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Are Vacation Rentals Legal in Hawaii?

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Cities and destinations all around the world have been clamping down on the short-term rental industry as it becomes increasingly difficult to control rent prices. Since the arrival of vacation rental sites such as Airbnb and VRBO, popular tourist destinations such as Hawaii have been under pressure to control the situation and implement firm restrictions on the short-term rental market. Homeowner and landlords can make a lot more money by renting short-term than by long-term, which is driving the issue. So are vacation rentals legal in Hawaii? Here’s what we know. 

Short-Term Rental Demand

Hawaii is one of the most popular vacation destinations in the United States thanks to its stunning tropical scenery, picturesque beaches, and charming culture. A large percentage of tourists traveling to Hawaii want to stay in short-term vacation rentals, as opposed to hotels. This is because vacation rentals are generally cheaper, you can feel like you’re staying in a ‘home from home’, and have a more local experience. Estimates suggest the tourism industry in Hawaii has boomed in the last decade, going up from 8 million tourists to 10 million tourists. The hotel industry hasn’t met this increase, and the vacation rental industry has largely soaked up the demand.

In turn, landlords, homeowners, and even tenants have been meeting the influx by using their homes as vacation rentals. This has aggravated the rental industry — for property owners, it is significantly more profitable to rent to tourists for a few days at a time than it is to rent to long-term residents. Hawaii already has a housing shortage with many locals struggling to find suitable long-term housing, and the vacation rental industry has exacerbated this problem. Cities around the world, such as Singapore, Toronto, and New York are battling against a similar conflicting situation — on the one hand the need to manage the negative impact of the vacation rental industry on locals versus the fact that restrictions on the industry might damage tourism.

 

Opposition

There’s tons of opposition coming from locals towards the short-term rental industry in Hawaii. This is because short-term rentals can often be in residential areas and the influx of tourists means that there are crowds looking to drink and party — which is seen as a nuisance and disruption for the local community. Unfortunately, some tourists do forget that these destinations aren’t just fun spots for vacationers or ‘resort zones’ but they are actually residential neighborhoods. It also provides competition for local bed and breakfasts and small, family-run hotels, which are struggling to keep up with the cheap prices available through vacation rental sites. As mentioned previously, the housing shortage for locals is also one of the key factors in opposition to vacation rentals.

 

Current Hawaii Vacation Rental Laws

The rules vary from county to county in Hawaii, and there’s no blanket policy covering the whole state. In most main counties, you need a permit if you are operating a vacation rental, as well to be registered with your local county.

As the permits are issued by individual Hawaiin counties, which have varying regulations, these regulations are often poorly enforced. It’s relatively easy to get away operating a vacation without signing up for a permit. Honolulu is thought to have thousands of units that are illegally operating as short-term rentals, with some estimates suggesting up to 8,000 units in total. Honolulu has not issued new permits to vacation rentals since 1989 — which is part of the problem.

Meanwhile, counties like Kauai and Maui have been more successful in clamping down on illegal vacation rentals, although they are still struggling to track down units operating illegally and without permits.

As the rules vary by county, some counties require that rental owners pay taxes and others request the rental platforms collect the taxes on behalf of the hosts. The Hawaii Appleseed Center for Law and Economic Justice estimates there are 23,000 vacation rentals in Hawaii, and many are illegal.

 

Raising Taxes

In recent months, lawmakers in Honolulu have passed legislation to make sure that the state is benefitting from Hawaii’s flourishing vacation rental economy. Honolulu City Council has passed tax-raising legislation whereby rental platforms are responsible for collecting taxes on behalf of the homeowners listing their properties.

A challenge that they are likely to face is the reality that it’s hard to monitor short-term vacation rentals and therefore is challenging to perform tax collection.

 

Enforcing the Law

It’s difficult for law enforcement to prove that a property is an illegal vacation rental if there’s just an online listing to back-up their claim. Law enforcement is having to visit illegal vacation rentals on repeat occasions in order to interview neighbors, people on vacation, or managers looking after the property, so to build up a sufficient case. This is time-consuming for all involved and therefore has been a big hurdle in creating restrictions on the vacation rental industry. 

 

Battle With Airbnb

There have been recent battles against Airbnb whereby Hawaii has asked Airbnb to disclose information on the past decades of vacation rentals in the state, alongside the names of those operating vacation rental units. The case was shelved by a judge as it was said that this would be a “massive intrusion” into the private data of 16,000 hosts. It’s likely that the battle will continue. 

 

Vacation Rental Restrictions Around the World

There are a lot of cities around the world that have put in place rules to manage the vacation rental industry. Cities such as Singapore and New York are some of the strictest. For example in Singapore, it’s illegal to list properties for a rental period of fewer than three months. In New York, it’s illegal to rent an apartment or condo there for less than 30 days, with very few exceptions to this rule. Meanwhile, Toronto is softer on the industry, as an entire home can be rented out as a ‘short-term’ rental (which is defined as less than 28 consecutive days) for a maximum of 180 nights a year.

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