A bill being considered by the Honolulu County Council could potentially devastate Hawaii’s vacation rental industry by limiting short-term rentals on Oahu to no less than 180 days at a time.
That was the message of short-term rental owners Ed Jones and Peggy Aurand, who joined host Keli’i Akina on the Jan. 17, 2022, episode of “Hawaii Together” on ThinkTech Hawaii.
Aurand noted that the 180-day minimum proposed by Bill 41 is basically half a year, which does not fit the short-term vacation rental financial model and would make it virtually impossible for her and many other owners — who rely on their rental income to survive — to stay in business
Though STRs often are accused of contributing to Hawaii’s housing crisis, and creating annoyances and burdens for neighborhoods, Aurand said vacation rental owners instead are “a scapegoat for the politicians” in Honolulu.
“If there’s a problem with affordable housing,” she said, “they blame the vacation rentals. If there’s a problem with noise in the neighborhood, they blame the vacation rentals.”
But most short-term vacation rental homeowners, she points out, are law-abiding people who simply want to keep their guests and their neighbors happy.” The renters, she said, are often “not tourists, but military personnel, nurses and small-business owners themselves.”
Both Aurand and Jones said that short-term vacation rentals help the community because maintaining them involves business transactions with many local businesses. In addition, the renters also support local businesses.
Aurand said the average visitor to Oahu spends $201 per day per guest. And when you add up the taxes paid by the home owners and the spending by the guest, “For one little old lady’s house, that adds up to $625,000. Multiply me times 4,000, and you’ve got in excess of $2 billion a year.”
To hear the entire 30-minute conversation, click on the video image below. A complete transcript is provided.
1-17-22 Ed Jones with Keli’i Akina on “Hawaii Together”
Keli’i Akina: Aloha, everyone, and welcome to “Hawaii Together” on the ThinkTech Hawaii broadcast network. I’m Keli’i Akina, your host and the executive president of the Grassroot Institute of Hawaii. Delighted to be with you today.
We’re talking about something that’s on everyone’s heart, and that is, how do you make a living in Hawaii? The cost of living is skyrocketing, our residents are leaving, and there are ordinary folk that want to use their homes in order to rent out a room or two to make additional income.
Today we have the privilege of talking with a couple, but who are two individuals doing this independently of each other. Their problem, as is the case with many people who have short-term rentals, is that that business is in jeopardy on the island of Oahu and throughout the neighbor islands.
There’s a bill that is in our County Council now that could quash short-term rentals. I have with me today Ed Jones and Peggy Aurand who live on Oahu. We’re going to talk about what the Honolulu County Council members are considering right now.
It’s a measure called Bill 41. What it would do is basically limit short-term rentals on Oahu to no less than 180 days at a time. That’s six months, and that’s a very long short-term rental. Finding tenants for that period of time can be quite difficult if you’re simply trying to let your rooms out for very short periods of time.
Vacation rental owners Ed Jones and Peggy Aurand say that, if enacted into law, the bill would be devastating for Hawaii’s vacation rental industry. Imposing strict restrictions on short-term rentals may hurt Hawaii residents more than it actually will help.
We’re going to talk about both sides of the issue, but we’re going to also discuss better policy approaches with Ed and Peggy that will benefit vacation rental owners on Oahu and all residents across the island.
I do want to stress that today we’ve decided not to go with subject matter experts per se, or with corporate representatives, but ordinary folk, people who have homes who want to rent out a room or two. So I want to introduce to you Ed and Peggy. Ed Jones, aloha, and thanks for joining us today.
Ed Jones: Aloha, glad to be here.
Akina: Ed, where do you live?
Jones: Over in Kalama Valley and my responsibility is probably the simplest case. It is just two rental rooms under the unpermitted use that is allowed under Bill 89. We can have up to two rooms with some requirements. Basically, we have been doing this for around 35 years.
Akina: My goodness. You really are a Kamaʻāina family. Now I want to welcome Peggy to the program. Peggy Aurand.
Peggy Aurand: Aloha.
Akina: Aloha to you, Peggy. Where are you located?
Aurand: I’m located in Hawaii Kai. I have a four-bedroom home. It’s been in the family for 50 years and I have a small cottage behind the garage where I live and I rent out the whole house, which is four bedrooms. I’ve been doing that for five years now. Before that, when I was working on the mainland, I rented it out long-term, but now I’m retired and I need the short-term income to be able to live.
Akina: Peggy, when you say that you need the income in order to live, you’re not really exaggerating, are you?
Aurand: No, I am not.
Akina: What is the reality of that statement here in Hawaii?
Aurand: I have a small Social Security check, but it wouldn’t pay the taxes and the bills.
Akina: How much of a difference does it make that you can rent out some of your property?
Aurand: Well, I figure if I went with the long-term rental thing; long-term rental rates are a lot lower than short-term rental rates. Usually, I can get people here for a week. If I followed Bill 41, I could make $7,000 in a year. I can’t do that. I wouldn’t be able to pay my taxes. I wouldn’t be able to pay the expenses of running this house and I’d have to sell it.
Akina: So what you’re talking about, really, is managing life here in Hawaii, being able to afford the high cost of living.
Aurand: That’s right.
Akina: OK. Ed, you’re not a corporation or a big company or anything like that, you’re just handling a private property. People talk about property rights that owners should have, including the right to be able to rent out a room or two. What are your thoughts?
Jones: Bill 89 really struck a basic … This is our ordinance, 19-18, and this is what we’re functioning on. It was passed in 2019 just before COVID and it provided the infrastructure so that we can operate legally. We operate under the unpermitted use section and we comply with things like making sure we have the parking and the room space and the access and place to enjoy the outside and a very quiet and cheerful piece of paradise.
Akina: Well, let’s zoom ahead now from Bill 89 to this current bill being considered at the County Council, Bill 41. Peggy, what is the situation with vacation rentals here on Oahu and the impact of Bill 41?
Aurand: If we can only rent twice a year, which is what 180 days means, first of all, the city would not get a cent in transient accommodations taxes. I would file returns for zero, zero, zero, month after month after month. I don’t think they’ve considered that, but if I can only rent to two tenants a year, I might as well just go to an all-long-term rental because I can’t charge the $500 a night that I get for renting out those four bedrooms that can sleep 10 people. It’s a bargain for them really.
If I’m forced to do the two six-month leases, I might as well just say, “I’m just going to rent it long-term,” and that would bring me probably $7,000 to $8,000 a month for that particular house because it sleeps a lot of people. But that’s still barely enough to pay the taxes and keep the place running and keep it well-repaired and looking good from the street.
Akina: Ed, would you have anything to add to give us some background on Bill 41 and the impact you think it would have?
Jones: Yes. Bill 41 is effectively a ban on renting. This kind of renting is month-to-month renting that we do here, and it is, under state law, a 30-day renewal month-to-month renting. So the tenant has the option to renew for the next month, as most of them do.
We’ve had tenants here, from anywhere from just the one month to 10 years. It provides them with a great deal of flexibility, but the most important thing is that this is an implementation of affordable housing. I hope that that will be considered as [Bill] 41 continues to get more attention, and we consider the wide range of what we do.
I hope that folks in the City Council, in DPP [Department of Planning and Permitting] and in the proponent groups will gather around the table and talk about what we do and the benefit that it has for the community as a whole. We believe that we’re part of the solution when it comes to affordable housing, not the problem. I’m at a loss because no one has provided me with any kind of evidence at all that renting rooms has a negative impact on the community.
Akina: What do you say — because it’s often cited by opponents to short-term vacation rentals — [to the argument] that these use up our valuable resources of housing and increase the cost of housing, making it unaffordable to many of our locals? You said you haven’t seen the data on that, Ed. Peggy, do you have any thoughts on that?
Aurand: We had a very interesting and rare opportunity during COVID when the governor shut down our vacation rentals for seven months. My house stood empty. I lost $100,000 and had to sell my home near my grandchildren in California and move in behind the garage to cope with it.
On the upside, it provided us with an opportunity to look at what happens with the market for potential affordable housing when the number of houses on the market increases. The number of houses that could be affordable rentals did increase. I had some friends that had to bail out and move to the mainland and shut down their businesses.
It did increase and you would expect the prices to go down since the number of houses went up, right? Supply and demand. But that didn’t happen. The prices went up. I think that’s very interesting.
I think most affordable rental projects are feel-good, look-good things that politicians put on the table to get elected, and once they get elected they face reality and it gets too expensive. I think there have been more cancellations of affordable rentals in that department than there have been people buying houses that are otherwise vacation rentals. Mine is not an affordable rental house anyway.
Akina: Thank you, Peggy. Ed, what would you say to people who argue that short-term vacation rentals really eat up our affordable housing, and then the prices go through the roof for locals?
Jones: With this ban on affordable renting, the results would be that we would be down two rooms for tenants. We wouldn’t be allowed to rent to this tenant. It is really unreasonable to ask someone to pay upfront 90 days or 180 days of rental payments. That’s not the affordable housing model. In this case, we use Airbnb as our platform, so folks can easily go on to Airbnb and they just pay that one month upfront. There isn’t even a security deposit. Because we know who they are and we can see the reviews, we don’t need a security deposit.
Akina: Now, I understand that there’s a further draft of Bill 41, the latest draft. Are you familiar with that? Does this latest draft increase the minimum days allowable to rent? Either of you?
Jones: This is a draft. It does not mean that the base Bill 41 is dead. Our discussions are with each draft that is being considered. We have at least two of them being considered right now. The number of days is 90 instead of 180. It is still not compatible with a month-to-month renting model. Dropping the number of days from 180 to 90 has not been helpful as a solution for affordable housing.
Akina: If either of you could fix Bill 41 in any way, what would you do to it? What would you tell Council members that they need to do?
Jones: The first thing I would ask them to do is to do appropriation. The request is there for $1.3 million and a staff of seven. I think we’ve talked about three of the four revenue streams that they can draw revenue from — TAT [transient accommodations tax]. GET [general excise tax] real property tax, real estate investment — if the next governor signs a bill for real estate investment. Those are all revenue streams for enforcement or to subsidize affordable housing to make it possible for more people to find a place to live.
Akina: Peggy, would you like to add anything?
Aurand: Yes, those are all great ideas. I think part of the increase in whatever we have to pay to do business should go to an affordable housing fund so these projects that have been proposed can be built. Right now that’s not happening and we’re sort of a scapegoat, a whipping boy for the politicians in Honolulu.
If there’s a problem with affordable housing, “Oh, let’s blame the vacation rentals.” [chuckles]. If there’s a problem with noise in the neighborhood, “Let’s blame the vacation rentals.” I have a situation in my neighborhood where I have noise from 1 a.m. to 4 a.m. I have drunks in the middle of the street, in the middle of the night, throwing trash in my yard. We have naked trespassers invading people’s houses. The parking is so bad that rescue vehicles can’t get down the street. Nine people died at this place in 2021. And no, Larry Bartley, it isn’t a vacation rental. It’s a beach park, and guess who put it in place? The City and County of Honolulu.
Akina: Peggy, we’re going to segue from what you’ve just brought up and take a break. When we come back, I want to ask both of you about some of the concerns that members of the community express regarding short-term vacation rentals and how you would respond to that.
But first, we’re going to take a one-minute break. This is Keli’i Akina on the ThinkTech Hawaii broadcast network, “Hawaii Together,” with my guests today, Ed Jones and Peggy Aurand, discussing short-term vacation rentals. Don’t go away, we’ll be right back.
Akina: Welcome back. This is Keli’i Akina. We’re on the ThinkTech Hawaii broadcast network, “Hawaii Together.” My guests today are discussing a very important issue, and that is short-term vacation rental. Just before we left, Ed Jones and Peggy Aurand shared some of their experiences and their concerns about Bill 41.
Now, I’ve got a tough question for you. Whenever we turn the news on, if there’s a segment on short-term vacation rentals, people are interviewed saying short-term vacation rentals are a blight on the land. They result in strangers coming into our neighborhoods. They result in noise pollution late into the night, partying. They result in trash, overuse of utilities. I could go on and on. I’m sure that you are confronted with this from time to time. I just want to hear what you both have to say in response to that. We’ll start with Peggy.
Aurand: Of course, I hear all of that stuff. The opponents of vacation rentals like to smear all of us with the same black brush. However, most of us want to comply with whatever laws there are. Most of us are law-abiding people, and our aim is to make people happy. I try to make my guests happy. I try to keep my neighbors happy. I’ve had some neighbors for 35 years who have never lodged a complaint.
I’m not a super host or a premier partner on websites I use to book guests because I refuse to do instant booking. Everybody who walks through my door has been vetted. I know they’re not going to be on a kegger for a week of noisy, shouting people. The people I have are good neighbors. They’re going to be a credit to any neighborhood wherever they are and I want them to be good neighbors while they’re at my house.
All of my parking is off-street and I make sure my people are quiet and they observe the noise curfews. They know this upfront. I tell them, “I don’t want noise, and if you’re not willing to be quiet, then go someplace else.” I’d rather just have it said upfront, and I think that most of the vacation rental hosts on Oahu are just like me.
I think the problems come from a very small group of people that are giving our opponents a field day as far as things to complain about. The rest of us, I don’t think you’d even know my vacation rental is there.
Akina: Thank you, Peggy. Ed, your thoughts?
Jones: To add to that, because we’re an owner-occupied situation, so it is really not hard to accomplish this goal in owner-occupied rooms. But I would point out that we’ve yet to rent to the first tourist in 35 years. Our tenants are from all walks of life. They’re in the military, they’re in nursing, they’re small-business owners themselves.
The tenant we have right now is returning from last year to write the second half of her book. She needs a quiet place in paradise to do that and this is where she can think clearly. Those are the kinds of requirements that we respond to. There’s a high degree of skill, but in addition to that, there have also been many, many rentals that have occurred with local folks with a regular job working in the community.
I should talk a little bit about misbehavior though. The ordinances we’re talking about are ones that apply to all of us. It is important when there is a complaint to call HPD and to support those who come here and carry a badge. In addition to that, I understand that for any of the other kinds of violations that are occurring, that are in DPP’s jurisdiction, I believe that they should also follow a community policing model.
In the latest draft, there is an extensive discussion on a binder of “We maintain information about the rental for the benefit of tenants and also DPP.” A regional DPP enforcement officer should be completely aware of the contents of that binder for all the properties in the region, and when that kind of dialog occurs, I think we’ll see that complaint evaporate from the impacted community.
Akina: How about taxes? Do vacation rental homeowners pay taxes for the visitors who come?
Jones: Peggy, you want to take that one?
Aurand: All right. There are three kinds of taxes that can be levied on a rental home. One is the general excise tax or GET — they get it, we don’t. The TAT, that is the transient accommodations tax. If you’re renting for less than that magical 180 days, that’s the only place incidentally in state law where the 180 days come into the law as it is written, right, Ed?
Jones: That’s correct. I was referring to the landlord-tenant code, which allows and defines the parameters on month-to-month renting.
Aurand: That’s where the long-term rental of 180 days starts. When I rented long-term last year in desperation. It was a long-term rental, so I had zero on my tax returns for about a year, but I filed them anyway. You’ve got GET, you’ve got TAT and you’ve got property taxes. I pay my property taxes. They just increased my assessment by 38%. I have TAT taxes when I have short-term guests and I have GET taxes for all of them.
There’s a question here about the difference between what hotels pay and what a vacation rental owner like me pays. The only difference is the value of the hotel for property tax purposes. They have a higher assessed rate, it’s $1,390 per thousand dollars evaluation. Mine, as a bed-and-breakfast home, would be $650 for $1,000 of valuation.
I think they were revamping this code in the latest iteration of Bill 41, and I think the one thing they want to slip in there is classification J for bed-and-breakfast homes. You pay more money than you would for residents. The lowest fee for a residence is $350 per $1,000. That’s for an owner-occupied home with an exemption. We all pay the taxes. It’s just how much of one or the other.
Akina: In what ways, beyond the tax revenues that short-term vacation rentals generate, do short-term vacation rentals help the community at large? What are some of the positive features of having this available in Oahu? One, for example, being that it may not be only tourists who take advantage of them, but locals as well.
Aurand: That’s right.
Jones: I guess there are a couple of categories of that. To maintain a vacation rental property, there is more that we have to purchase. There are a lot of vendors, from pest control to maintenance of the property. I do some of that myself, but a lot goes out to the local businesses in the community.
Another category: There are monies paid out by renters themselves every time they purchase a meal. Costco is probably pretty busy today, and we have a record number of COVID cases, but we still have a considerable number of people in Costco who are residents here, and a variety of residents who are tenants in our short-term rentals.
Akina: Peggy, do you see any other advantages as well?
Aurand: Yes. First of all, a lot of tourists are vibrant, smart people, and they’re interested in the culture here. I try to educate them as much as I can on that. Sometimes I take them places that they wouldn’t have known of otherwise. The average visitor to Oahu spends $201 per day per guest. I figured out the economic impact of my vacation rental on Oahu’s economy. For the last normal year we had, which was 2018, I spent $150,000 keeping the place running.
That’s paying things to City Mill, where local people work. It’s a local company. To the local food stores. All of my workmen, day laborers, yard men, the pest control, the pool man, etc., they’re all local people. HECO, Hawaiian Telcom, Board of Water Supply, all the people that work for those people are benefiting from that $150,000.
I paid $55,000 in taxes – all three kinds. Then there’s the spending by my guests. That adds up to, for one little old lady’s house, $625,000. You multiply me times 4,000 and you’ve got in excess of $2 billion a year.
Akina: Peggy, thank you very much. I want to thank both of you, Ed and Peggy, for being with us today. It was very insightful to learn from your experiences and to get to know you. Thank you very, very much.
To our listeners and viewers, we’ll be back again on ThinkTech Hawaii, “Hawaii Together.”
Keep in mind Bill 41 and the short-term vacation rental industry. It’s ordinary people. Take care. Aloha.
Aurand: Thank you.