Hosted short-term vacation rentals could alleviate the housing shortage

For those of you who missed it, Civil Beat recently ran a story about Maui County’s 15,000 vacant homes. That is every fifth household.

At the same time, Maui County needs 10,000 housing units. Converting 66% of Maui County’s vacant housing to full-time housing would solve the county’s housing crisis. The same goes for the other islands.

Of course it’s easy to say “Use vacancies”, but achieving this goal is difficult. Strong demand for second homes, an influx of telecommuters, and a wave of boomers retiring have pushed the median price above $1 million. These high prices combined with rising interest rates make home ownership unaffordable for working residents.

Even if 10,000 homes hit the Maui market next week, the people who need them wouldn’t be able to afford them. The monthly payment on a $1 million home is more than $7,000, and the Federal Reserve has made it clear that interest rates will continue to rise.

Given the economics, this problem seems insurmountable, but there is a solution. A solution that gives locals the financial means to buy homes by converting vacant properties into affordable housing – hosted short-term vacation rentals.

Now, before the crowd that isn’t in my backyard starts beading their beads in anticipation of – gasp! – I would like to point out the word “served” to guests who live in your neighborhood. Hosted rentals differ from the absent STVRs that have caused conflict in neighborhoods.

guest families

Hosted STVRs are what companies like AirBnB originally envisioned—a room in someone’s home, or an ohana. The host serves as a guide, helping guests better understand the unique character of the neighborhood. The host also helps to ensure that overzealous guests behave and respect the neighbors’ right to quiet enjoyment.

If you live in Hawaii full-time, you probably know someone who runs a hosted STVR. An aunt who rents out a bedroom? Or a friend renting an ohana?

They do this because the economics of an STVR allow locals to make ends meet without the benefit of a retirement pension or a six-figure job on the mainland.

So this begs the question: if the one-size-fits-all economy allows aunties to survive by renting a bedroom, why not apply the same solution to the general housing crisis?

Why not encourage families to buy property and split it in two? One part becomes a family home while the other becomes a hosted STVR. This allows the family to get involved in the tourism industry as business owners.

Not as maids, chauffeurs or tour guides. Not as the middle manager of a tax-evading international hotel conglomerate, but as a small business owner who can use the only secured credit facility he has — his mortgage — to improve his financial prospects.

Healthy Communities

Let’s look at an example: a 2,000 square foot, 4 bedroom, 3 bath home that is selling for $1,150,000. Let’s say the owner pays 5% of the sale price and converts two bedrooms into an affordable short term vacation rental. Remodeling cost $25,000 and includes the addition of a private entrance and lanai.

Running a property like this would cost $8,650 per month and generate nearly $6,500 per month in STVR revenue. That means the host family only pays $2,150 per month.

The guests would pay 75% of the host family’s housing costs. As an added bonus, the host would accumulate more than $1,500 in home equity each month.

This economics would also work for investment properties, where landlords would split properties in two. Part becomes full-time homestay accommodation and the remainder becomes a hosted STVR.

Of course, vacation home owners, investors and speculators are not going to wake up one morning and voluntarily convert their properties into housing for locals. So how would we take these very attractive unit economies and use them to solve our housing crisis? By doing what the Hawaiian government does best – raise taxes.

These 15,000 vacant homes on Maui represent a limited resource our community needs to stay healthy. If these property owners allow a critical resource to go unused, they should pay for the privilege. Today, property tax rates in Hawaii are far lower than on the mainland. This must end for second homes and holiday homes.

Property owners who do not live in their own home should pay a much higher tax rate. This would encourage them to either sell the properties or convert a portion into year-round housing for residents (for which they would receive a lower tax rate).

The other change that would be required concerns regulation. The war on STVRs here in Hawaii has created an environment where banks are unwilling to honor STVR revenue on loan applications. This means that locals wanting to use this driveway to their home ownership would first have to prove hundreds of thousands of dollars in other revenue.

It’s time for us to try something new.

To enable families to access credit, our state and county leaders would need to make it clear that hosted STVRs are legal, welcome, and an important part of our future housing policies.

District leaders would also need to ensure that homeowners who wish to convert portions of their properties into hosted STVR units receive timely permits, permits and licenses. Far from protecting us, our local government’s deference to NIMBY’s is destroying Hawaii. It makes housing unaffordable for all but the wealthiest and drives hard-working locals to the brink of homelessness.

The real estate crisis here in Hawaii is beginning to affect all facets of our economy. To counter this, we’ve tried to build affordable units, we’ve tried to subsidize low-income families, and we’ve tried to demonize short-term vacation rentals. But the problem is getting worse every year.

It’s time for us to try something new. Let’s consider solving our housing crisis by leveraging our tourism industry to create an environment where locals can become homeowners while guests can enjoy an authentic Hawaiian experience.

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