Grassroot Institute testifies against Maui TVR phase-out plan

from Grassroot Institute of Hawaii

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Maui Planning Commission on June 25, 2024.
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June 25, 2024, 9 a.m.
Council Chamber, Kalana O Maui Building

To: Maui Planning Commission
      Kim Thayer, Chair
      Dale Thompson, Vice-Chair

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

RE: COMMENTS OPPOSING A DRAFT BILL TO REMOVE TRANSIENT VACATION RENTALS AS A PERMITTED USE WITHIN THE A-1 AND A-2 APARTMENT ZONING DISTRICTS

Aloha Chair Thayer, Vice-Chair Thompson and other members of the Commission,

The Grassroot Institute appreciates the opportunity to offer comments in opposition to Mayor Richard Bissen’s draft bill that would phase out more than 7,000 short-term vacation rentals — or transient vacation rentals, as they also are called — as an allowable use in Maui County’s apartment-zoned districts.

Maui is currently facing an enormous challenge when it comes to housing. A combination of the need to house survivors of the Lahaina wildfires, along with the pre-existing crisis of affordable housing, has put enormous pressure on local policymakers to propose solutions.

After Gov. Josh Green signed legislation providing counties a path to eliminate short-term rentals, many seized upon this as a possible solution to the housing problem. The draft bill being heard today is the first major attempt to regulate STRs out of existence in the hopes that it will create more housing for residents.

Grassroot, of course, sympathizes with the desire to resolve the county’s housing crisis, but contends that the mayor’s plan to phase-out more than 7,000 STRs, which can be found on the so-called Minatoya list,[1] is not the best way to pursue that goal.

First, one must appreciate that the phase-out of a vested property right touches on serious constitutional considerations. The county cannot ignore the constitutional rights of Maui property owners in its race to address its housing problems.

In addition, an STR phase-out would profoundly affect the visitor industry and, by extension, the county economy as a whole. Such an action should require careful analysis of the proposal’s effect on local jobs, tourism, tax revenues and the county budget.

At the moment, an impartial analysis of the visitor industry and the actual participants in the STR economy does not support the assumption that greater regulation or a phase-out of short-term rentals is a desirable goal.

>> Phase-out plan will face legal challenges

The passage of SB2919 during the 2024 legislative session, which created Act 17, might have cleared away  state statutory hurdles to a phase-out of STRs in Hawaii, but the new state law should not be regarded as the end of the potential legal hurdles for Maui or any of Hawaii’s counties that might be entertaining plans such as Mayor Bissen’s.

Simply put, the mayor’s proposed phase-out will undoubtedly result in litigation that likely will take years to resolve.

Nor should the county depend on the existence of Act 17 as a shield against a successful lawsuit. The jurisprudence in this area continues to develop, but courts across the country have been clear that the issue touches upon constitutionally protected property rights.

Hawaii’s courts have specifically noted that preexisting uses are vested rights protected by the due process provisions in both the Hawaii and U.S. constitutions, and thus cannot be abrogated by later zoning ordinances.[2]

In addition, the U.S. Supreme Court has indicated its willingness to uphold property rights against government regulations. In Tyler v. Hennepin County[3] and Timbs v. Indiana,[4] the Court sided with property owners on Fifth Amendment and Eighth Amendment grounds, respectively.

This is not a simple issue, and any court battle likely would be both lengthy and costly for the county. If the goal is to address concerns about the lack of affordable housing in Maui, there are more effective ways to approach the problem that would not embroil the county in complex, lengthy and likely very expensive litigation.

>> Thousands of people could lose their jobs

A 2020 study commissioned by the Hawaii Tourism Authority found that STRs added $6 billion to the state’s economy and sustained 46,000 jobs.[5]

The study also found that 30% of tourists surveyed reported that if there had not been not a home and vacation rental option available during their recent stay in Hawaii, they would not have made the trip.

A more recent study, issued earlier this month by the economic consulting firm Kloninger & Sims, likewise found that short-term rentals provide a significant number of jobs and contribute to the tax base of Maui County and the state.[6]

The June 2024 report looked at what effect a phasing out of the Minatoya list STRs might have on Maui’s economy and found that the county could lose about 7,800 jobs and $1.3 billion in economic output.

Businesses affected by the removal of STRs would include car rental agencies, restaurants, tour operators and grocery stores and many other retail outlets. The livelihoods of workers who clean, repair and maintain the targeted STR units also would be threatened.

>> County tax revenues would decrease

If the proposed phase-out of the more than 7,000 STRs targeted goes through, Maui County’s tax base also will suffer.

The Maui Department of Finance has estimated that if all the transient vacation rental tax class properties targeted by Mayor Bissen were moved into the non-owner-occupied tax class, the County would stand to lose $38.36 million in real property taxes.

The losses would be even greater if the legislation accomplished its goal of converting the units into workforce housing. If all the STR properties moved into the long-term rental tax class, the revenue loss would be $56.5 million; and if they all moved into the owner-occupied class, the loss would be $65.86 million.[7]

The Kloninger & Sims study also estimated that the County could lose $15 million in excise and transient accommodation tax surcharge revenues.[8]

Revenue losses of this magnitude would force the county to trim spending or increase property taxes on other classes, guaranteeing that the entire island would feel the economic pain of a phase-out.

>> There are better ways to provide housing for Maui residents

The easiest and most efficient way to address Maui County’s need for more housing would be to remove the many land-use, building and other regulations that have hindered expeditious homebuilding.

Instead of using a heavy-handed approach that would likely violate property rights, threaten the livelihoods of thousands of county residents and endanger the financial health of the County government itself, Maui lawmakers could study policy options described in Grassroot’s policy report issued this past December titled “How to facilitate more homebuilding in Hawaii.”

As the report’s subtitle says: “Changes to Hawaii’s zoning codes are essential and can be effected at no cost to Hawaii taxpayers.”

In other words, the report is a font of win-win policy proposals that could be put into effect by Maui policymakers quicker and with far better results than Mayor Bissen’s STR phase-out plan.

In some ways, Maui policymakers are already on the right track. A bill approved earlier this year by the Maui Planning Commission would allow more homes per lot in residential zones.[9] This is known as “upzoning” and has been demonstrated to increase housing supply in several mainland states and cities.[10]

Also this year, Gov. Green signed into law Act 39, which gives the counties until 2026 to pass ordinances allowing more accessory dwellings in urban areas. Each county is required to allow the construction of at least half of its five-year demand under the Hawaii Housing Planning Study. For Maui County, this would mean allowing about 5,200 new, smaller units.[11]

These are just a few of the ways the County could increase its housing stock.

In conclusion, Grassroot believes that the proposed phase-out would likely be tied up for years in the courts, causing great personal, social and economic uncertainty and damage during that period. And even if the proposal were to survive the legal challenges, it would go on to greatly harm Maui residents and businesses, the county budget and Maui’s economy as a whole.

The Grassroot Institute of Hawaii believes there are better ways to provide housing quickly to Maui residents, and we urge the County to look to those avenues instead.

Thank you for the opportunity to testify.

Joe Kent
Executive Vice President
Grassroot Institute of Hawaii
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[1] “Apartment District Properties Allowed to be Used for Short-Term Occupancy,” Maui County, March 22, 2024.
[2] Waikiki Marketplace v. Zon. Bd. of Appeals, 86 Haw. 343 (Haw. Ct. App. 1997), Nov. 25, 1997.
[3] “Tyler v. Hennepin County, Minnesota, et al.” Supreme Court of the United States, May 25, 2023.
[4] “Timbs v. Indiana,” Supreme Court of the United States, Feb. 20, 2019.
[5] “Hawaii’s Home and Vacation Rental Market: Impact and Outlook,” prepared for the Hawaii Tourism Authority by JLL’s Hotels & Hospitality Group, April 20, 2020, p. 10.
[6] “State of Hawai‘i and Maui Economic and Fiscal Impacts of the Short-Term Rental Industry,” prepared by Kloninger & Sims Consulting LLC for the Travel Technology Association, June 12, 2024, pp. 5-6.
[7] Maria Zielinski, “Re: Requests for Information Related to RPT and TAT Records for Properties in Apartment Districts,” memo to Maui Planning Director Kate Blystone, May 29, 2024, Exhibit A.
[8] “State of Hawai‘i and Maui Economic and Fiscal Impacts of the Short-Term Rental Industry,” p. 20.
[9] Kate Blystone, “Subject: A Bill For An Ordinance Amending Sections 19.08.020 And 19.08.040, Maui County Code, Relating To Density Within Residential Districts,” Memo to the Maui, Molokai and Lanai Planning Commissions, Feb. 21, 2024, p. 3.
[10] Christina Plerhoples Stacy, Christopher Davis, Yonah Freemark, et al., “Land-Use Reforms and Housing Costs,” Urban Institute, March 29, 2023; and Vicki Been, Ingrid Gould Ellen and Katherine M. O’Regan, “Supply Skepticism Revisited,” New York University Law and Economics Research Paper forthcoming, Nov. 10, 2023
[11] “Hawaii Housing Planning Study,” prepared by SMS Research & Marketing Services, Inc. for the Hawaii Housing Finance and Development Corporation, December 2019, p. 38.