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.

[Eric P.]

Originally posted by @John Underwood:

Originally posted by @Eric P.:

Originally posted by @John Underwood:

This is very bad for VR owners that have properties in Honolulu.

Laws across the country are getting more restrictive against VR properties. You never hear of some law being passed that is pro VR.

I believe it is important not to have only VR properties and not have them all in the same place.

If you do have them all in one area and this is all of your investment income, a simple law change can sink you and depress market prices as everyone rushes to dump their properties on the market.

You can never predict when laws might get tougher on VRs and the hotel industry puts more pressure on these properties due to the income they are losing. 

I don't think the solution is to avoid having all your STRs in one place - I think the solution is only to have STRs in places that have supported them for the last 100+ years, such as Pigeon Forge, Outer Banks, Big Bear, Tahoe, etc. No one's itching to make STR illegal in Pigeon Forge for example bc the entire market is STR & has been for 100 years!

Just because something has been allowed for 100 years does not mean it can't change.

I'm sure it was allowed in Honolulu 100 years before it wasn't. Anyone with all their eggs in the Honolulu basket is feeling the pain now.

The areas that you mention may not change for another 100 years but you just can't know for sure.

To clarify, here's what I meant: STR has 2 main enemies:

1) hotels bc we are their competition

2) LTR renters bc we shrink their supply of housing which increases their rental rates

If you invest in places like Pigeon Forge or Outer Banks that don't really have many hotels & don't have many LTR renters, you should be relatively safe bc there's no one battling you. These are places that have been STR-friendly for 100 years & should continue to be bc they're literally built based on people wanting to rent a cabin in the woods / house on the beach / etc.

The same cannot be said for Nashville, Austin, Honolulu, etc