The Last Vacation Rental Battle Is Over – Be Prepared For Any Impact

The only still legal short-term rentals were licensed before 1990 or are in the resort areas of Waikīkī, Ko Olina or Turtle Bay.
Photo: Getty Images

It’s too early to tell if the Honolulu City Council‘s latest salvo against illegal short-term rentals in residential neighborhoods will have a significant impact on Oʻahu’s residential real estate market.

Many would-be buyers are already frustrated by the lack of inventory, soaring prices and rising interest rates, but if the city’s previous attempt to stop illegal vacation rentals is any indication, little is likely that a flood of new homes will suddenly become available for sale or rent. .

Bill 41which passed last week, increases the minimum rental duration to 90 days from 30 and adds levels of requirements, restrictions, fees and fines, effectively canceling vacation rentals in all resort areas from Oʻahu except the three: Waikīkī, Ko Olina and Turtle Bay.

The Honolulu Board of Realtors opposed the bill for several reasons, primarily because some people have legitimate reasons to rent for less than 90 days: home sellers and buyers waiting to close on new homes, people whose homes being built or renovated, military personnel looking for homes to buy or rent, traveling nurses, off-island family members caring for loved ones and government employees and contractors.

“The problems associated with unauthorized and illegal vacation rentals in residential neighborhoods can be addressed by enforcing existing law,” council CEO Suzanne Young said in written testimony. “We know that when Order 19-18 (Bill 89) came into effect for the first time, the number of online advertisements for vacation rentals dropped significantly as landlords were not allowed to advertise daily and/or weekly rates.

“Unfortunately, Bill 89 was never enforced,” Young says, and after the city reached an agreement with a group of vacation rental owners who sued the restrictions, ads with daily rates went up. traced back.

Bill 89 was also supposed to legalize about 1,700 bed and breakfasts in non-tourist areas, but that never happened. The process was supposed to start in October 2020, but a year ago the city’s planning and permitting department put the process on hold due to potential issues.

The city has not approved any new transitional vacation units since 1989. Those who obtained non-conforming use certificates for transitional vacation units or bed and breakfasts before December 31, 1989 could continue to operate under the Bill 41, with new restrictions.

Some proponents of both measures say the restrictions are necessary not only to get tourists out of residential areas, but also to increase Oʻahu’s housing supply by encouraging landlords to convert their short-term rentals to long-term rentals. for local residents.

3 areas for short term rentals

About seven months after Bill 89 took effect on August 1, 2019, Covid-19 brought tourism to a halt, and two months later home sales began to warm up and have yet to cool down. .

While the sale of some homes over the past two years may have been linked to a crackdown on illegal vacation rentals – the North Shore, for example, has seen a spike in sales in 2020 and 2021, with an even higher rise. significant price – there wasn’t a big increase in inventory in other places known for illegal vacation rentals, like Kailua.

Since no one knows how many of those homes were sold because their owners didn’t think long-term rentals would happen, it’s hard to predict how many will be pushed to sell now because of Bill 41.

“Some people had to sell because they couldn’t make the mortgage payments, but we don’t know how many were affected that way,” Century 21 iProperties Hawaii real estate agent Abe Lee said of the incident. initial order. “This one, I don’t think will be as impactful because they already knew you can’t do vacation rentals. So you’re going from 30 to 90 days; how much is that going to impact? I don’t think it has as much impact as the other bill.

The new bill limits short-term rentals to:

  • The zoned part of Waikīkī, which means all of the Kūhiō Avenue makai plus the Waikiki Banyan and the Aston Waikiki Sunset, two condo properties just mauka of Kūhiō that are managed by Aqua-Aston Hotels.
  • The apartment sections of Ko Olina that are closest to the hotels.
  • A small area of ​​apartments near Turtle Bay Resort.

Mayor Rick Blangiardi backed the bill, which was part of his administration’s legislative package last year, and is expected to sign it.

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