Short-term rental owners stand firm for their rights

by Grassroot Institute of Hawaii, February 29, 2024

Short-term rental owners in Hawaii could hardly find a better spokesperson for their cause than Joshua Montgomery, an STR owner himself and director of the Ohana Aina Association, which represents homestay, farmstay and other transient accommodations owners on Hawaii Island. 

During a recent appearance on “Hawaii Together” on the ThinkTech Hawaii broadcast network, the retired U.S. Air Force officer pulled no punches when discussing legislative attempts to phase out the industry with program host Keli‘i Akina, of the Grassroot Institute of Hawaii.

Montgomery said that “as project after project after project to build new housing on the Big Island ran into regulatory roadblocks, regulatory hurdles [and] NIMBYs in the neighborhoods,” it became clear to him “that our elected officials aren’t interested in building more housing. They don’t want more housing. They want your house. 

“And so they’ve started to pass a series of laws and regulations that are trying to take people’s homes and their private property and turn them into a public good, and force people to rent to locals who might not be interested in that for whatever reason.”

Meanwhile, Montgomery noted, STRs employ 49,000 people in Hawaii and generate $4.8 billion in visitor spending a year, including more than $720 million dollars in tax revenue. 

“It’s a huge part of our local economy,” he said. “And the idea that they’re going to step in and regulate it and punish it and shut it down … without doing a serious investigation of the knock-on effects of our industry, is … like a doctor doing surgery without doing an X-ray first.”

Asked about the perception that most STRs in Hawaii are foreign-owned, Montgomery said: “You know, I keep seeing this number that 52% of them are owned off the island. [But] I want to flip that around and just remind people nearly 100% of the hotels are owned by institutions and organizations off the island,” 

He said that means almost all hotel profits go back to the mainland, whereas “when they stay at a vacation rental, that’s not what happens. When they stay at a vacation rental, the money stays here. It stays with our local families. And that’s something that our elected officials should be supporting, not opposing.”

Montgomery said to counter the political onslaught against STRs, “one of the things we’ve been doing is organizing. … And if our elected officials — especially here on the Big Island — think that they can continue to push us around in the absence of an organization, they’ve got another thing coming to them.”

“November’s coming pretty quick,” he added, “and I’m looking forward to seeing a lot of these folks who are in elected office in our rearview mirror.”

TRANSCRIPT

2-12-23: STR owners Joshua Montgomery and host Keli‘i Akina on “Hawaii Together”

Keli‘i Akina: Aloha and welcome to “Hawaii Together” on the ThinkTech Hawaii broadcast network. I’m your host, Keli’i Akina, and president of the Grassroot Institute of Hawaii.

Short-term rentals are a hot topic in Hawaii right now. At the state level, several bills in the 2024 state Legislature seek to restrict or impose higher taxes on STRs. And on Hawaii Island, the County Council is considering regulations that would possibly run many STRs out of business completely. 

But there are always trade-offs in policy, and restricting short-term vacation rentals could have a variety of negative effects, not only economically, but also socially.

Today on “Hawaii Together,” we’re going to talk about some of these proposals, and whether STRs deserve better treatment from our lawmakers than is currently the case.

My guest has been here before. Josh Montgomery — he’s an owner of an STR, and he’s also the director of the Ohana Aina Association on the Big Island. The association represents homestay, farmstay and other transient accommodations on Hawaii Island. 

Please welcome back to the program, again, Josh Montgomery. Josh, welcome.

Joshua Montgomery: Thank you very much. I’m really happy to be here.

Akina: Are you surviving out there amidst earthquakes and so forth? 

Montgomery: Yeah, the Big Island is a great place to be. You know, we just brought in the coffee crop in the last month or so, and so it’s been a banner year on the coffee front. 

And then, of course, you know, many, many of us participate in the tourism sector as rental operators or service providers. And that’s been a pretty good year as well.

Akina: That’s right. Now, in addition to the Ohana Aina Association, you personally own a short-term vacation rental. Tell us a little bit about how you got into that business and what benefit it brings to you.

Montgomery: Sure. So we live on a coffee farm up on the mountain. Before we purchased it, it was actually a billionaire’s fishing shack. So he kept his boat here and he came to the island two weeks a year and the remaining 50 weeks of the year, the property sat empty. 

You know, we purchased that property with my VA [Veterans Affairs] loan from the Air Force in 2019. And it’s a kind of bigger home, much more than we need. So we had two generations of my family living with me. My parents lived downstairs and we lived upstairs — until my dad passed about two years ago — at which point we turned the first floor into a vacation room. 

And so the vacation rental operation pays the mortgage and helps us to pay our farmhand. And you know, my wife and I are responsible, you know, not only for managing the vacation rental but also for the broader association here on Hawaii Island. 

And so, the vacation rental is how I make my home affordable. It’s affordable housing for my family.

Akina: Now, Josh, there are a lot of people like you out there who rely on vacation rentals to make ends meet and to make their businesses happen. 

How did you move from simply being a small business operator to someone who’s involved in the level of advocacy you are now trying to bring a message to our government?

Montgomery: Sure. The local officials have been making this argument that somehow this market is a zero-sum game — that because somebody is operating a vacation rental, that housing unit is not available for a local family, and therefore it creates constraints within the housing market. 

And, you know, it became very clear — as project after project after project to build new housing on the Big Island, ran into regulatory roadblocks, regulatory hurdles, NIMBYs in the neighborhoods — that our elected officials aren’t interested in building more housing. They don’t want more housing. They want your house. 

And so they’ve started to pass a series of laws and regulations that are trying to take people’s homes and their private property and turn them into a public good, and force people to rent to locals who might not be interested in that for whatever reason.

Akina: Now, as I mentioned in the introduction, there are both state and county initiatives aimed at restricting or even phasing out short-term rentals altogether. 

Could you give a rundown of some of the bills that you’re facing there from the County Council on the Big Island, which is where you live and operate?

Montgomery: Yeah. So on the Big Island, there’s a bill called Bill 121 that was introduced about two weeks ago at the County Council, to overwhelming opposition. More than 150 people came out to oppose the bill. The only supporter of the bill was former Mayor Harry Kim, on whose watch the affordable housing crisis became the crisis that it’s become.

That bill, in effect, bans vacation rentals on agricultural land. It creates huge impediments to running vacation rentals in Lava 1 and Lava 2 zones. It creates a broad regulatory framework that will make it very difficult, specifically for small operators, to continue to operate here on the islands.

And then it’s got a host of new taxes, fees and fines in it that are squarely aimed at vacation rental operators like me. And it’s really important to kind of highlight that.

On the Big Island, hosted vacation rentals — so a vacation rental in which the homeowner or a renter lives on-site — have been unregulated. And so there are more than 4,500 properties on the island that act as a vacation rental to generate revenue, but are also home to a local family. Those are the folks that are being targeted by this legislation. 

Hawaii County already has laws on the books, and has since 2018, to regulate absentee vacation rentals — vacation rentals where the homeowner doesn’t live on-site. So this law is squarely aimed at families and farmers like mine that depend on vacation rental revenue in order to live in one of the most expensive places in the United States.

Akina: Now, Josh, there has been a lot of support for curtailing the businesses of those who operate from out of state or of corporations and so forth. But how do you explain the attempt to stop ordinary folk who are just using their home to make ends meet or to run a small business being targeted?

Montgomery: I’d like to push back on the question just a little bit. 

There hasn’t been a lot of support for curtailing foreign corporations. You know, I’d like to point out that the hotel industry —  almost every hotel and resort in Hawaii — is owned by an out-of-state interest.

And there’s very little new initiatives in place to go after those folks. This legislation is primarily going after small operators like me and my family that depend on running one or two units, right?

Akina: Right. Point well-taken. And so why is that the case? 

Montgomery: Actually, the housing market is being affected by the same crisis on both sides of the vacation rental industry.

So, if you look at the vacation rental industry from the standpoint of the hotels — right? — the hotels can’t build more inventory here in Hawaii. It’s next to impossible for them to build new structures, new buildings, to put in place more rooms for them to rent. 

And so, in the absence of being able to build new inventory, the only way that they can grow is by increasing their occupancy and increasing the nightly rate.

And so, the way that the hotels have decided to do that — instead of innovating and providing customers with what they want — is by putting their competition out of business. 

And so, they’re using their legislative authority and their legislative power to push on the Legislature and others to pass laws that disadvantage their competition in their favor.

At the same time, that lack of ability to build new structures in Hawaii has driven a broader housing crisis — right? — as inventory hasn’t kept up with demand. 

And so, vacation rental operators are really being hemmed in from both sides: on one side by the hotels that are looking to gain market share, and on the other side by homeowners who perceive the lack of housing as being because of our operations — instead of, you know, laying the blame at the feet of the people who are truly responsible, which are the elected officials who haven’t built an environment that allows people to build new housing. 

Here on Hawaii Island, it takes 458 days, on average, to get a building permit, right? That’s a year and a half just to get a building permit. 

And the costs associated with getting a building permit, on average, are more than $250,000. That’s how much people are paying in interest, in accounting fees, in paying their general contractor, you know, on and on and on, just to push the paperwork so that they can pour the first yard of concrete in the foundation. 

That is what is causing our housing crisis. Not me and my family renting out a portion of our house to visitors in order to make ends meet. 

Akina: It certainly sounds as though short-term vacation rental owners are regarded as a scapegoat that can be charged with this shortage of the housing supply. But as you pointed out, regulations, such as the permitting process and so forth, have a lot to do with that. 

Now, Josh, as you’re monitoring these bills — such as 121, which you mentioned earlier — what’s the current status in Hawaii County of such legislation?

Montgomery: Sure. So Bill 121 was introduced two weeks ago, to overwhelming opposition, as I said. You know, they forwarded [the bill] on to the Planning Commission, so it’ll go to the Planning Commission, so we’ll make recommendations. 

So we were really disheartened to see that after hearing more than four hours of testimony from local families who would be injured by this legislation, the County Council moved it forward with an 8-0 vote.

There’s a significant lack of curiosity and due diligence in our elected officials on this particular issue because there is a bias and a preconception being driven by the HTA [Hawaii Tourism Authority] and by the hotel interests that somehow we’re the problem. 

You know, at the state level, there’s two bills that are really likely to pass and are very impactful.

One is HB1838, which is an end run around a court decision that took place in Oahu this year that prevented the county and city of Oahu from taking away people’s historic non-conforming-use permits. That bill will allow counties to completely eliminate vacation rentals and residential zoning over a period of time, which is the stated goal of the HTA and the elected officials.

Bill 2919, which is a Senate bill, takes the authority for regulating vacation rentals and creates a duplicate agency at the state level that then regulates vacation rentals parallel to the counties, as well as creating a number of other confusing rules and regulations at the state level.

And so, those are the two that we’re really tracking that are the most impactful.

Akina: These bills are extremely sweeping in their potential impact. Particularly 1838, which, as you point out, aims to basically phase out short-term rentals completely. What kind of reception are they receiving, and how do you think they will fare in this legislative session?

Montgomery: Well, the hotel industry has been extremely generous with the folks who are camping on the beach in Maui, providing them with resources and funding, and really shifting the narrative so that the narrative around Maui focuses on vacation rentals instead of focusing on what they should be focused on in Maui, which is the recovery effort, and then importantly, holding the elected officials — who are responsible for that fire — accountable. 

You know, it’s a distraction and, frankly, it’s a significant problem. You know, the governor [Gov. Josh Green] stood up and said he was looking for 2,700 vacation rentals to house those families. As of last week, they have them.

So the vacation rental industry stood up and said, “You know what? We’re going to house these families.” And instead of celebrating more than 2,700 local property owners standing up and changing the use of their property to support fire victims, the governor and the elected officials have continued to villainize our industry.

You know, the reality is, the reason that there are people who still don’t have housing on Maui, in light of those units being available — and the Maui County mayor was on Hawaii Public Radio just yesterday, the day before, basically saying this, they have the inventory — the challenge is matching the fire victims with appropriate housing, and of course, the proximity of that housing to West Maui, where those folks want to live — both of which are problems with local government not having the regulatory or not having the administrative ability to match those families with the housing that is available. 

I think it’s really a negative thing, especially in the context of an economy that is increasingly subject to what I call “colonial tourism”: the idea that visitors come to our islands and drive on our roads and stay on our beaches and you know, consume natural resources on our islands, but all of the profits go back to the mainland.

They fly out on Hawaiian Airlines, which is now based in Seattle, and so the money goes back to Seattle. They rent a car from Hertz or Avis, which are based in Denver. So all that money goes back to Denver. They stay in a hotel that’s owned by Hilton or by Marriott, and that money goes back to New Jersey.

And, you know, the only thing that they leave here are, you know, the pittance of the money that they spend on tours and tour groups, with the majority of the profits going back to the mainland.

When they stay at a vacation rental, that’s not what happens. When they stay at a vacation rental, the money stays here. It stays with our local families. And that’s something that our elected officials should be supporting, not opposing. 

Akina: Well, going back to legislation, the governor has also proposed what has been called an amnesty bill. So that’s House Bill 2416. It would basically give tax breaks to short-term rental owners who convert to long-term rentals or sell their properties with a variety of tax breaks.

What is your thought about this kind of proposed legislation?

Montgomery: That’s definitely an improvement over the governor’s tone in his State of the State address. You know, the idea that the governor is going to step up and punish vacation rental owners by implementing a moratorium if they don’t give up their property, I mean, that’s extortion — right? — at some level. And it’s a failure for the governor to live up to his own, you know, to uphold the law. 

The change in tone to rewarding vacation rental owners is very, very welcome. And, as we’ve seen, thousands and thousands of vacation rental owners stood up and took advantage of that in order to provide housing. 

I think that that’s definitely the way to go into the future. However, like a lot of other legislation, there are unintended consequences.

For example, in Maui, they’re running into situations where people who are already long-term landlords are evicting or failing to renew leases for their existing tenants, because they can make more money from FEMA [Federal Emergency Management Agency] and from the state government renting to fire victims. 

And so there’s — like any other legislation out there — there’s unintended consequences. And it’s important that the governor and their elected officials coordinate with our industry in order to help put some of those to bed. And that’s very much something that we haven’t seen. 

The governor hasn’t met with the HIMAST (Hawaii Mid and Short-Term Rental Alliance[, the state body that we’ve stood up as an industry to represent us in Oahu.

The governor hasn’t met with the Maui Vacation Rental Association, and, you know, without those meetings and without having good conversations with our industry, it’s going to be very difficult to create legislation that’s effective.

Akina: There was an article from the Economic Research Organization at UH, UHERO, that estimated short-term rentals might increase housing costs in Hawaii by 5% or more. Are you familiar with this article? And I’m wondering if you have any thoughts about it.

Montgomery: Yeah, I’m really familiar with it. To put that in perspective, a 5% change in property values is what took place in the months of October and November of last year, so, just because of interest rates, right?

It’s a small change in housing costs and housing prices. And what UHERO failed to analyze was the knock-on effects of the industry, right? 

You know, the idea that if you had a mansion, let’s say, that employed a dozen employees, and that’s how they pay their rent, and you went ahead and banned the person who was renting that mansion from renting it, and instead forced them to sell to somebody on the mainland, and all those people lost their jobs — right? — the idea that that would be a net benefit for Hawaii is ludicrous, right? 

In that scenario, the mansion is no longer owned locally, and all the jobs disappear. And so, what UHERO failed to do in that analysis was look at all of the employment, look at all of the revenue, look at all the tax revenue that our industry generates.

We employ 49,000 people here in Hawaii, right? Our industry pays an average wage of more than $40 an hour. That’s twice what somebody can make in a hotel. 

We generate $4.8 billion in visitor spending here in Hawaii every year. And of that, we generate more than $720 million dollars in tax revenue. That’s the vacation rental industry in Hawaii. It’s a huge part of our local economy. 

And the idea that they’re going to step in and regulate it and punish it and shut it down without even doing a due diligence, without doing a serious investigation of the knock-on effects of our industry, is malpractice. It’s like a doctor doing surgery without doing an X-ray first. 

It’s going to be damaging to families like mine, to the housekeepers that work with us, to the maintenance workers that work in those properties and to the property management companies that manage. And until UHERO can actually account for all of those second-order effects, their study is really suspect.

Akina: You’re saying that the government and its sources, such as UHERO, are really not taking into account the economic benefits that the short-term vacation rental industry brings on an overall level to Hawaii’s visitor economy. 

On a more specific level, have you looked at how short-term vacation rentals affect visitor arrivals or visitor preferences, spending, tax revenues and so forth, including employment?

Montgomery: Yeah. It’s 49,000 jobs. It’s $4.8 billion in visitor spending. 

And, you know, a lot of times here in Hawaii, especially in the Hawaii media, we kind of live within this local echo chamber. So, you know, we don’t really get to see the viewpoints outside of the islands. But, you know, The Washington Post did a fantastic piece on this particular issue in Hawaii. 

And when you look down at the comments underneath the article in the Washington Post, what you’ll see is, visitor after visitor after visitor after visitor on the mainland, saying, “You know what, if I can’t stay in a vacation rental, I won’t go to Hawaii. I can go to Cabo, right? I can go to Cancun. I can go to Cozumel. I can go to the Grand Cayman. I don’t have to go to Hawaii.”

And when I travel — because people travel with their kids, right? — people travel with their extended families — they don’t want the experience that the hotels provide. They don’t want to rent three hotel rooms at $1,000 a night when they could rent a vacation rental from a local family for $700.

They don’t want to go out to eat three meals a day, right? They want to have a kitchen or a kitchen facility where they’re staying. And the vacation rental industry is providing those amenities for visitors. 

In addition, those visitors stay an extra day. And that’s something that’s really important because it means that our visitors spend more money in Hawaii than they do when they stay in a hotel.

And importantly, we have 30% fewer air miles per vacation rental money, right? Every air mile is more carbon dioxide going into our atmosphere, right? A 30% reduction in the amount of fuel that it takes to get the visitors to the island to occupy those rooms is huge when it comes to climate change.

And so those are all advantages that our industry is bringing that the hotel industry simply can’t compete with, which is why they’re trying to regulate us out of business.

Akina: In your estimation, are most short-term vacation rental owners local residents or from outside of Hawaii?

Montgomery: Most of them are local residents. Most of them — unlike, kind of the way that the media has been talking about it — most of them own one vacation rental, right? More than 80% of them are kupuna, right? They’re older folks who’ve made an investment in an ohana or made an investment in converting a room in order to fund their retirement.

So, you know, I keep seeing this number that 52% of them are owned off the island. I want to flip that around and just remind people nearly 100% of the hotels are owned by institutions and organizations off the island. And they treat their employees so terribly, that they’ve all had to unionize. 

Those unions didn’t come into existence because the hotels treated their people fairly. They came into existence because the hotels abused their workers. And these are the types of organizations that our state Legislature is favoring, instead of supporting kupuna and local small business folks like us.

Akina: You’ve got a pulse beat on short-term vacation rental owners. What are their feelings right now about the legislation that we’ve talked about today? Are they worried about being able to stay in business on their own? 

Montgomery: They’re terrified. They’re terrified. And, you know, here on the Big Island we’ve had permitting problems for a long time, right? The permits take forever to come into existence. There’s been a lot of well-documented corruption with members of the planning department going to federal prison because of corruption within that organization. 

And so many, many families built unpermitted additions, or they built an unpermitted ohana or they built an unpermitted kitchen because they really didn’t have any other choice. 

And so, Bill 121 ties the permitting status of their home to whether or not they can run a vacation rental. And since so many of these homes have unpermitted improvements — I would actually argue that on the Big Island, a majority of new construction on this island is unpermitted — you know, those families, there is no way for them to reconcile that.

And so they’re looking at losing their livelihoods, and many of them will be forced to leave the island, right? Their kids will be forced to leave the island. And, you know, that’s very, very scary for them. 

The other part that’s a real challenge is, you know, the HTA is funded with TAT ]transient accommodations tax[ and taxpayer money, and they advocate for the hotels. The vacation rental industry isn’t represented in any way, shape or form by the HTA. 

And so the HTA is spending millions and millions of taxpayer dollars lobbying the Legislature to put us out of business. Whereas on our side of things, it’s me, right? It’s my next-door neighbor, by themselves — right? — that are trying to advocate for themselves.

And so one of the things we’ve been doing is organizing, and we’ve gotten organized. And if our elected officials — especially here on the Big Island — think that they can continue to push us around in the absence of an organization, they’ve got another thing coming to them. 

November’s coming pretty quick and I’m looking forward to seeing a lot of these folks who are in elected office in our rearview mirror.

Akina: Well, that’s a strong message coming from a strong group of business people who are, in reality, just ordinary folk trying to make ends meet and make a living. 

I’ve got about 30 seconds. What’s your final elevator pitch to legislators and council people this session?

Montgomery: We’re an important part of the economy of Hawaii. It’s important, before they pass the legislation, that they do their due diligence, they use science, they go out and look for evidence, and that they make those decisions based on the evidence, not on this being the issue of the day. 

If they continue to make decisions based on emotion, and based on the panic and based on lobbying, you know, we as a community will continue to get poorer and our children will continue to leave the island.

Akina: Well, thank you very much. My guest today has been Josh Montgomery. He’s an STR owner on the Big Island. He’s also the Hawaii Island director of the Ohana Aina Association. 

Thanks so much, Josh, for informing us more about this vital issue. And I hope that our lawmakers are listening. 

I’m Keli’i Akina, president of Grassroot Institute, saying aloha to you from ThinkTech Hawaii’s “Hawaii Together.”

Were you to say one more thing, Josh? 

Montgomery: Thank you very much for the time. 

Akina: Aloha to you. Thank you for your time as well. Wish you the best. Bye-bye everyone.