Hawaii governor targets short-term rentals to boost housing inventory for residents

It’s one of more than a dozen states with legislation dealing with the issue.
Gov. Josh Green (D) speaks to reporters on the opening day of the Hawaii State Legislature’s new session in Honolulu on Wednesday, Jan. 18, 2023. (AP Photo/Audrey McAvoy)

Saddled with an ever-worsening housing crisis, Hawaii Gov. Josh Green (D) is vowing to target illegal short-term vacation rentals in a quest to free up housing stock.

It is just one part of the new governor’s multi-pronged plan to address the housing shortage, an issue he says has challenged Hawaii since before statehood.

“With will and determination … we’ll turn the thousands of illegal Airbnb’s into affordable rentals so our regular people can just afford to live in our communities,” Green said to applause during his inaugural address in December.

Regulation of vacation rentals — a popular alternative to hotels that has disrupted the hospitality industry — has historically been the domain of local governments, but increasingly states are paying closer attention to the flourishing industry.

The National Conference of State Legislatures is so far tracking more than 30 bills pre-filed or introduced in 13 states this year regarding the regulation or taxation of short-term rentals. They include Hawaii and Maine, where last fall a commission to increase housing opportunities recommended new regulations on short-term rentals.

Some of the bills aim to shield the industry from local regulations, but most would impose new restrictions or fees.

“State policymakers have looked to regulate short-term rentals as one policy lever, of many, to increase the supply of affordable housing in their state,” Heather Wilson, a senior policy specialist at NCSL, said in an email.

It is not clear how many of the bills this year are motivated by concerns about housing scarcity, but that is a key issue in Hawaii, a top tourism destination where housing is in extremely short supply.

During his campaign for governor, Green called for “aggressively enforcing existing laws to shut down the 25,000 illegal vacation rentals across the state.”

In Hawaii, like many places, vacation rentals are regulated at the city and county level.

Nani Medeiros, Green’s chief housing officer, said in an interview that rather than propose a new state regulatory scheme this legislative session, the administration will support county efforts to step up enforcement of existing ordinances with the goal of making a dent in the illegal market.

For instance, last year Honolulu created a special short-term rental enforcement branch, hired more inspectors and boosted fines to $10,000 for violations.

“If that crackdown is successful, we could have some units open up that are accessible for our local people to rent,” Medeiros said.

Medeiros said the Green administration also wants to explore incentives to encourage owners to convert their properties to long-term rentals with minimum six-month leases.

“It’s important that we try to work with them,” Medeiros said.

Hawaii’s high cost and limited supply of housing is particularly acute, and driven in large part by its unique geography and its draw as a vacation hotspot. But housing is also in short supply nationally.

A 2021 study by Freddie Mac pegged the U.S. housing shortage at 3.8 million units. The National Low Income Housing Coalition has estimated the U.S. needs 7 million affordable rental units.

The focus on short-term rentals as a contributing factor to the housing shortage has engendered pushback, with supporters questioning the extent of the impact and arguing that the rentals have economic and tax-generating value.

Recent studies have looked at the impact of vacation rentals on the housing market, with mixed results.

A 2021 study by researchers at the University of Hong Kong and Carnegie Mellon concluded that “Airbnb mildly cannibalizes the long-term rental supply.” A 2019 cost-benefit analysis by the left-leaning Economic Policy Institute concluded that “evidence suggests that the presence of Airbnb raises local housing costs.” A 2020 paper that looked at the impact of Airbnb on rents in Barcelona, Spain, concluded that Airbnb activity had increased rents by about 2%, although in neighborhoods with a lot of Airbnb units that rose to 7%.

In a recent tweet thread, Adam Kovacevich, CEO of Chamber of Progress, a center-left tech trade group whose corporate partners include Airbnb, expressed support for “sensible regulations” of vacation rentals, but placed blame for the housing shortage on cities not building enough housing.

“But building housing [requires] political will, while casting about for other culprits like say…Airbnb is easy,” Kovacevich tweeted.

Airbnb, which claims more than 4 million hosts worldwide, said it has worked with state and local leaders over the past decade to implement short-term housing regulations.

“[T]hese regulations create legitimacy and economic certainty for Hosts, and help ensure communities can benefit from the tax revenue generated by short-term rentals, and we are committed to doing the same moving forward,” Mike Signer, Airbnb’s head of North American Public Policy, said in a statement.

The company also said it has memorandums of understanding in place in Hawaii to support enforcement of local vacation rental rules.

Short-term rentals have faced scrutiny and tougher regulations for years, particularly in big cities and vacation destinations. But in recent years, some states have also sought to put a regulatory fence around what has now become a firmly rooted sector of the lodging industry that pairs travelers with willing hosts.

For example, in 2018 Massachusetts lawmakers passed a law to tax short-term rentals and require that they register with the state. In 2020, Colorado lawmakers gave counties the authority to regulate short-term rentals.

Some states have stepped in to preempt local regulations. In 2016, Arizona’s then-Gov. Doug Ducey (R) signed a law that prohibited cities from restricting or regulating vacation rentals.

That law has since been updated to give cities more authority, especially over nuisance properties — a change Airbnb supported. Even so, Scottsdale Mayor David Ortega (I) in his state of the city address earlier this month blamed the Arizona legislature for creating a “short-term rental debacle.”

“We will continue to push for density caps, density restrictions and distancing measures to rein in short-term rentals,” Ortega said.

In Hawaii, officials estimate the state will need 50,000 more long-term housing units by 2025. In his State of the State address this month, Green proposed spending $1 billion to address the crisis, which he described as his top priority. But the islands’ land constraints limit opportunities for new construction. That leaves state and local officials looking for ways to repurpose existing infrastructure.

“We’re maxed out so every unit that comes back to residential use increases our housing stock,” said state Rep. Lisa Marten (D), who represents a district on Oahu, where Honolulu has the third highest rent in the country.

Marten recalled that when she was growing up in Hawaii, young adults would often live in accessory dwelling units known as “Ohana units.” But as the vacation rental market exploded, it became harder to find those small, affordable rentals.

“We have a lot of lower-income jobs that are really important to us like nurses and teachers and those people no longer have access to those types of smaller units,” Marten said.

The battle over vacation rentals in Hawaii has become contentious and even resulted in litigation, which has blocked Honolulu’s effort to ban rentals shorter than 90 days. Industry backers make the case that short-term rentals support the state’s robust tourism economy. Hawaii has a population of just 1.4 million, but each year welcomes approximately 10 million visitors.

But Medeiros, the state’s chief housing officer, said it is also important that Hawaii diversify its economy to become more self-sufficient and sustainable.

“Yeah, those Airbnb units are helpful for the tourism economy, but I think we need to rethink what that tourism economy looks like,” Medeiros said.