Discouraging short-term rentals won’t ease housing shortage

by Grassroot Institute of Hawaii, March 23, 2022

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration March 23, 2022, by the Honolulu City County Committee on Zoning and Planning.
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To: Committee on Zoning and Planning
      Brandon J.C. Elefante, Chair
      Esther Kia’aina, Vice Chair

From: Grassroot Institute of Hawaii
            Joe Kent, Executive Vice President

RE: BILL 41 (2021), CD1 — LAND USE ORDINANCE AMENDMENT RELATING TO TRANSIENT ACCOMMODATIONS

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute would like to offer comments on Bill 41 (2021), CD1, which would significantly throttle and in most cases outright ban transient accommodations.

According to the bill, it would do this “by providing a more comprehensive approach to the regulation of transient accommodations within the City.”

Translated into practical language, that means increasing the minimum length of stay to 90 days, up from 30 days, a prohibition of short-term rentals in all zoning districts except for resort zones and low-density and medium-density apartment zones, an extensive new structure of fees and steep fines for the many types of transient accommodations that might exist, and many other new regulations controlling how those transient accommodations may be operated.

This bill and its proposed CD2 version would infringe on private property rights and trample on a well-established market that benefits both residents and visitors alike.

Housing impacts are overblown

As stated in the bill’s introduction, this would supposedly help ease the housing shortage. However, there is no clear evidence that short-term rentals have any significant impact on Hawaii’s housing shortage.

Honolulu rents since 2018 have continued to increase, despite a downturn in short-term rental stays during that time frame, as shown in figures 1 and 2.

Source: “Oahu Lodging Summary,” Hawaii Tourism Authority, January 2022.

Source: “Honolulu, HI Rental Market Trends,” RentCafe.com, accessed March 21, 2022.

Median home values have also risen substantially during that time frame. As shown in Figure 3, housing prices have increased significantly as short-term rental usage has gone down. Thus, it is simply not the case that reducing short-term rentals would have much impact on the price of housing on Oahu.

Source: “Honolulu Market Overview,” Zillow.com, Feb. 28, 2022.

Excessive fines

The steep fines that Bill 41 proposes for any ordinance violations are potentially unconstitutional: $10,000 per day for as long as violations persist. For a recurring violation, it would go up to $25,000 a day.

In February 2019, the U.S. Supreme Court ruled that the Eighth Amendment’s prohibition on excessive fines applies to state and local governments. The case, Timbs v. Indiana, dealt with civil asset forfeiture. In the unanimous decision, Justice Ruth Bader Ginsburg wrote, “Even absent a political motive, fines may be employed in a measure out of accord with the penal goals of retribution and deterrence.”

Under the fine structure proposed in Bill 41, transient accommodation owners could quickly find themselves owing hundreds of thousands of dollars. Violators on a recurring violation could owe $1 million in fines in a month. Even first-time violators could end up owing more than the property is worth in a matter of months.

By nearly any measure, that is an excessive fine. It’s certainly far in excess of the forfeiture at the root of the Timbs case.

The Hawaii Constitution also has a clause that protects citizens from excessive fines, making it even more likely that someone would challenge the enormous fines associated with this proposal.

Managing the competing interests involved in transient vacation rentals is a difficult challenge. It requires the Council to balance concerns about vacation rentals with the economic benefits they bring. For example, the HTA’s research on vacation rentals suggests that there is little overlap between the hotel and TVR markets and that rentals have helped the state reach a new and different market for visitors.[1] Unfortunately, attaching a confiscatory penalty scheme to the bill threatens to shut down all rentals — at least until a lawsuit is brought against it.

Instead of pursuing a plan for rentals based around regulation and punishment, the Council should go back to the drawing board, eliminate the excessive fines proposed in this bill, and look for ways to create a practical, enforceable and equitable way to let rentals operate legally.

Sincerely,

Joe Kent
Executive vice president
Grassroot Institute of Hawaii
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[1] “Hawaii’s Home and Vacation Rental Market: Impact and Outlook,” Hawaii Tourism Authority, Dec. 29, 2016, p. 8.