Bills would regulate short-term rentals

Feb. 4—A bill that seeks to give the counties the power to control short-term rentals — even phase them out— is moving in the state Legislature.

Other bills under consideration are geared to encouraging better regulation of short-term rentals, or providing incentives to convert them into longer-term housing.

Senate Bill 2919, authored by Sen. Jarrett Keohokalole (D, Kailua-Kaneohe), was amended Friday during a joint hearing and approved by three Senate committees, including the Senate Commerce and Consumer Protection Committee, the Energy, Economic Development and Tourism Committee, and the Public Safety and Intergovernmental and Military Affairs Committee.

Keohokalole said at the start of Friday's hearing that the bill had received 447 pieces of testimony with 304 in support of the measure, 134 in opposition and nine offering comments.

Keohokalole said the co-chairs of the committees recommended passing the proposal out with amendments. "We will add preamble language to this measure to make it clear that the objective is to reiterate our support for home rule and empower the counties to make decisions on transient vacation rentals."

SB 2919, one of many bills focused on short-term rentals that the Legislature is expected to consider this session, now awaits a hearing before the Senate Judiciary Committee and the Senate Ways and Means Committee.

Some of the other bills aimed at short-term rentals this session include:

>> House Bill 1838, which seeks to allow "counties to enact a zoning ordinance to amortize or phase out nonconforming single-family transient vacation rentals over a 'reasonable period of time.'" That bill passed out of the House Committee on Housing on Wednesday and now is waiting for the House Committee on Judiciary and Hawaiian Affairs to schedule a hearing.

>> House Bill 2778 aims to establish a surcharge on the transient accommodations tax for short-term rentals located outside of a zoned resort. The House Tourism committee passed the bill out Thursday with amendments. It now waits for the House Finance committee to schedule a hearing.

>> House Bill 2416, introduced as part of Gov. Josh Green's package to create a tax amnesty program with the aim of enticing short-term rental owners to convert their properties into longer- term housing, was recommended for deferral Friday. However, the similar SB 3105 is still awaiting a hearing.

House Bill 1374, which makes "explicit the counties' authority to regulate hosting platforms providing booking services for short-term rentals" and also defines short-term rental to include "swapping, bartering, or exchange of a residential dwelling, or portion thereof," passed out of the House Tourism committee with amendments, and now needs to complete its triple referral by getting hearings scheduled by the House Committee on Consumer Protection and Commerce, as well as the House Committee on Finance.

Wildfires prompt action

While attempts to regulate short-term rentals have gone on for decades at the county and state level, the Aug. 8 Maui wildfires are fueling a push for what some view as needed controls and others view as overreach.

The hearing for SB 2919 followed Green's Jan. 22 State of the State address, where he said, "I will sign into law any bill the Legislature sends me that will help move short-term rentals and vacant investment properties owned by non-residents into our local housing market — to increase supply and bring down prices for our families."

SB 2919's movement forward also follows a pivotal federal court ruling in the Hawaii Legal Short-Term Rental Alliance v. City and County of Honolulu suit, which to some illustrates the need for the state to give the counties greater ability to control their land use.

In that case, U.S. District Court Judge Derrick Watson's Dec. 21 summary judgement granted the Hawaii Legal Short-Term Rental Alliance a permanent injunction that carves existing home rental owners out of a provision in Honolulu city Ordinance 22-7, which sought to increase the minimum rental period for residential properties on Oahu to 90 days from 30 days.

Watson's ruling hinged on state law that allows a county to phase out nonconforming uses over a reasonable period of time for commercial, industrial, resort and apartment uses, but says that counties are explicitly prohibited from phasing out nonconforming uses in "any existing building or premises used for residential (single-family or duplex) uses." The immediate result of Watson's ruling is that property owners engaged in 30-day rentals prior to implementation of the ordinance on Oct. 23, 2022, can continue the use under a legal nonconforming status.

"The language adopted by the Senate today in (SB 2919) reflects those needs at the state level to affirm the counties' authority to make any necessary changes to their land-use laws and specifically to residential use," said Kekoa McClellan, principal of The McClellan Group and American Hotel and Lodging Association Hawaii spokesperson. "What this bill does is it makes it clear that a short-term rental use of a residential lot is not a residential use," McClellan said. "It will enable county legislation, like the legislation in Honolulu that was challenged by short-term rental operators."

Regulating the spread

McClellan said another part of SB 2919 that established and appropriates money for a regulatory scheme for short-term rentals of dwelling units under the Business Registration Division of the Department of Commerce and Consumer Affairs was excised, but can be considered at a later date.

"It's understandable that they would like more time to work on a statewide regulatory scheme on short-term rentals and to decouple what our counties are able to do with short-term rentals from that conversation," he said. "They cleaned up SB 2919 to really lean into this notion that the counties can and should be doing more to regulate the spread of short-term rentals throughout our state."

McClellan quantified the spread by quoting from a report from the independent short-term rental data mining platform AllTheRooms, which he said in the past 12 months listed more than 89,000 homes as short-term rentals in Hawaii.

"To put that in context, this is more than double our state's entire hotel room inventory," he said, adding that legislation is the only way to reign in short-term rentals thereby addressing affordability, housing insecurity, homelessness and promoting regenerative tourism.

Jerry Gibson, president of the Hawai'i Hotel Alliance, questioned the discrepancy between the 89,000 short-term rentals on AllTheRooms and the state Department of Business, Economic Development and Tourism's 2022 short-term rental count of 15,382 short-term rentals.

"By eliminating STRs and third-party illegal rental sites, we can reclaim housing for our people just like New York and Palm Springs have done." Gibson testified. "This legislation offers a tangible solution to bring down housing prices, establish a reasonable pricing structure, and transform misappropriated housing into homes for our communities. In the aftermath of the devastation in Lahaina, the urgency to act is clear.

"On Maui, we have the means to deactivate third-party sites and provide housing for thousands. The Hawai'i Hotel Alliance stands united with our members, employees, IWLU Union and Local 5 Union and the people of Hawaii, urging the swift passage of this critical legislation."

Thousands of Maui residents displaced by the fires are still struggling to find housing. Maui County Council member Keani Rawlins- Fernandez, who testified in support of SB 2919, said she thought the issue was important enough to fly to Oahu to provide in-person comments.

"SB 2919 is not unconstitutional and should be passed out today," Rawlins Fernandez said. "This measure would simply empower each county to determine what is in the public good for their respective county. Working hard to secure shelter for over 7,000 residents after a fire devastatingly burned down the town of Lahaina has made it undeniable that how housing is used is a critical piece to housing our people."

In opposition

On the other hand, large hosting platforms like Airbnb, trade groups such as the Hawai'i Realtors, and smaller members of Hawaii's short-term rental industry have testified against SB 2919. They point out that legal vacation rentals generate substantial tax revenues. They also provide income and jobs for local people. They support neighborhood businesses, especially small ones.

They provide flexible lodging options for service members, traveling medical professionals, local residents who need to transition between homes or who have been displaced by disasters, and support a person's ability to travel as they prefer. Some studies suggest that visitors who stay in vacation rentals would be unlikely to visit if that lodging option were removed.

Additionally, Alex April, senior policy manager for Airbnb, said short-term rentals have played a historic role in supporting Hawaii's visitor economy. April said the short-term rental industry in Hawaii generated $132.6 million in transient accommodations tax revenue in 2018, and said that if SB 2919 passes, it would "significantly reduce the state's ability to make ends meet under the current budget."

Lyndsey Garcia, director of advocacy, testified in opposition to SB 2919 on behalf of the Hawai'i Association of Realtors' 11,000 members. Garcia said the trade group supports "access to housing for every need or situation, which includes legal short-term rentals."

Further, she said that the measure could be "challenged as impacting vested rights and taking principles."

Green said in his State of the State address that as many as 52% of all short-term rentals in Hawaii are owned by non-state residents, and 27% of short-term rental owners own 20 or more units. Still, local people are operating short-term rentals.

Kristin Fagerback, who submitted testimony against SB 2919, said she lists a few rooms in her Big Island home for short-term rentals to help her and her mother make needs meet.

"If you put these new policies into ruling you are helping the big billion-dollar non-Hawaiian hotel businesses get more money by tourists going to their big hotels instead of going to us small hosts — which we are just trying to scrape by to survive."