Big Island Vacation Rental Bill Moves Forward

For the past six months, the Hawaii County Council has been considering a bill that would restrict short term vacation rentals, making it harder for owners in residential or rural neighborhoods to rent when they are not in residence. Similar laws are in place on all the other islands in Hawaii, so it was only a matter of time before the Big Island followed suit.

After the modifications reported in my June blog post, the proposal went to the island planning Commissions and the County Planning Department for comment and worked its way back to the Council last week. It is certain some version of this bill will be passed by the end of this year.

Short term vacation rentals are allowed in resorts; owners will still need to register with the County.

If You Want to Rent Out Your Second Home in Hawaii County…

As it now stands, here are the key provisions of the bill under consideration:

• The bill applies to “unhosted” rentals, where the owner does not live on site. That means the property is a second home, vacation home, or investment property.
• Hotel, resort, and commercial zonings expressly allow short term rentals. The focus of this bill is to limit vacation rentals on homes in residential and agricultural districts.
• All short term vacation rentals must register. The proposed fee is now $500.
• Existing rentals that are a non-conforming use, meaning in zoning that does not allow them, are eligible to be “grandfathered.” They will be allowed to continue to operate under certain conditions. In order to obtain the non-conforming use certificate, they must show evidence of rental history, that General Excise Tax and Transient Accommodations Tax are being paid, and that the property has proper, closed building permits.
• The non-conforming use certificate will transfer to a new owner, as long as annual renewals have kept it current.
• To conform with state land use designation, special use permits will not be issued for short term accommodations in farm dwellings (which is technically what homes and guest houses in agricultural districts are considered).

Brand new home at Kohala Ranch would need to be furnished and rented before the Bill takes effect in order to qualify for a non-conforming short term vacation rental certificate (MLS 621079)

The Implications for Buyers and Sellers of Big Island Second Homes

Bill 108 has significant implications for buyers who currently are looking for property with the idea that they would want to offer the home as a vacation rental when they are not using it. I see many listings suggesting that the home would be a great vacation rental… which may or may not be possible in the future.

Here are questions to ask, either while looking or during your escrow due diligence period, if renting is important to you:

• What is the zoning of the property? Is it designated agricultural by the state?
• Is the home I plan to offer for rent 100% permitted? Are all permits closed?
• Does this home have a vacation rental history? If so, were all taxes paid on those rentals?
• Who will be responsible for necessary filings? Seller? Buyer? Rental manager?

I predict that as second home/future rental buyers lose the ability to offset carrying costs with short term rentals, home sales will slow in neighborhoods that are popular with second home buyers, and that homes with a short term rental registration will sell at a premium to similar homes without, all other things being equal. Owners/sellers of existing vacation rentals need to be attentive to get their registration completed within the 180-day window from the effective date of Bill 108.

Recently a prospective buyer asked me what I think are the risks two or three years out. One issue, of course, is the ability of the County, notoriously short-staffed, to enforce. The issue of violations is currently in the news in both Maui and Honolulu Counties. On Maui, voters on Election Day will see a ballot proposal to increase the fine for running a vacation rental without a permit from $1000 to $20,000. On Oahu, the news story is a home in Kailua which is continuing to rent despite fines of $1000/day…and which can apparently afford to do so given that according to the rental website, rates start at $1500/day.

My crystal ball is not particularly reliable. But given the trend around the state, the direction of increasing limits on short term unhosted rentals seems clear.

Model home at Ainamalu at Waikoloa Beach Resort. Short term rentals will be allowed by zoning.

The current bill and trend toward greater restriction on short term rentals might also give a boost to neighborhoods such as Ainamalu at Waikoloa Beach Resort, which offers a competitively priced single family home neighborhood, but with resort rather than residential zoning.

If you would like a copy of the current proposal, feel free to email me directly.