A city council committee passed out both controversial vacation rental bills yesterday, a final vote by the council is scheduled for next month.
But how would Oahu’s housing market be impacted if thousands of homes could no longer collect income from short-term renters?
Honolulu’s proposal on vacation rentals is very similar to laws passed in Santa Monica, California, which is considered to have the toughest laws against vacation rentals in the country.
Honolulu’s proposal would be a huge blow to vacation rental owners.
“We’ve asked for regulation, you’ve given us termination,” said a testifier at the committee hearing on Friday.
Unless grandfathered in, there will no longer be any whole home vacation rentals.
If an owner gets a permit to legally operate a short term rental, the owner has to be living on site, just like in Santa Monica.
According to the San Francisco Chronicle, Santa Monica’s City Council passed their law back in 2015 when 1,400 of 1,700 local vacation rentals were entire home listings.
Here in Hawaii, studies show one in every 24 homes is a vacation rental.
In areas like the North Shore, 1 in every 4 homes is believed to be a vacation rental.
Many people on Oahu believe once the vacation rental bills pass, more homes will become available and home prices will drop.
But a Santa Monica realtor said don’t count on it.
“People think that when something like that happens it’s going to halt the market and all the inventory is going to rush and surge at the same time, but a lot of these companies already had bookings months in advance and regardless if they shut the site down or not, they still already have contact with those people,” said Santa Monica realtor Ray Lyon.
“From what we’ve seen in Santa Monica it wasn’t an immediate urgency, the people that got hurt were the people that were new to the game, and they bought the property or maybe they owned multiple properties, and they were trying to do Airbnb but even then our inventory is still so low that it didn’t hurt or impact it,” he said.
He said many people were forced to sell their homes because they couldn’t afford to pay their mortgage anymore but it didn’t flood the market and home prices didn’t drop.
“A market always will have a tendency to overreact initially and people will kind of just see what happens but maybe the first month or so people might be cautious,” Lyon said.
He says the high-end market, $5 million and above, didn’t see any impact.
“People with that type of money that own those type of properties just don’t want people living in their properties,” he said.
He said they are more often listed on third party websites and can go for around $50,000 a week and are usually done through a broker.
He said apartment buildings that have several vacation rentals inside could be impacted.
“Honolulu is very vertical, even when I was looking for a place, I noticed a couple of the buildings had several of the listings. Those are the only places I see a possible impact because they have such a high percentage of the units in there so if there was a surge of inventory that would hit the market, it would just be supply and demand it would be a lot more supply and probably not as much demand,” he said.
He said even if the bills don’t pass people could start selling.
“It’s all different timing everyone has a different threshold, everyone has different exposure in it. The guy that owned multiple properties and has five or six of them might be more cautious, or they might be more aggressive it depends on where they are financially too.”
Lyon said there was a quick surge in affordable homes once the laws passed in Santa Monica, but for areas like the North Shore and Kailua, don’t expect to see much of a price change.
The Honolulu Board of Realtors couldn’t comment on possible impacts here since the changes would be over a year out.
“We’re always concerned for property rights as well as affordable housing options for our community,” said Jenny Brady, president of Honolulu board of realtors.
Bill 89 would only allow bed and breakfast type rentals where an owner is on the property. No permits will be given for whole-home rentals.
Fines would vary between $1,000 for a first offense and up to $10,000 a day for re-offenders.
About 1,700 new permits would be issued. Permits haven’t been issued since 1989.
Bed-and-breakfasts would have to be more than 1,000 feet away from another bed and breakfast.
The City Council is set to vote on both bills on July 5.