by Edwin Quinabo
For decades outside investment in Hawaii’s real estate has been met with mixed feelings. To some locals, they say U.S. mainland and international investors’ sweeping in, paying for real estate at overvalued prices is the source of the high housing market prices.
Like other desirable cities in the U.S., Hawaii has people from around the world wanting a piece of paradise – mainland retirees tired of the cold and choosing Hawaii to defrost permanently or of late the growing population of remote workers (which trend is here to stay experts say) settling in Hawaii as the perfect remote-work-and-living destination.
While homes increasingly become unaffordable for a greater number of locals, Hawaii’s natural beauty, white sandy beaches, verdant green mountains and kind, aloha-spirited people have kept most locals put and instead they are opting to rent even at prices they care barely afford.
Locals and new locals coming together in a limited space have produced the perfect storm for a rental crunch where low supply is lopsided by high demand, and the result is a hefty rental tag.
Close to 200,000 are renter households in the state.
The problem of short-term vacation rentals
Most locals born here embrace new locals who contribute to Hawaii’s uniqueness and diversity.
But where the welcome mat is pulled under, some locals say, is when investors buy multiple properties to rent to tourists as short-term vacation rentals that take up rental inventory — which could go to locals — and serves a second whammy by driving up rental prices.
Gov. Josh Green said in his 2024 State of the State Address. “Our state is such a desirable destination, and such a profitable investment for many, that people from around the world have purchased property to hold as investments or rent as short-term rentals to visitors — making on average four times what they would if the property was simply rented to a local family.”
Gov. Green told the Hawaii Filipino Chronicle, “Right now, 52% of all short-term rentals (STRs) in Hawaii are owned by non-state residents, and 27% of STR owners own 20 or more units. So, if just 10% of these owners took part in the House Hawaii Ohana plan, the program could provide housing for thousands of local families.”
How prevalent are STRs?
According to the Hawaii Appleseed Center for Law and Economic Justice, there are about 23,000 short-term vacation rentals statewide. That includes 9,000 short-term vacation rentals on Maui and at least 3,000 STRs on Oahu.
Before the City and County of Honolulu started cracking down on illegal vacation rentals in 2019, estimates on the number of short-term rentals on Oahu ranged between 10,000 and 14,000.
Gov Green said, “I will sign into law any bill the Legislature sends me that will help move short-term rentals and vacant investment properties owned by nonresidents into our local housing market — to increase supply and bring down prices for our families.”
He adds, “I’m humbly calling on my colleagues here at the Legislature to help us by implementing new policies and reforms which will return our housing units to the long-term rental market for our people.”
A 2023 UHERO report found, “Fewer than one-third of households in Hawaii can afford the typical local home. A household earning the state median income can no longer afford the state’s median priced condominium, let alone a single-family home. High prices and high mortgage interest rates mean that homeownership has become out of reach for a larger share of residents. Over the past two years, the share of households in the state who can afford mortgage payments on the median single-family home has fallen from 44% to 30%, meaning fewer than one in three households can afford the typical single-family home. Fewer than half of households can afford the median condominium.”
The same report found that Hawaii residents suffered from having the highest housing costs in the nation and that housing is also the single biggest household expense for local families.
House Hawaii’s Ohana Plan
The Governor has given state lawmakers almost 340 bills to work on this legislative session. Several of them are geared to address the rental housing crunch.
One proposed legislation is the “House Hawaii’s Ohana” plan that the Governor says encourages short-term rental or vacation rental owners from around the world to sell their properties “back to Hawaii families.”
The Governor told the Chronicle that the House Hawaii Ohana plan is in response to the statewide housing crisis which – even before the Maui wildfires – represented one of the largest economic challenges facing Hawaii residents.
How does it work? Green explains, “The House Hawaii’s Ohana plan will provide tax amnesty to any owner of a short-term rental (STR) who chooses to sell their property to an owner-occupier family or to someone who turns the home into a long-term rental for a local family. Under the plan, the seller will be exempted from capital gains taxes, conveyance taxes, and general excise taxes.”
The plan begins this fall and lasts for two years.
The sale under the House Hawaii’s Ohana plan must go to a buyer who will immediately use the property as their primary residence for at least two years.
The proposed one-time tax amnesty program is for qualified owners who convert an eligible property to a long-term rental through a two-year written resident lease agreement.
State Rep. Sean Quinlan, chair of the House Tourism Committee, told the Honolulu Star-Advertiser that he believes Green’s short-term rental tax amnesty and exemption proposal can be part of alleviating Hawaii’s chronic shortage of housing for residents.
“I love the amnesty bill,” said Quinlan (D, Waialua-Haleiwa-Punaluu). “I think it’s a really important part of bringing people in, and our goal as a society should be to convert every single short-term rental into a long-term rental.”
Green said the housing crisis is affecting not only low-income families but also middle-class residents who earn too much to qualify for help, but too little to afford to buy or rent in the current housing market.
He said the supplemental budget for fiscal year 2025 that places a huge emphasis on infrastructure and housing “remains his administration’s top statewide priority.”
Current regulations on STRs
On Oahu, Honolulu Mayor Rick Blangiardi signed Bill 47 in April 2022 which made it illegal to rent out vacation rentals for less than 90 days. Bill 47 also limited vacation rentals to resort areas such as Ko Olina, Turtle Bay, Mākaha and parts of Waikīkī.
Gov Green said In October 2022, a federal judge struck down the 90-day requirement, allowing vacation rental owners to rent out their properties for 30 days or more.
In response to the Maui wildfires, the City and County temporarily suspended its 30-day minimum for STRs in August but later reinstated the 30-day minimum.
On Maui County, short-term rental homes with permits are allowed to operate. Owners must apply and receive approval from the Maui County Planning Department. Most of these STRs operate in resort districts.
But under a new law passed by Maui lawmakers in January 2022, the county stopped issuing new applications for vacation rentals.
Hawaii County lawmakers adopted Bill 108 in November 2018, which limited the operation of short-term vacation rentals to resort and commercial districts.
The Governor said on Kauai, the short-term rental of an apartment, a room in a home, or an entire house for less than 180 days to a visitor is not permitted. STRs also need to operate in a Visitor Designation Area determined by the county.
Cost of rent in Hawaii in the framework of other expenses
According to Forbes in a new 2024 analysis, Hawaii nabbed the top spot for the state with the highest rental expenses, averaging a total monthly cost of $2,423.
This cost has gone up from the time a University of Hawaii Economic Research Organization (UHERO) report that showed the average monthly rent at $2,100 in 2021.
The pressure of rent is compounded when considering Hawaii also has the highest income taxes in the nation, as well as Hawaii claiming the top spot as the most expensive state in terms of cost of living, the same report found.
In Hawaii the total average annual expenditure is $55,491. Additionally, residents of the Aloha State have the lowest amount of disposable income available annually ($5,929).
Forbes found Hawaii is ranked number one in the nation for home prices, with a staggering median price of $837,324.
The Honolulu Board of Realtors has the median price even higher in its December 2023 statistics: median sales price for a single-family home is $996,500 and for a condo-townhouse at $510,000.
The current mortgage rate is at 7-8%, the highest mortgage rates in over two decades, which means would-be homeowners are waiting out the housing market and turning to renting until rates and home prices cool off.
To buy or rent in the current market? Michael Yoshino of Locations Hawaii put it this way, “Yes, buying right now will give you a higher monthly mortgage payment due to high interest rates, but on the flip side, you could potentially get the house you want without having to bid against 20 others. In the alternative, money will be cheaper when interest rates are lower and this will lower your monthly payment, but home prices will likely rise, and you should be prepared to compete with multiple offers. The only way prices will dramatically come down is if inventory grows and piles up. Will this happen?”
The answer is it’s a wait-and-see situation.
With Forbes estimating an average monthly mortgage payment of $5,004 for a home priced around $850,000 with only 10-20% downpayment, many Hawaii residents realistically are not in the market to buy any time soon, which is why pressure is mounting on local government to act on curbing rental prices.
Struggle to pay rent
Venus Delos Santos, a west Oahu resident who owns long-term rental properties, said she has been coming across situations with tenants having difficulty making rent.
“A couple of my tenants are on government assistance, and they have a hard life despite a roof over their heads. One has not paid rent in a couple months, and we are going through an eviction process. Out-of-state landowners, who rent out their units in Hawaii [for the short-term] are driving the cost-of-living so high, they’re making it hard also for local business owners [local landlords with long-term tenants]. At least we put the money back into the economy. Out-of-state landlords take out money from Hawaii.”
Delos Santos said she does not own short-term or vacation rentals. “Out-of-state landlords who rent out their properties in Hawaii should be taxed at a higher amount to make it challenging for them, even deter them, because they put locals at a disadvantage in a state already too expensive to live in. Out-of-state landlords are one of the many reasons why Hawaii is so expensive, on top of an affordable housing shortage. It’s respect for the land. As with fishing, you only take what you eat. You don’t throw out your net, catch tons of fish and not care about the environmental implications of that catch. Commercial fishermen do it all the time. If you think about what they do as a whole industry, wouldn’t you think there would be depletion issues, even damage to sea life?”
Teresita Bernales, Kailua, said “non-state residents owning 52% of short-term rentals have a huge negative impact on Hawaii’s rental market. These non-resident owners are driven by the return on their investment (ROI), because Hawaii is a world class tourist destination. When property owners opt for short term rentals catering to tourists it reduces the housing supply available for long term residents, increasing demand and driving up rental prices for locals looking for long term rentals. This phenomenon is also a concern in other states that are tourist destinations like New York, Los Angeles, DC, Chicago, etc.”
Bernales believes driving factors of high rent are limited land availability, high demand for housing, the high cost of living, and high cost of shipping of construction materials to the islands.
She echoes what financial experts say that ideally 30% of gross monthly income should be allocated for housing (mortgage or rent). Prior to buying a home with her husband, she rented for two years.
“As a two-wage earning household, the cost of rent back then did not have a significant change in our lifestyle and choices. However, family or individual financial situations vary, and other factors like location, other debt obligations and personal financial priorities can influence what one will be able to pay for rent. It is important to develop a financial plan. People living on a tight budget or on a very low income will have a hard time setting aside money for rent,” Bernales said.
Ronald, who agreed to share his financial situation, but not his complete name, said, “I bring in about $3,300 a month. I pay $500 for a room in a house I share with my parents. It’s too expensive if I were to rent outside so I am sacrificing my privacy and saving each month for a large downpayment on an apartment to buy. I will be 30 this year and can’t help but feel I am behind when I see family and friends my age living on the mainland and are property owners. But I understand this is the price I am paying to live in paradise. Some days I feel it’s all worth the wait. Some days I feel like moving to the mainland to get that immediate jumpstart in homeownership. We shall see how much longer I can handle this situation.”
State plans on improving affordable housing
Hawaiʻi’s chronic housing crisis has been exacerbated in recent years by the lack of new construction of affordable housing units.
Between 2012 and 2022, Hawaiʻi only produced about 4,000 units per year on average while reports show that the state needed to build 10,000 units a year to meet demand.
Gov Green has established five data-driven priorities to build more affordable housing for local residents. They include: 1) Expanding affordable housing inventory; 2) Maintaining existing affordable units; 3) Offering more housing support to local residents; 4) Coordinating and modernizing Hawaiʻi’s housing development process; and 5) Communicating the urgency of the housing crisis.
In July 2023, Green signed the First Emergency Proclamation (EP) Relating Housing to accelerate the safe construction of thousands of critically needed, public, low-income, affordable, workforce, and market-rate housing units for sale and rent.
The EP was renewed in September 2023 – and again in October 2023, December 2023 and January 2024 — to focus on the development of affordable housing units in Hawaiʻi. Gov Green said the EP does this by:
*Prioritizing affordable housing development projects where new additional units will serve primarily those at or below 140% of the area median income (AMI);
*Allowing more flexibility in zoning and other county-level building requirements to prioritize adaptive reuse and mixed-use communities;
*Establishing the “Build Beyond Barriers” Working Group (BBB), which draws together members from key state and county agencies involved in housing development, community stakeholders, and subject area experts to identify where projects are stuck and to seek solutions to expedite the development of affordable housing;
*Amending processes under Section 201H-38, Hawaiʻi Revised Statutes (HRS), relating to expedited processes for state affordable housing development to shorten approval times;
*Expediting procurement, which adds costly delays to state and county projects, and;
*Allowing more flexibility for hiring critical staff in agencies or contractors to implement and regulate the housing development process to fill over 300 identified vacancies in state and county housing and regulatory agencies.
In July 2023, the state Hawaiʻi Public Housing Authority (HPHA) unveiled its Ka Lei Momi Redevelopment Project which calls for the construction of more than 10,000 additional units across nine properties in the state. The project aims to transform existing low-density public housing properties into modern, mixed-income and transit-oriented communities.
Of the 10,000 additional units that will be created under the Ka Lei Momi Redevelopment Project, Green said 90% will serve households making at or below 120% AMI. These housing projects will add affordable units in high-opportunity areas to increase housing for low- and middle-income residents and invest in underserved communities.
Republican plans for affordable housing
Hawaii Republican leadership held a press conference on January 30 to reveal their affordable housing bills.
Representative Diamond Garcia presented bill HB633, designed to create housing options that are tied to Hawaii State residents’ incomes through deed restrictions to maintain affordability for local buyers. In a press statement, the plan aims to align the housing market with the wages of local buyers rather than foreign investors, ensuring affordability for Hawaii residents.
“We cannot afford to build homes that remain beyond the reach of our residents. Without explicit affordability provisions in place, we will only perpetuate the problem. We must ensure that ‘affordable’ homes remain affordable for local families,” Garcia said.
There is a provision to bifurcate the housing market — rather than regulating the current market, create a separate housing market for local residents, ensuring housing built with government funds or assistance maintains affordability through deed restrictions that will keep the housing in the same area median income range pricing at which it was initially offered at. This will build an inventory of housing that will always be affordable to the local wage earner, while keeping any wealth and home equity generated by the outside market.
Senator Brenton Awa bill (SB2999/SB2624) plans to ban certain foreign entities from owning, purchasing, or acquiring an interest in Hawaii agricultural lands. His bill SB2617 plans to ban foreign individuals and businesses from buying residential real estate in Hawaii.
“Preventing foreigners from buying property here should have happened years ago. Soon, we will have the chance to finally make it a reality,” said Senator Brenton Awa.
Bernales mentions some of the solutions she would like the government to do more — a few are areas the state is working on mentioned above. Other areas not mentioned that Bernales supports are rent control measures and the exploration of community land trusts model – that helps to retain control over land and housing prices, ensuring long term affordability for residents.
Ronald said, “If more is not done to solve the housing and rental situation, we will see millennials and Gen X leaving, which is sad because that means more Hawaii families will be separated. Voters prioritized affordable housing [including rent] in the last election so lawmakers should be giving this issue top priority.”
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