Hawaii continues to restrict vacation rentals
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
The DIY Landlord Book4.7248 Reviews
Hawaii continues to restrict vacation rentals
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Rental Property Investor · Waikapu, HI · Member since 2018 · 305 posts · 197 votes
4yThanks for your thoughts, @Nathan Gesner I live on Maui and have done quite well with STRs over here. Those restrictions and laws you're referencing are certainly not the full picture. Hawai'i is the most restrictive state in the country and Maui is probably the most restrictive county in the state when it comes to short term rentals. There are certainly reasons for this, which you've touched on. I'm going to speak on behalf of Maui where I've lived most my life, but the other islands have similar issues. For example:
The reason STRs are frowned upon are two fold. One being the hotel industry in Hawaii has been so powerful for so long and they've got deep pockets. They don't want their revenue to walk away. They're very good at pushing the political landscape and blame Airbnbs for a lot. That's fair, I get it. I wouldn't want more competition either. Two, we have a very desirable place to live. Everyone wants to be here. This is getting more pronounced as people are able to work from home easier and live where they want to live. This of course pushes home prices up. Our average home price is well over $1m right now. WELL OVER. Look at our job market. We have no high paying jobs. Our residents work at Starbucks, Snorkel Bob's, Walmart, etc. The hotels pay OK, but not enough for a lender to approve a loan on a $1m house unless you are a director or GM.
My point here is that the desire for real estate in Hawaii is stronger than most other markets. But unlike most other markets, we don't have a household income to match the home prices. Right now you can't really buy anything for under $500,000. Studio apartments sell for more than that. This leads to more and more locals complaining that they can't afford to live here. After generations of their families living in Hawai'i they no longer can afford the costs associated with it and are being forced out. They're frustrated. I get it. Locals reach out to the local government and the council members propose all kinds of bills and regulations in the hopes of making the locals happy.
Essentially what has happened here, is that in order to get a permit on a single family home for STR use, you need to meet a few criteria. One is you have to have owned the house for at least 5 years. This law went into effect about 4 years ago if I remember right. Next you'd have to apply for a Transient Vacation Rental permit. In order to get said permit you have to show that you have reached out to all your neighbors within 500 yards of your property (I might be wrong on the distance, I can't remember), tell them what you want to do and get approval from at least 70% of them. Then there has to be a permit available for you. The county here has broken down each area (Kihei, Wailea, Makena, Haiku, Lahaina, etc) and put aside a set amount of permits for each area. These permits are pretty much all gone, and are non transferable if you were to sell. Then if you are able to get through that gauntlet and a permit IS available you still need the county council to approve it. Good luck.
The short of that, is you're not going to get a permit on a single family home for STR purposes. It's just not going to happen. Has this slowed the pricing increase of SFH? Maybe a little. Not enough for the locals. So that leaves you with condos. That's your only real option if you want to STR a property on Maui. Of those condos, technically they're supposed to be in hotel zoned areas for use as a short term rental. However, most condos here are zoned apartment or multifamily. It's their HOAs that allow for short term rentals. There has been a bill that came to council to remove non-hotel zoned condos from being allowed to short term rent, but that got tabled.
If that were to have been approved, that would've shut down probably 70% of all Airbnbs on Maui. The amount of taxes brought in from Airbnbs is ridiculous. We pay 17.25% in hotel taxes here on Maui plus MUCH higher property taxes than an owner occupied home. If that bill would have passed the county would've probably gone bankrupt. That bill will never pass, in my opinion.
So what does that leave us with? STR approved condos aren't going anywhere. What does Short term mean in Maui? Anything less than 180 days. A 2 bedroom STR condo in Maui right now will sell for around $1m. It's a steep price tag. However, I buy them. I'm a full time real estate investor, and I'm doing just fine. So can it be done? Yes, absolutely. Are there a lot of downsides here? YEP. Tread carefully. What's the upside? Well, appreciation is better than just about anywhere in the country. Nightly rents continue to rise. It's not a market for beginner investors, that's for sure. It's a sophisticated market for investors that maybe don't need the cash flow right now, but over time they will grow their net worth significantly.
Sorry for the long post, but I thought maybe you'd want to hear a local perspective and a few more reasons why things are the way they are. Have a great day, and if anyone out there does own a Maui STR condo and is ready to sell, reach out to me. I'm still buying... ;-)
Aloha!
18 Replies
- Real Estate Agent · Knoxville, TN · Member since 2020 · 54 posts · 42 votes4y
@Nathan Gesner for investors that want to purchase an STR in a tropical (US) location, do you know of any alternatives that are more STR friendly?
- Investor · Dublin, CA · Member since 2019 · 167 posts · 134 votes4y
Thanks for sharing the article. For those that don't click the link, it looks like this is Oahu specific right now and in areas designated as non-resort areas. Still might mean resort areas are a good place to invest as Hawaii starts to limit STRs in other areas so supply could be constrained with then demand increasing.
I have looked into Maui and Kona and realtors have advised the resort areas for any STRs since it has more historical rental laws and guidelines. Similar advice that others have given to invest in locations that are STR friendly.
- Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes4y
Quote from @Nathan Gesner:
I said it years ago and I'll say it again: Hawaii is not a good place to invest in short-term rentals. They claim it has to do with the housing crisis, but I suspect they're being pushed by the hotels and resorts.
I visited Hawaii in July 2021. At that time, they had a law stating vacation rentals could only have one guest per month. I stayed July 21 - August 4th and I know there was a guest right before me and another coming after me. Now Hawaii is restricting short-term stays to 90 days or more!
I do not know which island you visited but I can see that not being too bad of a thing at this time. The traffic on Oahu is the worst I’ve ever seen. My father-in-law is from Hawaii and we have family there. I do not know how those small islands can take many more people.
- 4yRyan MoyerBusiness MemberProperty Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votes
I just got back from Maui and I can buy the housing crisis excuse. The locals HATE short term rentals there. Housing was already expensive there and now it's nuts. I honestly don't know how someone working at a restaurant or as a janitor can afford to live there.
If I wanted to own there it would be a condo in a resort area with STR guidelines already in place. Trying to buy a single family home in Hawaii and rent it out as an STR just seems like a terrible idea as it's likely a matter of when, not if it won't be allowed anymore. You'd have to REALLY want to have that for it to make sense. Purely financially it seems like a terrible idea as there are plenty of places with as good or better returns with far less risk.
Cosmic Vacations4.9174 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes4yI visited Oahu In July. I lived there until 2008 and it was always busy, but last year was off the charts. We used to swim under the Waimea waterfall and there would be maybe 10 people in the water. This year it was at least 50 and probably 100 milling around. The lifeguards used a megaphone to tell people to get out of the water and give others a turn. We couldn't get to our favorite beaches or sites. I couldn't book a luau two months in advance. Fortunately, we rented a place right on the beach (North Shore) and were able to enjoy our time away from the crowds by stepping out the back door and right onto the beach.
Quote from @Steven Foster Wilson:
I do not know which island you visited but I can see that not being too bad of a thing at this time. The traffic on Oahu is the worst I’ve ever seen. My father-in-law is from Hawaii and we have family there. I do not know how those small islands can take many more people.
The crowds were a post-COVID issue, not an AirBnB issue. If I had to be stuck in a hotel, I wouldn't have even attempted to go. I believe Hawaii is cracking down on them because of pressure from the hotels and resorts.The DIY Landlord Book4.7248 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes4y
Quote from @Ryan Moyer:
I honestly don't know how someone working at a restaurant or as a janitor can afford to live there.
How could they afford it four years ago? Ten years ago? When I bought my home on Oahu in 2005, people were literally renting out walk-in closets for hundreds of dollars. My REALTOR was sharing a two-bedroom apartment with two other people and complaining that she couldn't afford to buy. I see the same complaints in my town of Cody or Bozeman or San Diego or D.C. or . . . you get the point. Nicer things require more money. This is true of nicer homes, nicer locations, and even Teslas. If people want to own a house on Maui, they'll have to work hard and pay the price, just like everyone else that owns a house on Maui.
EDIT: Do you know why locals hate AirBnBs? Because they paid a high price for their property and don't want to share it with anyone else. Once people move in, they expect it to stay the same forever. They don't want more developments, they don't want more traffic, they don't want anything because they bought their slice of heaven and don't want to share. It's just like the politicians that push for "affordable housing" developments or windmills, but they won't put them in their own neighborhood.
The DIY Landlord Book4.7248 Reviews - Real Estate Broker · Kaneohe, HI · Member since 2020 · 193 posts · 163 votes4y
There seems to be some slight confusion about Bill 41 that I want to clarify.
First, you can still own and operate a legal short term rental (STVR) on O'ahu if it is in the resort district of Waikiki, and the building association allows it. At this time, there are over 20 buildings in Waikiki where it is allowed - even after the passage of Bill 41. You can also own a STVR in Ko'olina on the Westside of O'ahu, as well as a new single family development in Makaha Valley that is zoned "resort." Lastly, you can also do highly rentals in Turtle Bay on the North Shore.
Secondly, if a property has a non conforming use permit (NUC), you can do nightly rentals - regardless of the location of the property on O'ahu.
Thirdly, and fortunately, the Bill added two buildings in Waikiki that can be used as highly rentals - the Waikiki Banyan and Waikiki Sunset. These buildings are located a short distance from Waikiki Beach, units are mostly 1 BR/1 BA and generally sell $500k-$600k and generally gross $5-$6k/mo. Though I know of one 1 unit at Banyan that usually earns about $7k/mo. I have clients who buy units solely as an investment, but owning a legal STVR here often works well as vacation home.
Lastly, and unfortunately, all other properties outside the resort districts, or not having an NUC permit, can only be rented for a minimum of 90 days. Terrible loss of property rights. Supposedly there is a group that is going to sue and I hope it becomes a class action.
Hope this info helps - happy to answer any questions.
- Rental Property Investor · Waikapu, HI · Member since 2018 · 305 posts · 197 votes4y
Thanks for your thoughts, @Nathan Gesner I live on Maui and have done quite well with STRs over here. Those restrictions and laws you're referencing are certainly not the full picture. Hawai'i is the most restrictive state in the country and Maui is probably the most restrictive county in the state when it comes to short term rentals. There are certainly reasons for this, which you've touched on. I'm going to speak on behalf of Maui where I've lived most my life, but the other islands have similar issues. For example:
The reason STRs are frowned upon are two fold. One being the hotel industry in Hawaii has been so powerful for so long and they've got deep pockets. They don't want their revenue to walk away. They're very good at pushing the political landscape and blame Airbnbs for a lot. That's fair, I get it. I wouldn't want more competition either. Two, we have a very desirable place to live. Everyone wants to be here. This is getting more pronounced as people are able to work from home easier and live where they want to live. This of course pushes home prices up. Our average home price is well over $1m right now. WELL OVER. Look at our job market. We have no high paying jobs. Our residents work at Starbucks, Snorkel Bob's, Walmart, etc. The hotels pay OK, but not enough for a lender to approve a loan on a $1m house unless you are a director or GM.
My point here is that the desire for real estate in Hawaii is stronger than most other markets. But unlike most other markets, we don't have a household income to match the home prices. Right now you can't really buy anything for under $500,000. Studio apartments sell for more than that. This leads to more and more locals complaining that they can't afford to live here. After generations of their families living in Hawai'i they no longer can afford the costs associated with it and are being forced out. They're frustrated. I get it. Locals reach out to the local government and the council members propose all kinds of bills and regulations in the hopes of making the locals happy.
Essentially what has happened here, is that in order to get a permit on a single family home for STR use, you need to meet a few criteria. One is you have to have owned the house for at least 5 years. This law went into effect about 4 years ago if I remember right. Next you'd have to apply for a Transient Vacation Rental permit. In order to get said permit you have to show that you have reached out to all your neighbors within 500 yards of your property (I might be wrong on the distance, I can't remember), tell them what you want to do and get approval from at least 70% of them. Then there has to be a permit available for you. The county here has broken down each area (Kihei, Wailea, Makena, Haiku, Lahaina, etc) and put aside a set amount of permits for each area. These permits are pretty much all gone, and are non transferable if you were to sell. Then if you are able to get through that gauntlet and a permit IS available you still need the county council to approve it. Good luck.
The short of that, is you're not going to get a permit on a single family home for STR purposes. It's just not going to happen. Has this slowed the pricing increase of SFH? Maybe a little. Not enough for the locals. So that leaves you with condos. That's your only real option if you want to STR a property on Maui. Of those condos, technically they're supposed to be in hotel zoned areas for use as a short term rental. However, most condos here are zoned apartment or multifamily. It's their HOAs that allow for short term rentals. There has been a bill that came to council to remove non-hotel zoned condos from being allowed to short term rent, but that got tabled.
If that were to have been approved, that would've shut down probably 70% of all Airbnbs on Maui. The amount of taxes brought in from Airbnbs is ridiculous. We pay 17.25% in hotel taxes here on Maui plus MUCH higher property taxes than an owner occupied home. If that bill would have passed the county would've probably gone bankrupt. That bill will never pass, in my opinion.
So what does that leave us with? STR approved condos aren't going anywhere. What does Short term mean in Maui? Anything less than 180 days. A 2 bedroom STR condo in Maui right now will sell for around $1m. It's a steep price tag. However, I buy them. I'm a full time real estate investor, and I'm doing just fine. So can it be done? Yes, absolutely. Are there a lot of downsides here? YEP. Tread carefully. What's the upside? Well, appreciation is better than just about anywhere in the country. Nightly rents continue to rise. It's not a market for beginner investors, that's for sure. It's a sophisticated market for investors that maybe don't need the cash flow right now, but over time they will grow their net worth significantly.
Sorry for the long post, but I thought maybe you'd want to hear a local perspective and a few more reasons why things are the way they are. Have a great day, and if anyone out there does own a Maui STR condo and is ready to sell, reach out to me. I'm still buying... ;-)
Aloha!
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes4y
Nicely written, Mike. I'm aware of most of that having lived there and watched the market. I'm just sharing because I know a lot of people want to invest in that state.
Hawaii is beautiful but has too many people and is too isolated for my tastes. I remember people making runs on the stores for water, TP, rice, and Spam any time a natural disaster hit or a tsunami was forecasted. I remember the airport shutting down after an earthquake and feeling locked in. Even on a good day you can't just hop in the car and drive to the next state to visit relatives. I'd rather invest in a paradise with fewer people and more options. ;)
The DIY Landlord Book4.7248 Reviews - Rental Property Investor · Waikapu, HI · Member since 2018 · 305 posts · 197 votes4y
Yep, all valid points @Nathan Gesner And those are all reasons why I usually don't recommend investing here for people unless they're already diversified enough and liquid enough that they can take the hits that will come in Hawaii. It's also why we have personally diversified from our main holdings in the STR space and into SFHs, MFs, Syndications, etc. There's a lot of people investing here that are over leveraging and over paying for things who probably shouldn't be... Aloha!
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes4y
I honestly believe that's happening around the country. When this market corrects, we will see a lot of investors fail after trying to borrow their way to wealth.
The DIY Landlord Book4.7248 Reviews - Rental Property Investor · Waikapu, HI · Member since 2018 · 305 posts · 197 votes4y
100% agree, @Nathan Gesner
- 4yRyan MoyerBusiness MemberProperty Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votes
Quote from @Nathan Gesner:
Quote from @Ryan Moyer:
I honestly don't know how someone working at a restaurant or as a janitor can afford to live there.
How could they afford it four years ago? Ten years ago? When I bought my home on Oahu in 2005, people were literally renting out walk-in closets for hundreds of dollars. My REALTOR was sharing a two-bedroom apartment with two other people and complaining that she couldn't afford to buy. I see the same complaints in my town of Cody or Bozeman or San Diego or D.C. or . . . you get the point. Nicer things require more money. This is true of nicer homes, nicer locations, and even Teslas. If people want to own a house on Maui, they'll have to work hard and pay the price, just like everyone else that owns a house on Maui.
EDIT: Do you know why locals hate AirBnBs? Because they paid a high price for their property and don't want to share it with anyone else. Once people move in, they expect it to stay the same forever. They don't want more developments, they don't want more traffic, they don't want anything because they bought their slice of heaven and don't want to share. It's just like the politicians that push for "affordable housing" developments or windmills, but they won't put them in their own neighborhood.
I think the difference is 4 years ago and 10 years ago there were no shortage of places for them to rent, whereas now in any semi-vacation destination LTR's only exist when the government legislates in ways that make them exist. The STR secret is out. Everyone knows (even with a PM to keep it passive) that renting their place as an STR in a strong STR market will net them far better income than renting it as an LTR. There is no reason for them to make LTRs available and without LTRs the economy can't function.
I have a lucrative STR in Southern Utah but I know it's a ticking timebomb there because there are literally zero LTRs available in the entire county. Literally none. Someone posted in the local classifieds group on Facebook begging for a place to rent and man, the locals DO NOT like people like us, lol. The whole comment section was brutal.
As to the last paragraph about why people hate STRs I agree that is a big part of it, and the old fogies that are scared of a transient population and just want their place to remain their own private paradise forever annoy me just as much. But that is only half of it, if that. The people that can't find a place to live on a barista's wage are the real problem.
Don't get me wrong, I am extremely pro STR and it now represents a large part of my income, but I don't think sticking our fingers in our ears and being tone deaf about the issues it has exacerbated is constructive. There are real people struggling in these markets and ultimately the legislators represent them, not us well off folks 3000 miles away that don't even get a vote in local elections. I don't know what the solution is but I do know that pretending like it doesn't exist probably isn't likely going to work out well.
Cosmic Vacations4.9174 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes4y
Quote from @Ryan Moyer:
There was a shortage of rentals in 2005-2008. One example I remember vividly was a walk-in closet for rent. 10' x 8' with an extension cord for power and access to a shared bathroom and kitchen. I think it was $300 a month.
The DIY Landlord Book4.7248 Reviews - Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes4y
Prices in every area I know of (that doesn't suck) to live is completely out of wack with what most people can afford. STR are a drop in the bucket but one of the only things local politicians can control. Personally hate seeing change it usually is great for the well off and the most locals get hammered.
As far as real estate investors using debt to get rich well I’m guilty as charged. Lol if I made the rules things would be different but I don’t just blessed enough to see how this scam (maybe a little harsh) works.
- Laveen, AZ · Member since 2016 · 584 posts · 528 votes4y
Quote from @Nathan Gesner:
Quote from @Ryan Moyer:
I honestly don't know how someone working at a restaurant or as a janitor can afford to live there.
How could they afford it four years ago? Ten years ago? When I bought my home on Oahu in 2005, people were literally renting out walk-in closets for hundreds of dollars. My REALTOR was sharing a two-bedroom apartment with two other people and complaining that she couldn't afford to buy. I see the same complaints in my town of Cody or Bozeman or San Diego or D.C. or . . . you get the point. Nicer things require more money. This is true of nicer homes, nicer locations, and even Teslas. If people want to own a house on Maui, they'll have to work hard and pay the price, just like everyone else that owns a house on Maui.
EDIT: Do you know why locals hate AirBnBs? Because they paid a high price for their property and don't want to share it with anyone else. Once people move in, they expect it to stay the same forever. They don't want more developments, they don't want more traffic, they don't want anything because they bought their slice of heaven and don't want to share. It's just like the politicians that push for "affordable housing" developments or windmills, but they won't put them in their own neighborhood.
I'm saying this just for humors sake, but I'm sure the locals hate developments, air bnb and change just as much as those who hate having their favorite waterfall crowded.
I suppose you're correct there's pressure from hotels to put restrictions on STRs but it sounds like a housing crisis too. People who can afford high priced homes aren't going to clean each other's toilets and serve each other at restaurants. They may be doing a favor by ensuring the area can have a working class.
- Member since 2022 · 25 posts · 11 votes4y
What about Maui residents who have ADU's on their property. Is there any way around the STR restrictions if you live in your home, but have one or more ADU's? Does the application process favor that type of situation rather than trying to STR the main house?
- Rental Property Investor · Waikapu, HI · Member since 2018 · 305 posts · 197 votes4y
Quote from @Chris Dudine:
What about Maui residents who have ADU's on their property. Is there any way around the STR restrictions if you live in your home, but have one or more ADU's? Does the application process favor that type of situation rather than trying to STR the main house?
Unless you already have a TVR permit, don't bother trying to get one. There's a lot of restrictions and the county has all but said they aren't giving out any more short term rental permits. The only option you might be able to get is a B&B permit. It's a little different than a TVR permit. I think you need to live on property and be able to provide breakfast to your guests on the daily. That one might be possible, but even still super tricky to actually get.
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