Short-term rentals defended in new AEI housing study

Tobias Peter says rather than target STRs, it’s time for government to ‘look in the mirror’ and take responsibility for Hawaii’s housing crisis

There is a prevailing belief in Hawaii that short-term rentals are responsible for the state’s housing shortage. 

Even Gov. Josh Green recently criticized STRs, stating, “People make a lot of money off of that, but what’s the consequence? We don’t have enough housing for our people.”

But a new report by Tobias Peter, senior fellow and co-director of the AEI Housing Center in Washington, D.C., challenges the notion that STRs are to blame.  

In his report, “Setting the Record Straight on Short-Term Rentals, Housing Affordability, and Misguided Government Market Interventions,” Peter argues that the “true culprit” behind expensive and scarce housing is not STRs, but government’s own policy failures. 

Peter tackles the argument that STRs reduce Hawaii’s housing supply and contribute to high rents by diverting much-needed units away from locals for tourist accommodations. He contends that government actions are what created the demand for STRs in the first place. 

Peter notes how cities such as New York limited new hotel construction at the behest of local hotel workers’ union. As a result, STRs emerged as a market response to the shortage of hotel rooms, only to be vilified for supposedly reducing the housing supply. 

Similarly, Peter says, Hawaii faces a scarcity of hotel rooms and exorbitant average daily hotel rates, making STRs more profitable than long-term rentals. But while many have the impression that STR owners are profiting handsomely at the expense of desperate locals, Peter says this is a misrepresentation. 

Of the state’s housing stock of 568,000 units, roughly 33,000, or 6%, are listed as STRs. According to Peter, two-thirds of them are booked for only about 10-20 days of the year and generate an average of $4,700 per year. 

Peter also underscores how STR listings in Hawaii have been stable since 2019, while rents have outpaced pre-pandemic trends by about 11%, casting further doubt on the claims that STRs are the cause of Hawaii’s high housing prices. 

Given these facts, Peter argues that banning STRs is unlikely to have a meaningful impact on Hawaii’s housing shortage, and may, in fact, harm lower-income residents who depend on supplemental income from renting out their homes for a few weeks a year. 

Peter described the hyper-fixation on STRs as “a distraction” from government regulatory failures that have “created housing unaffordability long before STRs even came into existence.”

According to Peter, the root causes of the housing shortage are “zoning laws, land-use regulations, and environmental laws that have been weaponized by ‘Not in my backyard’ residents,” which together have limited the amount of buildable land or limited the buildable density to single-family detached housing only.

The solution, Peter says, is not more restrictions but fewer.

Tobias Peter, co-director of the AEI Housing Center, at a Grassroot event in July 2022.

One of his ideal alternatives is the so-called Tokyo model — the subject of his keynote presentation at a Grassroot event in 2022. The Tokyo model permits higher density development “by right,” meaning projects that meet all zoning requirements can proceed without undergoing discretionary approval processes.

Estimates by Peter and his colleagues at the AEI Housing Center suggest that the adoption of the model could add 26,000 additional units to Oahu over 10 years.

He said Hawaii could follow in the footsteps of cities across the country such as Arlington, Minneapolis, and Charlotte, which have recently deregulated their zoning rules, encouraging quicker and more affordable private-sector housing construction.  

Rather than targeting STRs, Peter’s report suggests that it is time for government to “look in the mirror,” reevaluate its own policies, and simply make it easier to build more homes. 

To read Peter’s full report, go here.

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