiʻi State Department of Business Economic Development and Tourism, major hotel brands, aliʻi trusts and others.