County’s New Vacation Rental Law

Ordinance 18-114 was signed into law on December 5th, 2018 by Mayor Harry Kim.  This sweeping new law is something you better understand if you own, or plan to own, property on the Big Island – especially if you have a desire to use the property for vacation rentals.

 

Hawaii Island is the last county in the state to try and regulate short-term vacation rentals.  Unless you have been living under a rock, you are aware that there has been a fundamental shift over the last decade on how people vacation.  I use myself as a perfect example.  When my wife and I traveled 10 years ago, we would book our stay at the Sheraton, Hyatt, or Hilton in the destination area we were traveling to.  Today, we look to rent homes with more space and full kitchens.  For us, and I guess a large segment of the traveling public, being able to rent something more than a bed and bathroom is more appealing – especially for us, now with kids.

 

There are 2 segments of the population not very happy with this change in vacation habits.  If you are a neighbor to a vacation rental home, there could be the possibility of added noise from people on vacation who don’t have to get up for work the next day.  The other group is the hotel owners.  It is obvious that the more people opt for vacation rental homes and condos, it is direct competition to the hotel industry.  In my opinion, this second group is the reason government has now jumped on the anti-vacation rental bandwagon.

 

It is important to also understand what a short-term vacation rental is defined as.  There’s a state law that classifies any rental of less than 6 months as a short-term rental.  The owner is required to pay Transient Accommodation Taxes (TAT) to the State.  It is a little confusing because some counties don’t care if you rent your property short-term, so long as you rent the property for a minimum of 30-days.  In both cases, the owner still pays TAT, just like the big hotels.

 

The way the Hawaii County law reads, starting April 1st, every property on the island that wants to continue operating as a vacation rental has 180 days to obtain their permit from the county.  If you don’t apply by the deadline your right to legally vacation rent your property will be forever lost.  There are a lot of subtle nuances as well.  Part of the review and approval process is that your property is currently being used for vacation rentals.  If it has not been actively rented, come April 1st, you’ve lost your opportunity to do so.

 

I just had a purchase transaction cancel because the property is a bank-owned foreclosure.  The property is sitting vacant.  The purchase transaction was to close after April 1st.  With no documentation showing active vacation rental activity prior to April 1st, the application for a new permit to allow short-term rentals will be denied by the County.

 

I don’t want to go too deep into this new law, but I did feel it important to bring up for those thinking or planning on purchasing on the Big Island.  The quick take-away is that if you have any interest in vacation rental activity in Hawaii County, you should familiarize yourself with the new ordinance.

 

This law will affect home prices.  When potential buyers realize they will not be allowed to legally Airbnb or VRBO a potential property, that property will be worth substantially less to them.  Conversely, for properties with the permit, their value will go up.  It will be interesting to see over the next several months how this new law affects things on the Big Island.

 

It is interesting to note how this law is different than what is currently on the books for Oahu.  Oahu has banned short-term vacation rentals, except in resort areas, since 1990.  Oahu’s law is written very poorly.  You would think all that regulators would need to do is scan the internet and fine every homeowner offering their home for rent – clearly violating the law.  The way the law is written, that only demonstrates intent.  In order to be fined, an inspector has to catch someone actually staying at the property and have them confess to actually renting the property for less than 30 days.  A lot of owners tell their guests that if they are ever questioned, to just say they are friends of the owner and staying as their guests.  IN that situation, the inspector has nothing to go with.

 

The Hawaii County law addresses this issue specifically.  Any property listed on the internet must clearly display their government issued license number.  If they don’t, or don’t have one, the law allows the county to fine the homeowner immediately.  An inspector doesn’t have to witness anything.  As the law reads, intent is equal to violating the law.  There’s a new bill being floated around Honolulu with the same type of language.

 

If you would like to read the law in its entirety, here’s the link to the final version signed by Mayor Harry Kim:

 

https://storage.googleapis.com/idx-acnt-gs.ihouseprd.com/AR444402/file_manager/2019/Permitted%20uses%20/113-ORDINANCE%20%202018-114.pdf

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