City Cracks Down on Short-Term Rentals – Is Your Investment at Risk?

New bill will soon impact Hawaii’s property owners, investors, renters, and tourists. Signed by Mayor of Honolulu, Kirk Caldwell, on Tuesday, June 25th, Bill 89 will increase regulation and enforcement of the Short-Term Rental industry.

*A short-term rental is the use of a residential dwelling for stays of less than 30 days. Short-term rentals are categorized into “Bed and Breakfast” or B&B’s and “Transit Vacation Units” or TVU’s. The main difference is B&B’s have an “on-site” resident manager or owner and TVU’s are “un-hosted” with no on-site manager/owner.

Past years have experienced a worldwide explosion in the Short-Term Rental market. An estimated 8,000-10,000 units currently operate illegal short-term rentals in Hawaii. The new bills will permit only 0.5% of the total number of dwelling units in each regional development plan area to operate B&B’s and TVU’s. That cuts the number of permitted units to a mere 1,700. Note, this total does not include around 816 non-conforming use permits (NUC) issued prior to 1989, which will be grandfathered in.

The new regulation will create highly competitive environments, especially in neighborhoods already crowded within the vacation rental market. Zones exceeding the 0.5% limitation of B&B home applications will select candidates based on a lottery system (Zone Map & FAQ). Non-transferrable permits costing $1,000 will be issued for a one-year term with an annual renewal fee of $2,000. Permitted units will be limited to two guest rooms and four guests at a time. Hosts must provide an allocated parking stall for guests and enforce “quiet hours” from 10pm – 8am. The new laws will also require all neighbors within 250 feet of the unit to be provided with a 24-hour contact number for complaints.

Regulations will extend to online parameters. “The key to enforcement of illegal vacation rentals is to go after their ads,” says Kathy Sokugawa, acting Director of the Honolulu Department of Planning & Permitting (DPP). Hosting sites like Airbnb and VRBO will be required to remove listings that do not display a valid Non-Conforming Use certificate or short-term permit. Upcoming developments will allow the city to scan hosting sites for verification of permit numbers and addresses.

So how does this affect those already involved in the industry? The city has established harsh penalties for violation of the new ordinances, and initial infractions will incur a civil fine of $1,000 and an additional $5,000 each day the violation persists. Recurrent non-compliance will result in a $10,000 civil fine, accruing $10,000 a day until compliant. Enforcement of these new laws is quickly approaching as Bill 89 will take effect on August 1, 2019, followed by revised ordinances on October 1, 2020.

Home to renowned beaches and an abundance of activities, the North Shore of Oahu hosts the ideal setting for vacation rentals. Hundreds of rentals in the area capitalize on tourism demands, but according to the DPP, “New B&Bs are not allowed in the North Shore area, based on directives of the North Shore Sustainable Communities Plan.” However, a unique opportunity may exist for potential investors, as an exception is stated for properties operating in “Resort” zoned districts. Sec 21-5 of Bill 89 states:

“(a) Bed and breakfast homes and transient vacation units are permitted in the A-1 low-density apartment zoning district and A-2 medium-density apartment zoning district provided:

• (1)  They are within 3,500 feet of a resort zoning district of greater than 50 contiguous acres; and
• (2) The resort district and the A-1 or A-2 district, as applicable, were rezoned pursuant to the same zone change application as part of a master-planned resort community.”

A handful of units qualify for this exemption and will soon peak in demand when investors realize the value in their zoning. For example, Kuilima Estates East and Kuilima Estates West, a collection of condominiums on Oahu’s North Shore, fall within these guidelines.

Now is the time to act on your investments. To learn more about the impact of these bills or discuss current opportunities, please feel free to contact me directly. I am happy to assist with all inquiries.