Bill 41 – Oahu Short-Term Rental Rule Amendment – “Policy Pivot”?

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. Existing rentals must comply by 4.23.2023. 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. All future Bill 41 updates are here –> Bill 41 (CO 22-7) – Oahu’s New Short-Term Rental Rules 2022 – Legal STR Properties

Update 11.11.2021: Against sensible recommendations, the bill did not get separated into two. Instead, this latest 3^rd revision of Bill 41 still contains several disturbing restrictions on legal TVUs in resort zones like Waikiki. Civil Beat splendidly summarized the bill’s most recent changes here. The public submitted 751 written testimonies. On 11.10.2021, a confused and conflicted city council voted 7-2 in favor of advancing the bill (!?)

The DPP’s noble and worthwhile goal is to ‘crack down on illegal short-term rentals to protect residential neighborhoods.’ However, this bill includes a hidden agenda by redefining condotels as hotel units. It mandates: “Hotel units must be booked by guests through a centralized hotel booking system that is managed by the hotel operator or through the hotel front desk.”  – A sleight of hands that monopolizes property management.  

The DPP ignores an important distinction between condotels and hotel units. Condotels come with individual ownership rights and responsibilities. Each condotel owner has ‘skin in the game.’ Without individuals putting their investment dollars at risk, the Ilikai, Honolulu’s first condotel and the largest in the nation at the time would have never been built.

Several hotels converted to condotels over the years. Some operate efficiently without a front desk. Hotel front desk operators enjoy the management aspect but don’t want the ownership responsibilities. DPP Director Dean Uchida presented Bill 41. He should check with his wife Joy Uchida, a top executive at Aqua-Aston Hospitality, Hawaii’s largest hotel operator. Aqua-Aston Hospitality owns zero hotel rooms and would be the single largest beneficiary of Bill 41. – Conflict of interest?

Mandating a single property management option in a condotel has been successfully challenged before with a class action lawsuit at the Island Colony. Brazen infringements on individuals’ property rights are poised to trigger a legal challenge.

This bill needs more work. It pretends to have good intentions but falls short as a sham once you inspect what is behind the facade. $5,000 registration fees and $2,500 renewal fees for STRs seem excessive. – Do these fees apply to thousands of rooms owned by corporate hotel owners?

Can you imagine the DPP enforcing 180-day rental rules and efficiently processing all exception requests? This is the same department that takes 6 months to approve a building permit. It’s also the same department where the Feds indicted five city employees with bribery charges earlier this year. – The best government money can buy.

For the DPP to restore credibility, it must demonstrate a reasonable effort to enforce existing rules:

• Implement the existing MOU signed by Airbnb & Expedia and request the removal of all STRs that do not post the TAT and Tax Map Key numbers.
• Request Airbnb and Expedia to also remove all residential zoned listings that are advertised with minimum rental terms set between 1 to 29 days.

For updates on upcoming hearings and how to get involved, sign up with OahuSTRAlliance@Gmail.com.

The DPP should step up enforcing existing rules to root out bad actors. Increase the fines if needed, but do not monopolize property management options for condotels. – Unacceptable.

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Update 10.1.2021: It appears the DRAFT bill will be split into two separate bills. The first bill attempting to shut down short-term renting in residential neighborhoods, and a separate bill to regulate STRs in resort neighborhoods.

The DPP, city council, and the new mayor seem committed to pushing the 180-day vs 30-day rental term threshold. Some exceptions to <180-day rental terms will be granted after submitting written requests (?). Seems like the DPP will be doubling their workload.

Tinkering with a complex system often creates some unintended consequences. It’s the tyranny of small decisions that creates a massively bloated tax code just like one little french fry at a time innocently contributes to an obesity epidemic.

The original DRAFT is disguised as a solution to ‘cracking down on illegal STRs’. That’s a worthwhile goal to counteract the tragedy of the commons where selfish actions of individuals spoil common resources, e.g. the peaceful and quiet enjoyment of residential neighborhoods. However, other disturbing provisions in the DRAFT remain baked in the DRAFT, including the monopolizing of property management options in resort areas. Eliminating competition stifles innovation and progress. Quality of service suffers. That affects consumers and tourist behavior.

It reminds me of introducing the mongoose to mitigate the explosion of Hawaii’s rat population. Instead of curbing the rat population, the invasive mongooses proved detrimental to native birds and endangered sea turtles. — We shall see how efficient and practical the city’s new ideas turn out for Hawaii’s local economy. Stay tuned for updates on the next city council meeting…

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• Update 9.9.2021: During the 9.8.2021 follow-up meeting, the DPP released a further revised DRAFT Bill 9.7.2021. This latest revision is still miles away from being sensical and practical. The next meeting is 9.29.2021. To request accurate timely updates and how you could help shape the final bill, contact: OahuSTRAlliance@gmail.com
• Update 8.23.2021: The DPP released a slightly revised DRAFT Bill which corrects some typos, including this reversal: “The use of a condominium-hotel unit as a primary residence or usual place of abode is allowed.” – Good.

Unacceptable provisions remain inexplicably baked into the Bill:

1. Only hotels can a) manage, and b) set rental rates for condotels!  — Seems unreasonably lopsided and restrictive. Hotels have been divesting themselves from ownership for years. The Ala Moana Hotel, Aloha Surf, Bamboo, and Palms At Waikiki all converted to condotels. Hotels want management control but not the risk and responsibility of upkeep. A dozen condotels operate flawlessly without a 24h service desk. So do trains, train stations, some buses, and many airline check-in counters. Perhaps the revised Hotel definition still requiring a 24h front desk is based on an outdated business model. Individual owners buy condotels with the right to self-manage, and or the right to use third-party property managers. It promotes competition and innovation, which leads to progress. That’s how evolution, the economy, and business work.
   • The DPP trying to remove management rights from condotel owners does nothing to reduce impact on residential neighborhoods.
   • It also does nothing to crack down on illegal short-term renting. What is the hidden agenda? Is the DPP bowing to Hotel industry pressure under false pretense?
2. Rental terms of <180 days (instead of <30 days) are illegal unless the property is a B&B or TVU. — Say what? Whoever needs a temporary rental for less than 6 months will need to check into a hotel/B&B/TVU?    – This story is still developing. Below is the original article…

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Original post 8.23.2021: On August 20, 2021, the DPP advertised this Memorandum and DRAFT Bill to amend existing short-term rental rules. A public hearing is on 9.1.2021.

The Bill is described as a “policy pivot” and states two primary goals:

1. Reduce impacts on residential neighborhoods.
2. Regulate STRs that are permitted only in or adjacent to existing resort areas.

So far so good. No big pivot. Secondary goals include:

• Providing better enforcement tools to address illegal STRs.
• An independent source of revenue to support the necessary enforcement actions to reign in illegal STRs on Oahu.

That’s where some of the details get gnarly and run off the track.

In 2019, CO 19-18 (Bill 89) merely codified 30-year old existing laws and started enforcing them for the first time.  

However, the proposed DRAFT is an entirely different ball of wax raising additional questions. Is it trying to rewrite and remove property rights?

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After glancing through the document here are some bullet points and random notes:

• No additional B&Bs and TVUs will be allowed in residential neighborhoods, but current non-conforming B&Bs and TVUs can continue.   
• New B&Bs and TVUs will be allowed at KoOlina Resort (map) and Kuilima Estates (map) in the A-1 and A-2 apartment zone, and on the Gold Coast (!) (map) in the A-2 apartment zone, just south of Waikiki.

Ok. That is consistent with the two primary goals.

Adding the Gold Coast is huge! Now the Diamond Head Beach Hotel can finally become legal and live up to its name. Gold Coast condo buildings can now modify their house rules to their discretion if they desire to allow ST renting. It remains to be seen how many will join the club.

• Hotels, condominium hotels, and hotel units will be newly defined and added as a permitted use, subject to development conditions in the Apartment Precinct and Apartment Mixed Use Precinct of Waikiki.

How does that affect the alleged ongoing negotiations to rezone the Waikiki Banyan and the Waikiki Sunset?

• Existing non-conforming TVUs and new TVUs will be assessed at the hotel and resort tax rate, currently at $13.90 per $1K assessed value.
• Existing non-conforming and new B&Bs will be assessed at the B&B prop tax rate, currently $6.50 per $1K assessed value. B&B owners must live at the B&B and must obtain the home exemption for property tax.

No surprise here. Everyone saw that coming. The city had been missing out for decades on property taxes from NUC units that are assessed at the lower residential tax rate. No more free riding with a low $3.50 tax rate while ST renting. More cash for a revenue-hungry city.

• All TVUs and B&Bs must always carry $1Mill in commercial general liability insurance.
• The DPP gets up to $3.125Mill in real property taxes to fund the enforcement of STRs.

$3.125Mill/y seems like an astronomical amount. For policing? – I can think of a hundred ways to invest that money more productively.

• The B&B and TVU definitions are amended to increase the rental period from less than 30 days to less than 180 days (!?)

Say what? It must be a typo, or something is missing. Here is the excerpt:

Unbelievable. Any rental advertisement with less than 180-day rental terms is illegal unless the property is a B&B or TVU?  – Unacceptable.

Am I not allowed to rent out my residential property to a 5-month tenant? Does that increase the minimum rental term from 30 to 180 days for the ‘Dedication for Residential Use’?

Here is the DPP’s revised definition for “Hotel” and “TVU”:

And here is how the DPP suggests condotel units should be managed:

Unbelievable. Could this in earnest be meant to apply to all condotel units?

If yes, then it rescinds private contracts with property managers in favor of monopolizing hotel management contracts. That’s like outlawing ridesharing companies like Uber and Lift to benefit cab companies. It prevents owners from self-managing or using third-party property managers.

Rental rates must be set by the hotel operator? Isn’t that a form of price-fixing? Does that benefit the general public, or the hotel industry? – Unacceptable.

There are at least 11 Waikiki condotel buildings that currently have no hotel front-desk operation. They will be forced to designate a central booking agency. Other condotel buildings are operating with multiple competing onsite rental agencies. Who decides on which central booking agent shall be imposed on the property owners.

Hold on to your hats. If you bought a condotel with the intent to enjoy it as your principal residence. Guess what? The Bill suggests you can’t. You must make it available for tenants. The DPP wants to restrict your personal use rights. – Unacceptable

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I’d like to give the DPP the benefit of the doubt. They are trying to accomplish the two primary goals outlined above. But the real “policy pivot” is that individual owners’ property rights are thrown under the bus while the hotel industry is getting a juicy bone.

Perhaps we are missing something. This is only a DRAFT that is subject to discussion and tweaking.

Most solutions of complex real-world problems are messy compromises. I get it. The right utilitarian action should benefit the majority, but not if it compromises the entire system.

Strange things can happen when nobody pays attention. We can’t rule out the risk that this Bill could turn into law.

Let us know what you think. The public hearing is on 9.1.2021. Stay tuned for updates.

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