Nepotism? Hawaii Real Estate 2022 And The Society We Aim To Be

— Update 10.13.2022: Federal Judge Watson ruled that the DPP and the City and County of Honolulu shall not implement and enforce changing minimum rental terms from 30 days to 90 days. All STR rule updates are here –> Bill 41 (CO 22-7) – Oahu’s New Short-Term Rental Rules 2022 – Legal STR Properties

— Update 4.26.2022: Bill 41 (CO 22-7), Oahu’s latest updated short-term rental rules take effect 10.23.2022, prohibiting rental terms of less than 90 days (formerly 30 days) in residential neighborhoods. Also, STR properties (rental terms of less than 90 days) must be registered with a $1K initial registration fee, and a $500 annual renewal fee. All Waikiki Banyan and Waikiki Sunset condos are legal STRs subject to the terms of Bill 41. More here –> Bill 41 (CO 22-7) – Oahu’s New Short-Term Rental Rules 2022 – Legal STR Properties

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We sell real estate and stay away from politics. Life is too short for soap operas and counter-productive marry-go-rounds. However, recent disturbing trends require some reflection and intervention.

Honolulu’s DPP, city council, and the mayor are pushing forward with a devious sleight of hand to monopolize condotel property management. – Nepotism in disguise?

Nepotism is the act of abusing one’s power to favor a family member, entity, or company while disregarding their qualifications. Nepotism can negatively impact the health and success of free-market economies and the type of society we aim to be. We should not tolerate a slippery slope of ethical fading, substandard values, and governmental corruption.

The Department of Planning and Permitting (DPP) has been paddling Bill 41 to the public’s baser instinct as a solution to reduce housing unaffordability and to crack down on illegal short-term rentals.  – Both are noble goals and get my full support.

Except, I can not endorse Bill 41 because of a dangerous hidden agenda conveniently baked into the bill that has nothing to do with its stated purpose.

See related article:  Bill 41 – Oahu Short-Term Rental Rule Amendment – “Policy Pivot”?

Against sensible recommendations, the bill did not get separated into two. The city council will further deliberate the bill in March 2022. Will the city pull a fast one?  –  Everyone is watching.

So is the Supreme Court: Hawaii Lawmakers Grapple With Ruling That Bars Last-Minute Bill Changes.

• Protecting residential neighborhoods by cracking down on illegal vacation rentals is justifiable.
• Monopolizing property management options for legal condotels is not.

DPP Director Dean Uchida presented Bill 41. His wife, Joy Uchida, is a top executive at Aqua-Aston Hospitality, Hawaii’s largest hotel front-desk operator. Aqua-Aston Hospitality will be the single biggest beneficiary if Bill 41 becomes law. – Conflict of interest?

If you find this disturbing, you are not alone. Get involved and sign up with OSTRA.

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Rental Terms In Residential Neighborhoods

For decades, Oahu’s residential neighborhoods have prohibited rental terms of less than 30 days per tenant. Because of a lack of enforcement by the DPP, and the allure of short-term rental riches, some property owners have been bending the rules. Neighborhood complaints triggered the DPP’s subsequent attempt to codefine and enforce long-existing zoning rules in 2019 with CO 19-18 (Bill 89).

See related article:  CO 19-18 (Bill 89) – New Short-Term Rental Rules For Oahu

Even since CO 19-18, the DPP still failed to enforce the rules. Either out of ignorance or defiance, some property owners continued short-term renting with a catch-me-if-you-can attitude. Even today a few owners maintain a prevailing misinterpretation of CO 19-18. “Minimum rental terms of 30 days or more per tenant” are not equal to “one tenant per 30 days.”

On 10.4.19, the judge’s order and dismissal in response to a legal challenge clarified:

“Rental agreements, advertisements, solicitations and offers to rent property violate Ordinance 19-18 if the price paid for the rental is determined, in whole or in part, by an anticipated or agreed upon occupancy of the property for less than thirty days.” However: “CO 19-18 does not require a renter to physically occupy a rental property for any minimum length of time.” There is no violation if: “1) the owner and/or operator has not limited the actual occupancy of the premises to a period less than the full stated rental period, and 2) the owner and/or operator has not conditioned the right to occupy the premises for the full stated rental period on the payment of additional consideration.”

If you are one of the few still renting for less than 30 days per tenant or writing fake 30-day rental contracts in residential neighborhoods, then consider that you might be part of the reason why the city wants to change the rules from 30 days to 180 days.

The DPP’s track record for efficiently implementing its own rules has been substandard at best. This is the same department that takes six months to process building permits and a recent federal investigation led to the indictment of five of its workers on bribery charges. – The best government our tax dollars can buy.

If the city changes minimum rental terms from 30 to 180 days, the DPP will need to process individuals’ written requests to approve exceptions. Could that create an additional logistical nightmare for the DDP?

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The Nash Equilibrium  

Named after John Nash, a Nash Equilibrium is a stable strategy for a multiplayer game. That’s when, knowing what everyone else is doing, you don’t want to do something different.

E.g. for our collective benefit of safe traffic mobility, most of us heed ‘green’ means go, and ‘red’ means stop.

An unstable strategy is when you want to change how you’ll play. An example of an unfortunate Nash equilibrium is the Prisoner’s Dilemma. Two presumed criminals would get leniency if they both keep quiet. But the one selfishly snitching gets out of jail free and the partner in crime will not.

In this case, the preferred mutually beneficial outcome of leniency by keeping quiet is unstable. Regardless of what your opponent does, you are tempted to act selfishly to catch a free ride. Your opponent faces the same temptation which acting on it spoils the party for all.

Nash equilibria explain why social change to improve society can be difficult. This is true for pollution, breaking COVID prevention measures, and short-term renting in residential neighborhoods.

• If polluting is easier than not, and the cost of pollution is shared, the Nash equilibrium is to pollute.
• If breaking COVID prevention protocol is easier than not, and the burden on business and the healthcare system is shared, the Nash equilibrium is to ignore science and medical advice.
• If short-term renting in residential neighborhoods is lucrative, and the negative effects are shared, the Nash equilibrium is to short-term rent your home.  

Most of us would rather live in a world without pollution, with fewer COVID cases, and quiet peaceful enjoyment of our homes without tourists partying immediately next door.

Selfish choices can create collective misery. It’s the tragedy of the commons that poisons the watering hole for everyone.

I’m agnostic towards 180-day versus 30-day rental terms in residential neighborhoods. However, writing 30-day fake rental contracts to cheat the system is selfish and counterproductive to the infinite game.

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The Infinite Game

In his book The Infinite Game, Simon Sinek recalls how during the Balmer reigns, Microsoft was obsessed with trying to beat Apple’s quarterly profits, at any cost. Microsoft tried to outdo Apple and feverishly developed its fancy Zune music player in response to the revolutionary Apple iPod.

On the other hand, Apple wasn’t focused on short-term quarterly gains and seemed hardly fazed by what the competition was trying to do. Instead, Apple focused on playing the infinite game by simply delivering the best user experiences to change the world for the better. Shortly after, Apple introduced the iPhone which in no time rendered the Zune obsolete.

Apple had the right approach with a long-term vision of how to find solutions for a better future while Microsoft was caught up in short-sighted decisions and chasing meaningless metrics. 

“But, we have always been doing it that we,” sealed the fate of the once-mighty Blockbuster plus countless other companies that also went the way of the Dodo bird.

It’s not about how to win the current quarter. It’s about how to play the game well to continue playing. That includes fairness and sustainability. Everything else is backward status quo bias at risk of being disrupted by innovation.

Tesla is an innovative energy/software/AI company that builds some of the finest electric cars with a vision for a cleaner future to benefit society.

GM introduced an electric car years earlier. However, GM canceled, recalled, and destroyed all EV1 electric cars, despite the objections of their drivers who wanted to buy them. That was after the auto industry succeeded in watering down emissions regulations in 2001.

Powerful oil companies were at risk of losing their monopoly on transportation fuel. Car companies feared short-term EV development costs and long-term revenue loss because EVs require less maintenance and tune-up costs. But is instant gratification better than the infinite game?  Hardly. At best, only for an instant.

Today, electric cars are mainstream because innovations provide new long-term sensible solutions that are sustainable, better, faster, and cheaper. GM botched the opportunity years ago with short-sighted decisions. Will they eventually catch on, or disappoint again just like Microsoft fumbled Zune?

Healthy competition with worthy rivals helps us improve in business and as a society. That is true for electric cars and property management.

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Violating the Laws Of Fairness

The public was outraged when Sony Music cynically capitalized on Whitney Houston’s sudden demise by increasing the price for Whitney’s greatest hits collection by over 60% within mere hours after she died.

This wasn’t a supply shortage issue.  Not like the scarcity of snow shovels when demand skyrockets during a surprise snow blizzard. Houston’s in-demand greatest hits record was a downloadable item with a virtually unlimited supply. – Price gauging?

The public sometimes rejects entities and businesses that violate the laws of fairness for short-term profits. Unreasonable price gauging is counterproductive. It can take years to rebuild trust and repair the damage.

Former GM fans might still be miffed by GM’s decision to destroy the EV1. Perhaps they turned into Tesla fans instead. Review the chapter above about the infinite game.

Bill 41 arguably also violates the law of fairness.

I have no issue with property owners having to pay their fair share of higher property taxes for the privilege of short-term renting. Legal short-term rental properties like the Ilikai, Ilikai Marina, and all other condotels in the resort mixed-use district have been subject to the higher tax rate forever, just like hotels.

See related article:  Guide to Condo Hotels in Waikiki, Honolulu | Short-Term Rental Condos

Short-term renting while enjoying the low residential property tax rate has been a bit of a free ride. An oversight that the city was bound to eventually adjust. Seems fair, no surprise.

However, $5,000 registration fees and $2,500 annual renewal fees for STRs seem excessive.

“We want to preserve the individual’s right to do what they want with their unit,” Uchida claims.“But we don’t want them to rent out as a short-term vacation rental unless it’s under a hotel umbrella.”

The problem with this statement is that the excessive fees only apply to individually owned STRs but not to thousands of rooms owned by corporate hotel owners. – Double standard?

“The role of the government should be that of a referee but not a player on the field. Government should not impede progress. The increasing burden of new rules and regulations each year leads to the hardening of “arteries of civilization.” ~ Elon Musk

During the 12.7.2021 Wall Street Journal’s Annual CEO Council, Elon Musk lauded the efficiency of private enterprises versus their public counterparts by drawing examples of East vs. West Germany and North vs. South Korea: “We should minimize what the government does.”

Removing competition and excessive regulation shrinks investments and economic activity. Is that what Hawaii needs? –  Be careful what you wish for.

Better, faster, and cheaper always wins. That’s how evolution and economics work. Innovation drives progress. And progress improves the quality of lives and societies. Without it, we wouldn’t have vaccinations, modern medicine, LED light bulbs, iPhones, and electric cars.

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Economic Activity – Hawaii’s Total Passenger Count

Until Hawaii diversifies its economy, tourism remains the main economic engine. Economic activity depends on visitor arrivals.

Here is a great visual of how the total Hawaii passenger count compares for the last three years 2019, 2020, and 2021. The graph includes all domestic and international flights, excluding interisland flights and flights from Canada.

Source: Department of Business, Economic Development & Tourism

For live updates and more nifty data go here: Visitor Statistics | Daily Passenger Counts (hawaii.gov)

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Bill 40 – TAT Increases To 13.25%

This bill is not to be confused with the infamous Bill 41 described above.

In the city’s ever-increasing appetite for revenue, the city council approved Bill 40 charging an additional 3% Oahu Transient Accommodation Tax (OTAT) on top of the regular 10.25% State Transient Accommodation Tax (TAT).

The new combined total, TAT & OTAT, is now 13.25% effective 12.14.2021, assessed on all rental income (and cleaning fees) from rental terms of less than 180 days per tenant.  

See related article:   GET, TAT & OTAT In Hawaii – The Easiest Way To File & Pay

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Photovoltaic Battery Systems

If you read this far, you deserve some good news.

Despite what your impression is of the DPP, we like to acknowledge that “with convenience and efficiency as the motivating factors,” the DPP just entered the 21^st century on 12.20.2021 with its new online Photovoltaic battery system permit application process. – Kudos and Halleluja.

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Zooming Out – Final Thoughts For The New Year 2022

For humanity, the single most important event of 2021 might have been the launch of the James Webb telescope. It is currently zipping at a speed of 1 mile per second to its L2 stable orbit almost a million miles away, or roughly 4x the moon’s distance behind Earth as viewed from the sun.

There are infinite solutions to the world’s problems in front of us. The Webb telescope will answer some questions about the universe and life. It will help create a world of better understanding and possibilities. Not convinced? Let’s compare notes in 5 to 10 years from now.

For the time being and on a personal note…

Congratulations! You successfully navigated through the 1^st 10% of the 2^nd decade of this century. Reflect on what you did well and what didn’t work out.

In preparation for the New Year, write a ‘Thank You’ letter today, in advance for all the remarkable things that happened during the new year. Date the letter December 31st of the coming year and review at that time what came true and what turned out to be not important. 

Make 2022 the most remarkable 10% of this decade yet. May you live well and prosper.

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Contact us when you are serious and ready. We are here to help.  

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