Market Upset for Minatoya List Apartments
In May, Maui’s Mayor Bissen proposed controversial local legislation aimed to eliminate more than 7000 vacation rental condo units in West and South Maui. These targeted apartment zoned condos are referred to as and make up the Minatoya List. Maui’s fires last August exacerbated the immediate and urgent need for new housing stock. This proposal would see conversion of the Minatoya List condos to long term and residential use by January 1 2026.
Facts not opinions, the proposal to change zoning in Maui County
The truth is the end isn’t coming. People still want to come to Maui.
But there is a lot of upset due to what may be considered the Mayor’s knee jerk reaction to put a proverbial bandaid on the housing shortage. The reality is that putting claim to existing apartment stock does not create additional housing in Maui. Tourism and rentals are a huge part of our ecosystem.
Short-term rentals (STRs) are a major source of tax revenue for the county. Here’s a breakdown of the key points:
- High contribution: STRs generate 40% of all real property tax revenue, which is $213.7 million and represents 20% of the county’s entire operating budget. This is the biggest revenue source compared to other property types.
- Rapid growth: STR tax revenue has been steadily increasing for the past 6 years, contributing 52% ($53 million) to the recent budget increase. This growth is much larger than any other category.
- Dominant force: STRs are the only property type to see consistent growth in both tax revenue and property value over the past 6 years. Their share of total property tax revenue has jumped from 28% to 40% in just 5 years.
- Reliance on tourism: The county is increasingly reliant on the visitor industry for tax revenue. STRs, hotels, timeshares, and non-owner occupied properties now contribute a combined 84% of all property tax revenue, compared to just 56% a few years ago.
Was the cart put before the horse?
It’s not evident if the research was put in before the Mayor’s plan was put forward. With the overwhelming public outcry against the plan, we learn that $300,000 has now been allocated for a study to be undertaken by Maui County Council. Seems in the wake of his May 2 proposal the Mayor has taken a step back to delve more deeply into the dependency of our local economy on tourism and vacation rentals. The study will unquestionably reveal the extensive unintended repercussions.
Kahea Zeitz of Hawaii Life writes, “Beyond legal challenges, a significant restriction on vacation rentals would have substantial negative economic consequences. Including the loss of property tax revenue, businesses supported by tourism would suffer, resulting in job losses, tax revenue losses, GET, and TAT.
“While the future cannot be guaranteed, the existing legal framework and the complexity of changing regulations at least make it likely that the vacation rental industry will not be abruptly shut down.”
This statement, prompted by the current events, was released by the REALTORS® Association of Maui,
“The REALTORS® Association of Maui recognizes the fundamental importance of private property rights in fostering economic prosperity, individual freedoms, and community well-being. Our mission to protect property rights and promote fair housing is guided by our vision of a home for everyone. The freedom to buy, sell, and utilize property, as protected in the Fifth Amendment, underlies all real estate transactions and markets.”
The White Paper by Paul Brewbaker
In the meantime, we already have in hand a comprehensive study from 2022 which was ordered by Realtors Association of Maui prepared by Bank of Hawaii’s former Senior Economist Paul Brewbaker. This report outlines the dire consequences of such a move to drastically reduce short-term vacation rental units, with conversion to long-term or residential use. (Please email me for a copy of this comprehensive document).
Political drama is creating market upset.
Once the dust settles, and normality returns, it will reflect in stabilizing pricing. For now, it is true to say many owners don’t want to wait it out whilst we go to bat over this heated topic which effects every aspect of our local economy and its people. There are hearings to be undertaken and testimonies to be heard and likely some lawsuits before anything can move forward on this ill-thought out proposal. The shake up has already seen consequence as a forced market cycle from a sellers to a buyers market.
Buy in the peak of panic
Recognizing with unrest there is a window in the market. With a lot of choice in inventory, there is competition.
And lots of opportunities. Opportunity in chaos, with the contraction of Minatoya list having its repurcussions, a gain in momentum of this concern. Today we have 216 condos and 38 homes in Kihei for sale. Wailea has 75 condos and 21 homes for sale. On Maui’s west side there are 249 condos and 62 homes. The tide has turned in a matter of weeks and inventory is high!
When things are up in the air, that’s when it is time to consider the risk and the opportunity. This is what can be viewed as a buyers market because the condo market is currently flooded with units for sale giving buyers both choice and in many cases the upper hand. A consequence of the mayor’s action sees a ripple effect into the residential market.
Less than a few months ago we were faced with the opposite — low inventory, a sellers market.
Selling too soon is the best insurance against holding too long.
— to paraphrase Warren Buffet.
If you are thinking of selling, I’m happy to speak with you to explore if now is the time you want to enter the market, if circumstances so dictate for your personal situation.
Warren Buffet also said, “Be fearful when others are greedy, and greedy when others are fearful.”
If you are a buyer, the best next step is an insightful conversation with your Realtor to explore all the potential risks and opportunities that present.
In times like these it is really important that you engage with an informed Realtor to ensure that your next moves are informed and not knee jerk prompted.
Take comfort, we’ve been here before
Similar legislative challenges have been faced before in our County. We encourage that you remain informed. Updates will keep coming and I am available for personal conversations to help process where you might sit in the picture with our current market.
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