Vacation rental bill is headed to uncertainty

Apr. 15—State Sen. Jarrett Keohokalole remembers playing as a boy in the 1990s at homes in Kaneohe that have now become illegal short-term rentals—including one directly behind his house that's outfitted with a putting green and tiki torches.

State Sen. Jarrett Keohokalole remembers playing as a boy in the 1990s at homes in Kaneohe that have now become illegal short-term rentals—including one directly behind his house that's outfitted with a putting green and tiki torches.

Keohokalole (D, Kaneohe-­Kailua ), who chairs the Senate Commerce and Consumer Protection Committee, represents a district where illegal vacation rentals have encroached deeper into neighborhoods and away from the shoreline.

At the urging of some Lahaina residents following the Aug. 8 wildfires, Keohokalole helped introduce Senate Bill 2919, which would do several things, including ensuring that each county has the power to regulate short-term rentals—including banning them. The measure also would rewrite state law that was successfully used against the City and County of Honolulu that limited its ability to crack down on vacation rentals.

There has been considerable opposition to SB 2919.

The Senate on Thursday disagreed with changes made in the House, meaning the bill likely will head to an end-of-session conference committee where anything can happen, including killing it if no compromise can be reached in the remaining three weeks.

Keohokalole remains optimistic because "we're in agreement on concept."

He wants to make sure legislators rewrite the 1957 state law so "it's simple and straightforward " to fend off future court challenges.

The differences between the House and Senate versions, Keohokalole said, use "different language to solve the same problem."

In opposing SB 2919, Joshua Montgomery of The Ohana Aina Association wrote in testimony : "Mid-and short-term rentals play a crucial role in our community. They accommodate displaced residents, newly housed residents, residents in transition, inter-island residents coming for medical treatment or family visits, traveling nurses, emergency contractors, temporary military personnel, students, and our family and friends. These rentals offer a flexible and necessary housing option that supports the unique needs of our diverse population.

"Consider the events like the Red Hill Crisis, Marco Polo fires, and the eruption of Kilauea, which displaced thousands of residents, " Montgomery wrote. "In such emergencies, where will our residents find temporary, furnished housing if our industry is further decimated by the passage of SB2919 ? It is essential to recognize the importance of preserving these housing options to ensure that our community can respond effectively to unforeseen challenges and support those in need."

Thousands affected Kelly Lee, president of the O 'ahu Short Term Rental Alliance, wrote in opposition to SB 2919, "Our rentals provide over 13, 000 living wage jobs that support property managers, cleaners, contractors and their families. Our short and mid-term rentals provide critical housing to meet the needs of residents and vacationers. Short-term rentals on O 'ahu provided $46 million in taxes and fees toward the state's budget in 2022 and contributed $165 million toward the County budget."

Jeremy Keith Sosner of Private Homes Hawaii called SB 2919 "an issue of extremism : letting an industry run rampant vs. shutting it down completely, " in written testimony. "I believe there is common ground that can be reached that is healthy for the economy, healthy for the towns that thrive on a combined local-tourism base (i.e. Kailua, Haleiwa, etc.) that will fill restaurants, and retail without impacting local neighborhood and infrastructure."

Don Gibson, president of Tropica USA Corp.—which operates the Papakea Resort in Lahaina—wrote in opposition : "During our time of ownership, we have completely renovated our unit, employing local trades people and businesses for the work. We purchased virtually all our materials from local business on Maui. By the nature of short-term rentals, it is incumbent on us to maintain the property in excellent condition, meaning we provide a steady and continuing stream of work and investment into the island economy at a much higher level than the typical homeowner.

"Papakea was built as, and remains, a property designed for vacationers, " Gibson wrote. "If one was concerned about the affordability of housing on Maui, Papakea could not (sic ) considered as having any negative impact. The buildings themselves and the location, would be a very unlikely choice for the average Maui resident to consider as home. The economics simply don't work."

The Maui wildfires destroyed or left uninhabitable 3, 900 homes and exacerbated a shortage of affordable housing on Maui that already had exploded with an estimated 31, 000 legal and illegal vacation rentals whose owners charge rates beyond the reach of most working families.

Gov. Josh Green repeatedly threatened a ban on Maui vacation rentals in order to house fire survivors still living in hotels. He has since said a moratorium won't be necessary.

But Green and Maui residents are hardly alone in wanting to turn vacation rentals into long-term housing for residents.

"It's pervasive, " Keohokalole said.

By giving counties the clear power to regulate vacation rentals, SB 2919 "means they can say, 'No more, '" Keohokalole said. "It will reiterate that the county has the power and it's not up to some judge in federal court rereading a provision in the law from 50 years ago."

He particularly wants to clarify language in the law that was successfully used in Hawaii Legal Short-Term Rental Alliance v. City and County of Honolulu.

Existing rental owners On Dec. 21, U.S. District Judge Derrick Watson granted the Hawaii Legal Short-Term Rental Alliance a permanent injunction that exempts existing home rental owners from a provision in a 2022 city law that sought to increase the minimum rental period for residential properties on Oahu to 89 days from 30 days.

The order prevents the city from enforcing or implementing Ordinance 22-7, which essentially prohibited home rentals for fewer than 90 days. Owners who rent for fewer than 30 consecutive days are considered short-term rental owners and are subject to different city regulations from the owners covered in Watson's order.

After Ordinance 22-7 was signed into law on April 26, 2022, the Hawaii Legal Short-Term Rental Alliance filed suit in federal court in June 2022, and Watson later issued a temporary injunction.

In December, Watson limited the scope of his subsequent permanent injunction. But he still based it on HRS 46-4 (a ), which was enacted by the Legislature in 1957 giving counties the authority to promulgate zoning ordinances.

Watson's order said, "There is nothing to suggest that HRS 46-4 (a ) does not mean exactly what it says—that a county is barred from passing any law that would eliminate existing lawful residential uses."

"Judge Watson basically said if you read HRS 46-4 (a )—a straight reading means you can't do it, every county can't do it, " Keohokalole said. "He gave us the path to fix the situation by amending the statute to give the counties the authority to do that."

Keohokalole, a lawyer, repeatedly called the ruling a "perversion " of the 1957 statute, which he said was designed to protect people from being displaced by the so-called Big 5 plantation companies at the time.

"They're saying rental uses of 30 days or less are not commercial, which to me is a perversion of the original statute that was created to prevent the Big 5 from co-opting the county governments into down-­zoning residences, which was a notorious practice during the plantation era that was used to kick Native Hawaiians, primarily, off of their lands and consolidate their plantation holdings. So it's ironic that the dominant economic interests of modern day are now using the same law to create so many pressures on the housing market right now that's pushing communities out again. ... The judge made it clear that he was just reading the plain language of the statute, so we can change the statute."

Representatives of the Hawaii Legal Short-Term Rental Alliance did not immediately respond to a request for comment.

SB 2919 continues to face considerable pushback, including from some legislators.

Although it passed the necessary third reading on the House floor last week, representatives debated back and forth and could not agree on basic facts such as whether most rental owners are residents or live outside Hawaii.

State Rep. Gene Ward (R, Hawaii Kai-Kalama Valley ) was one of five out of six House Republicans who voted against keeping SB 2919 alive, saying that some kupuna rely on rental income "so they can survive."

"A vote for this bill is against our kupuna, " Ward said.

But state Rep. Lisa Marten (D, Kailua-Lanikai-­Waimanalo ) told her House colleagues that something has to be done about vacation rentals "at a time when we have a housing crisis and we are investing a lot of our state taxpayer dollars into creating affordable housing when we have that housing stock. Taking it back will help."

Several legislators continue to point out that SB 2919 merely empowers counties to decide whether they want to do anything about short-term rentals.

State Rep. Elle Cochran (D, Waihee-Lahaina-­Lahainaluna ), a former member of the Maui County Council, said the bill "gives home rule back to counties."

But, personally, she told the Honolulu Star-Advertiser, "I never liked short-term rentals, ever (in residential areas ). I hate those things. ... There's a reason we have hotel resort zoning and residential zoning. Counties just let it go rampant, and here we are."