Vacation Rentals Continue To See High Demand, But Regulations Create Uncertain Future
Vacation rentals again outperformed hotels in occupancy rate for the month of April. That's according to a recent report from the Hawaiʻi Tourism Authority that tracked the monthly performance of vacation rental units in the state. But as leisure travel continues to pick up, the demand for rentals hasn't slowed down.
Business is booming for vacation rental operators like Cindy Wild, a real estate agent and vacation rental host on Hawaiʻi Island.
"For this entire year, I have one week left in the calendar to book," Wild said. "And we're booked all the way to the end of March 2022."
Like everything else in 2020, business stopped for vacation rental operators. But hosts slowly started seeing business pick up last October. In its latest report for April, rentals had a 66% occupancy rate, compared to the 51% hotels saw.
Wild says there were signs of increased demand for rentals on Hawaiʻi Island start to pick up in October.
Since then, it has exploded.
"Part of it is the hotels have not completely opened to full occupancy. So they don't have as many rooms," she said. "But looking at what's going on right now at the hotels, especially on this island, they're really, really expensive. My place can get rented out between $185 to $199 a night. And Hapuna is $1100!"
During the month of April, the statewide average daily rate for a rental unit was $238. In comparison, the average daily rate for hotels was $300.
The economic impact of vacation rentals
A 2020 HTA study highlighted the impact of the home rental market in the state. It estimated that in 2018, visitors staying at vacation rentals spent roughly $3.3 billion. That includes the accommodation price, food and beverage, transportation and retail spending. Researchers also estimated 46,000 jobs were supported annually by home or vacation rental guests at that time.
The report also states "direct, indirect and induced state government tax revenue generated totals an estimated $347.4 million as of 2018."
On the county level, rentals also contribute to local governments. Jen Russo, executive director of the Maui Vacation Rental Association, says 37% of the county's real property tax revenue comes from vacation rentals.
"Vacation rentals are also the largest source of revenue for Maui's affordable housing fund," she said. "This fiscal year, vacation rentals will raise $5.6 million for the affordable housing fund. And for the last three years combined, they've raised $7.1 million. This is not including the TAT and GET taxes."
Like hotels, vacation rentals also support a wide range of local businesses.
"Just the same as the hotels, these people that are staying here are shopping at our grocery stores, are going to our restaurants, they're fueling our economy by spending money here," Wild said. "But we also employ a lot of different people. I have to replace things at my condo - putting in new AC, so laborers and contractors."
On top of that, Wild says there are companies that manage vacation rentals on Hawaiʻi Island that employ and support businesses such as landscapers, cleaners, accountants and more.
The popularity of rentals in the islands has brought some negative impacts. The use of housing inventory in residential neighborhoods changed the way residents perceive how tourism is managed. A 2019 HTA resident sentiment report surveyed 1,700 residents across the state. Among residents who said tourism brought more problems than benefits, on average they felt there was more traffic, visitors had little respect for the culture or tradition, and there was overcrowding.
"Studies have been shown that over 30% of the people go to vacation rentals wouldn’t come to Hawaiʻi if they couldn’t go to a vacation rental," said Rick Egged, executive director of the Waikīkī Improvement Association. "So, to me, there’s your answer, you want to reduce the number of visitors – get rid of vacation rentals. And I think this is something we have to work on as a community."
To address resident concerns, county councils and administrations have proposed and implemented regulations to address illegal vacation rentals. But those rules often impact legal operators.
In Maui County, a legal rental would either need one of two permits - a bed and breakfast or short-term vacation home rental - or have been in operation before 1989. In some cases, rentals operating prior to 1991 would be considered legal.
Russo says legal hosts in the county are facing difficulties complying with county regulations. She says obtaining a permit takes years, and there are difficulties in renewing a permit.
"Many people feel like the county wants their money, but they don't feel that they're getting the support as a small business owner," Russo said.
"There have been reports of the county revoking permits, or really looking for reasons not to renew a permit. Some permittees have said that they are only being given a one-hour notice, for example, for a renewal inspection this year. In the past, they were able to schedule an appointment with a planner."
On Hawaiʻi Island, Wild says she doesn't have an issue with her unit, because it's located on Aliʻi Drive - traditionally an area with high visitor traffic. The county currently allows legal rentals to continue to operate, but the no longer allows the addition of new units.
For rentals in residential areas, operators had to go through a process to obtain a non-conforming use permit, which would have to be renewed every year.
As a real estate agent, Wild says she knows there are issues surfacing for those renewing their permit with the county. She says one operator has been waiting since November 2020 to have their permit renewed.
"Even though the homeowner has done everything that they were supposed to . . . but the county hasn't even processed it," she said. "You know we're halfway through the year, then it's going to be November again, it's going to time to renew again, and [the county] haven't even sent out the new placard for this year."
Wild believes the county didn't establish an efficient system for the renewal process, and faces issues with staffing. And because of the county's new regulations, legal operators in the renewal process could possibly lose permit their permit for good.
"Let's say that the homeowner didn't renew [their permit] within 30 days of their expiration date. They would have lost their non-conforming use permit, and they would never be able to get it back because they are not issuing new non-conforming use permits," Wild said.
Legal vacation rentals face an uncertain future with current and future regulations. Hosts say they hope they can work with lawmakers and communities to strike a balance.
But in the meantime, Wild, and other hosts like her, are cashing in on the pent-up demand from travelers.