New STR Law in Honolulu

[Isi Nau]

Honolulu recently passed a bill that gives some pretty intimidating enforcement teeth to an existing law, which takes effect Aug. 1st.  The existing law states that STRs are only allowed in Resort zones or if the unit has a non-conforming certificate.  So what's changed?  A new law now allows enforcement officers to use online listings/ads as sufficient evidence to fine owners.

It is estimated that there are 8,000 illegal STRs on Oahu.  A drop in the bucket if evenly disbursed across the island, but they aren't.  For example, nearly 25% of all North Shore properties were illegally rented at one time or another.  No exact number is known now.  Then there is Waikiki.  Some buildings, like Waikiki Banyan, have half their units being illegally rented.  For those renting a room, no big deal.  For those renting an entire dwelling (which is the case for 93% of STRs), this will be a big financial hit.

Typically, a unit rented as a STR can generate 3.5 times as much income compared to it being rented as a long term rental. In other words, STR owners may see a 70% drop in rental income as they convert to long term renting. That's a big hit for owners to absorb and still hang on to the property.

Here's some interesting figures from July.

Banyan, new listings

Currently there are 12 active listings, 7 came on the market in the last 30 days (since the new law was passed). So about half came on the market once the paw passed.  Also, the Banyan typically sees 1-2 new listing a month.  July saw 7.

Waikiki, new listings

Currently there are 627 active listings (condos), 165 came on the market in the last 30 days. In previous months there are about 120 new listings per month. So that's a 30% increase in new listing for the month of July.

Banyan, prices

Most of the current listings are listed close to the median sale price for the building. So we aren't seeing too much desperation to sell, but that may change as/if they sit on the market for a while.

Waikiki, in escrow

In the last 30 days, 36 condos ($400k+) went into escrow (since the law was passed). Only a few of those units had a NCU. Apparently buyers are willing to go under contract even in light of the law. Typically there are about 40 condos that sell in Waikiki each month. So July is on track with previous months, which is good. We haven't seen a big drop in offers.

I don't see how this new law couldn't place downward pressure on prices in certain areas.  It's a little too early to tell.  I'm sure we'll see more shifting after Aug 1.

Major players in the STR property management sphere have begun shutting their doors or shifting their business model away from STRs. They have begun sending letters to their clients informing them of their operational changes.

What are you seeing on Oahu?

Any hints of this type of law coming to Maui or Kauai? Maui has an estimated 9,000 STR units, and only 200 are legal! Kauai is estimated to have 1 in 10 housing units being rented as STRs.