Hawaii continues to restrict vacation rentals

[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!

https://www.sfgate.com/hawaii/...

[Mike Neubauer]

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!