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Vacation rentals — and property rights — in jeopardy on Maui

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In the name of increasing affordable housing on Maui, well-intended people are poised to wreak havoc on the island’s vacation rental market.

Jen Russo, executive director of the Maui Vacation Rental Association, explained the looming problems during her appearance on the Nov. 8 edition of “Hawaii Together,” hosted by Keli’i Akina, president of the Grassroot Institute of Hawaii (see episode below).

Asked what she thought was the cause of Maui’s housing shortage, Russo cut to the chase:

“I think we’re not building enough housing. At our recent County Council meeting this past Friday, Councilmember Keani Rawlins-Fernandez put a chart up that showed when housing building was spiking, and those years were [the] 1930s and 1960s, so it’s been quite a while. They’ve leveled off since then, and they haven’t gone back up.”

But rather than support legal changes to facilitate more homebuilding, some Maui housing advocates want to convert many of the island’s 13,000 short-term vacation rentals to regular housing. An early proposal targeted 7,000 units, but now it would be about 3,600.

“Properties in the sea-level rise exposure area in the apartment districts would be able to continue that use in vacation rental,” she said. “But those outside of sea-level rise exposure area would be banned from this use beginning January 1st, 2023.”

Russo said she pointed out to the County Council the tax implications of such a policy. In the past three years, she said, vacation rentals have raised upwards of $18 million for the county’s Affordable Housing Fund.

“That’s more than the hotels, owner-occupied and other businesses in Maui combined. This last fiscal year, we raised over $8 million.”

In terms of property rights, “This is a legal … use,” she said, “and by divesting these owners of this legal use, that’s going to create lawsuits for the county, and that’s lawsuits that the taxpayers are going to have to bear.”

Find out more about the nightmare vacation rental owners are potentially looking at by watching the interview below. A complete transcript is included.

11-8-21 Jen Russo with 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, president of the Grassroot Institute of Hawaii.

Here in Hawaii, we all say, “Maui nō ka ʻoi,” which means Maui is number one, and it really is. If you take a look at the beauty of the land, the people, the environment, it’s just a wonderful place to live.

The world wants to live on Maui, but we have a problem: We have a critical shortage of housing available for locals on Maui. I’m not talking only about being able to own a home; I’m talking about being able to rent homes.

At the same time, we have the need of people to be able to make a little bit of extra income by renting out their homes as vacation rental. The problem is that our government leaders sometimes don’t see the big picture altogether and put some of these things like vacation rentals and housing in categories opposite each other, saying that they hurt each other.

We have a measure that is now before the Maui County Council that could possibly end 7,000 permits for vacation rentals, in the hope, they believe, of increasing the likelihood of having local housing.

I’m not sure it works that way, and I’ve got someone today who’s an expert in the field because her business is vacation rentals. Jen Russo is the executive director of the Maui Vacation Rental Association, and she’s going to chat with us a bit today.

Jen, welcome to the program.

Jen Russo: Thank you for inviting me.

Akina: We’re so glad. I wish I was there on Maui today. I love your island, and I understand you grew up in Lahaina.

Jen: I did, yes.

Akina: You went to Lahainaluna High School?

Russo: Yes.

Akina: That’s great, so you’re a Maui girl through and through, and now you have the privilege of being able to work there.

What is one of the things that you have seen happen in the housing market? Have you seen difficulty for your classmates at Lahainaluna to be able to get homes today?

Russo: Yes, absolutely. Homes, the inventory here, there’s just not enough housing, and so what we see [is] the market has been robust. We’re seeing home prices increase, average median to over $1 million. So not only do we have an inventory problem, we’re also getting priced out.

Akina: What do you think are the causes of the housing shortage?

That is something that we talk about and research quite a bit at the Grassroot Institute, and so I’m really asking you, as a Maui resident, as somebody who has lived there all her life, and what you see. What do you consider to be the causes?

Russo: I think we’re not building enough housing.

At our recent County Council meeting this past Friday, Councilmember Keani Rawlins-Fernandez put a chart up that showed when housing building was spiking, and those years were [the] 1930s and 1960s, so it’s been quite a while. They’ve leveled off since then, and they haven’t gone back up.

Akina: You know there are a lot of people who say there’s nowhere to build, that there’s no space on the island of Maui. What are your thoughts about that as you drive from side to side on the island and so forth?

Russo: I do see land that could be made available. I think it’s getting the entitlements, having the right zoning and, of course, making these processes a little bit easier for developers to navigate, for builders to navigate.

Akina: I think you’re right. It is a tough thing for developers to be able to build now, as well as individuals to be able to build homes and acquire them and so forth, but today we’re going to talk about vacation rentals and what the relationship is between vacation rentals and the supply of housing.

Tell me a little bit first about your organization, the Maui Vacation Rental Association. Who are they, and what do they do?

Russo: Maui Vacation Rental Association, it’s a membership organization, a merchant organization. We’re comprised of owners of vacation rentals, managers of vacation rentals, people involved in the tertiary businesses that support vacation rentals.

What I do is advocate. I do county liaison work for these folks in trying to stay on top of, especially like during COVID when the environment was changing rapidly around rules and regulations, and just general outreach and information for these folks as well.

Akina: How many members do you have? Along with that, how many vacation rentals are there on the island of Maui?

Russo: We have around 200 members, but our outreach, I would say, with our newsletter and such, is more like 1,000, 1,500.

If we’re just talking tax classification or short-term rental tax classification here in Maui County, there are upwards of 13,000 units in vacation rentals.

Akina: There are about 13,000 units?

Russo: Yes.

Akina: Recently, the County Council has been considering a measure that may affect up to 7,000 of those units.

Tell our viewers today what the County Council is considering. Why are they considering phasing out some of these vacation rentals?

Russo: Well, the proposal is to phase out the vacation rentals in the apartment district; that’s where you get that 7,000 number from. The intent of that particular proposal was to create affordable housing.

Now, at the meeting that occurred last week Wednesday in the Planning Sustainable Land Use Committee, they have a new proposal. The new proposal says that those properties in the sea-level rise exposure area in the apartment districts would be able to continue that use in vacation rental. But those outside of sea-level rise exposure area would be banned from this use beginning January 1st, 2023.

There’s two of these proposals going out there. At the last Planning and Sustainable Land Use Committee meeting, they said they’re going to focus on that second one that I’m talking about.

Akina: Well, what kind of testimony was given at the hearings? What does your association say, and what are most people telling the County Council about this?

Russo: There’s a number of issues with these kind of proposals.

In my testimony, I wanted to talk about how the vacation rental industry does support affordable housing. The Affordable Housing Fund that we have here in Maui County, the vacation rentals have raised upwards of $18 million in the last three years. That’s more than the hotels, owner-occupied and other businesses in Maui combined. This last fiscal year, we raised over $8 million for that Affordable Housing Fund.

Akina: You don’t see a conflict between having a robust vacation rental industry and having the opportunity for affordable housing on Maui?

Russo: Well, our vacation rental industry on Maui is highly regulated, so we’re not seeing rampant number of increases at all. The county, with their tax team, has created a way for us to leverage benefits directly to the community.

In fact, November 1st, we have a new Maui County TAT Tax. Visitor accommodations will be paying an additional 3% to Maui County.

Akina: What position has the Maui Vacation Rental Association taken on the newest proposal? What are they telling the Council members?

Russo: This is very new, this proposal, but some of the problems with this proposal are I think there’s about 3,600 rentals now that would be targeted. That is going to have an impact on our taxes.

Vacation rentals, on average, pay about $10,000 per unit in real property tax. When you compare to a hotel room, that’s about $3,500 average and real property tax, so eliminating these vacation rentals will have an impact on the financial stability of the county and, not to mention, on removing the vested rights.

This is a legal, permitted [use], actually. It doesn’t require permit in the case of these A1 apartment district properties. But it is a legal use, and by divesting these owners of this legal use, that’s going to create lawsuits for the county, and that’s lawsuits that the taxpayers are going to have to bear.

Akina: Well, those sound like some very insightful positions to be taking.

First of all, to recognize that if the county acts on this new proposal, they will actually be hurting their tax base, and, ultimately, that will affect services and the government provision of needs on the island of Maui.

Secondly, you brought up a very important point, and that is the issue of property rights, the legal rights that owners have as to how they can use their property.

Now, some people have strong objections to vacation rentals, and they’ve expressed that at the testimony and also in many other venues as well. What are some of the objections? What’s some of the opposition that you hear from the public to vacation rentals?

Russo: There is this increasing dissatisfaction with the industry; I think that’s what HTA calls it in their surveys.

I think there is a bit of frustration with traffic and fear of COVID and these kinds of things, but housing, at the forefront, people are frustrated that they can’t find housing, and so they’re looking to vacation rentals.

When you look at the long-term rentingof these particular vacation rentals in the apartments district, they come with issues — like of those in the sea-level rise will have to have beach nourishment, special assessments to those buildings that would create problems for the rental, the rental price, also parking and storage; these basic needs for the renters, they might not have that because these buildings have been used as vacation rentals; many of them were built to be vacation rentals or second homes or seasonal homes.

Akina: What I hear you saying, Jen, is that many of these vacation rental units would simply not be suitable for long-term housing, and so removing them from the market in vacation rentals isn’t going to solve the housing problem, and it’s going to create other problems in terms of being able to deal with the sea-level rise and other improvements that would be necessary. There’s really no conflict in having them operate in the market for housing.

Russo: Yes. Also, many of these units that are in vacation rental are used as second homes, so those people who use them as second homes probably wouldn’t rent them long term either.

Akina: We’re going to take a quick break, and then we’re going to come back, and I want to explore this topic a little bit more with you. In particular, I want to ask you about the idea of the rights of individuals to be able to rent their property or their homes out as vacation rentals, so don’t go away.

We’ll be back with Jen Russo of the Maui Vacation Rental Association on ThinkTech Hawaii’s “Hawaii Together.” We’ll be right back.

 

[Intermission]

 

Akina: Welcome back to “Hawaii Together.” I’m Keli‘i Akina.

We’re on the ThinkTech Hawaii broadcast network talking with Jen Russo, the executive director of the Maui Vacation Rental Association. She’s giving us some insights into one of the controversial measures that the Maui County Council is considering.

Jen, I wanted to explore with you a little bit more the public’s feelings about vacation rental. On the one hand, vacation rentals are our property. They belong to owners, and I believe your association holds that owners should have the right to be able to rent them out; that’s their property.

How well is that principle understood throughout the island of Maui amongst leaders and people, the idea of personal property rights?

Russo: Probably not very well. This use is a legal use according to Maui County Code, and it’s a very touchy subject here.

I think a lot of people don’t understand property rights and don’t understand why you should have the right to vacation-rent your property as a legal use; also, the ramifications of purchasing that property with that use and then divesting that use from them during their ownership.

Akina: Now, who are vacation rental owners? Are they big corporations that operate hundreds of vacation rental units and so forth? Are they mom and pop? Are they local residents? Who are they, and who benefits from the renting of vacation rental units?

Russo: They are usually individuals.

There are a number of owners that come from the state of Hawaii, but there’s a lot of owners that are offshore owners. They are mom and pop.

Each one of these vacation rentals is operating as a small business, and a lot of times they have a small business management company that is assisting them.

They support small cleaning businesses and landscapers and IT businesses that come and do the internet connections and set up the rooms; there’s interior design and architecture, construction. These places have to be renovated quite regularly to be rented out.

Akina: Who are the clients, the renters themselves? Are they mostly mainland and international tourists, or do we have locals who rent these vacation rental homes?

Russo: I would say all of the above. During the pandemic, it was more limited to just local families. Now that we’re opening up, it’s domestic and international.

Akina: During the pandemic, when we had restricted travel to Hawaii, you said most of the units were rented by locals. What is the purpose that locals rent?

Russo: I would say that was a very small percentage. Actually, during the pandemic, excuse me. During the pandemic, vacation rentals were not permitted to be open.

Akina: Right, I correct myself on that.

Russo: When they did open up, there were a lot of locals traveling in the beginning, and they come with room for a family, and usually, there’s a kitchen, so these kinds of things appeal to local travelers.

Akina: How do you think we can bring some reconciliation between those in the community who support the idea of vacation rentals and those in the community who have various objections to them? What is one way to be able to come to the place of seeing eye to eye?

Russo: I think we have to be educated a little bit more about the vacation rentals themselves because these are small-accommodation small businesses, and they are highly regulated.

This is a really good example of managed tourism. This is a good example of sustainable regenerative tourism; every permitted is a short-term rental home, and bed-and-breakfast operations that we have here are basically the partnership with the county.

These apartment district condos are all small businesses and supporting a small business network, and so this is where we need to move in that direction.

Akina: If you were to just list the benefits of allowing for the vacation rental industry to flourish on Maui, what would those benefits be to the local community?

Russo: This industry raises 37% of our real property taxes, so our residents are directly benefiting from that. That represents 17% of our operating budget here in Maui County. We’re keeping owner-occupied tax, plus taxes, low.

Akina: Well, that’s quite a boost to the local economy, and that also pays for government services as well, so this is an important part of Maui’s economy.

What would you like to say to our County Council members as they continue to weigh this situation? How would you encourage them to think about it?

Russo: I would just encourage them to look at the vacation rental industry as a legitimate part of our hospitality industry, and to open the conversation and be open to learning more about the benefits and striking a balance between leveraging what the vacation rentals can do and looking at other ways to create housing.

Obviously, this industry puts a lot of funding into affordable housing, but maybe create some incentives for these properties to do long-term rental instead of just banning uses.

Akina: What I hear you saying is take a twofold approach here. Encourage the vacation rental industry, don’t discourage it, but find a pathway to increase the amount of housing, and, particularly, affordable housing on Maui, solve the actual problems that keep the supply of housing low.

Well, that sounds like a good approach, and I wish you the best of luck as you talk to County Council members.

Before we go, any last thoughts for our viewers today?

Russo: Thank you so much for inviting me to speak to this.

You can go to our website to learn more, mvra.net, and you can always find our contact information if you have any questions on our website as well.

And mahalo for inviting us.

Akina: Wonderful. Jen, thank you so much for informing us today; we appreciate it very much.

You’ve all been listening to Jen Russo, the executive director of the Maui Vacation Rental Association. And until next time, I’m Keli‘i Akina on ThinkTech Hawaii’s “Hawaii Together.” Aloha.

 

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