Maui Planning Commission advances vacation rental phase-out bill

 Brian Perry | July 25, 2024

The Maui Planning Commission heard more than seven hours of often impassioned testimony Tuesday, then deliberated nearly three hours before advising the Maui County Council to approve a bill to phase-out 7,000 short-term rentals in apartment districts, mostly in South and West Maui.

In the end, the commission voted 5-0 to recommend ending the decades-long grandfathered use of vacation rentals in apartment districts; those on the so-called Minatoya List. The commission’s action comes as Maui faces a housing emergency in the wake of the August 2023 wildfires disaster and steep challenges in building more housing, hampered by high building costs, scarce water and wastewater availability and vacant lands.

“Our community is screaming for this,” said Commissioner Ashley Lindsey, who said she has experience in property management of both long- and short-term rentals.

“Our community needs housing first,” she said. “We need to take care of our people. We need to do what’s right for Maui.”

There’s “lots of money in short-term rentals,” she said. It’s a great investment that “basically pays for your retirement and whatever else you want to do.”

However, “we were always supposed to have apartments in those areas,” she said. “People have been lucky to have used those short-term rentals for other reasons (until now), but getting back our communities is the most important part of being part of a community.”

Commissioner Mel Hipolito Jr. said the issue has led to some soul searching.

“I need to really take a deep dive in my heart, in my mind about the future,” he said. The future of “our loved ones, our families, even our families that’s not born yet.”

Hipolito said he’s aware of potential legal challenges, but “I truly believe the mayor and his team have done their due diligence.”

As for concerns about the bill’s economic impacts, the County Council will have the opportunity to investigate and assess those, he said.

Commission Chair Kimberly Thayer noted that the commission is only making a recommendation to the County Council. “We are just one step in the road,” she said. “But we are, you know, an important part of the process.”

“Zoning is not meant to be static,” she said. “It is meant to change over time to reflect the needs of the community.”

Maui County’s zoning code is “very, very old” and “very out of date and in need of change to reflect the current trends in our community, the desires of our people,” Thayer said.

She said the debate over the vacation rentals phase-out has brought up questions such as: “Who are we, and what do we want to be? What kind of future do we want for our keiki?”

Hawaiʻi has gone from a purely subsistence economy to “commercialization of our land,” plantation agriculture, and tourism, Thayer said. Now, “we are not unique in kind of being at a crossroads… There’s communities all over the whole entire world who have had to evolve over time, and now is our time to look at evolving.”

Now, the way Maui’s zoning districts are structured, and “the way our land is quote, unquote ‘used’ is not serving us right now,” she said. “The question is: what is the highest and best use?”

“It’s bubbling up that the best thing for our island and for our people is to change this piece of zoning to kind of change our trajectory into the future,” Thayer said. “This is not a decision that is taken lightly at all… We’re not making this decision for any of us. We’re making this decision for everybody who comes after us.”

The commission’s recommendation includes asking the Council to consider economic impacts found in a study by the University of Hawaiʻi Economic Research Organization, known as UHERO. That study, sought by the Bissen administration, is expected to be ready in time for Council consideration of the bill later this year.

This morning, the Council’s Housing and Land Use Committee, chaired by Council Member Tasha Kama, discussed a proposed request for proposals to study the phase-out of short-term rentals in apartment-zoned districts.

The commission also wants the Council to consider social, cultural, environmental and quality of life impacts. Commissioners recommended that the Council exclude vacation rental properties that community plans designate for hotel use or properties that are partially zoned hotel.

Commission members discussed at some length giving South Maui short-term vacation rental owners more time — as much as three to five years — to phase-out the transient use. However, Hipolito said, “I feel the need is now.” And, the idea was dropped.

When asked Tuesday evening about the timing of the proposed phase-out, Bissen told commissioners it was his decision to choose the effective dates because they reflect the “urgency that this deserves.”

Some people say it’s overdue by 35 years, and now, “you cannot say this is an emergency that needs to be done right away, and (then) say, ‘Let’s take five years,’ ” Bissen said.

As proposed, housing units in apartment-zoned districts will no longer be permitted as short-term visitor accommodations — as of July 1, 2025, for West Maui, and Jan. 1, 2026, for the rest of Maui County.

In the coming months, the Council will receive a Department of Planning report in support of the mayor’s proposal, as well as minutes of commission meetings on June 25 and Tuesday. In those two days of hearings, more than 250 people testified for and against the measure. And, there are several hundred pages of written testimony. (To read written testimony, go to the end of the Planning Department’s report here. Additional written testimonies submitted include those that came after posting June 25 part 1; and part 2; July 9; and documents received after posting July 23 part 1 and part 2.)

On Tuesday, dozens of testifiers were roughly divided over whether residents or visitors should occupy apartments that have been used for decades as transient accommodations. Bill proponents maintained that it’s time to prioritize Maui’s resources, including housing and water, for residents, especially after the August 2023 wildfires that killed 102 in Lahaina and aggravated the island’s longtime housing shortage.

Bill opponents argued that eliminating vacation rentals in apartment-zoned districts would wreak widespread economic damage, lead to business closures and job losses, and threaten the livelihoods of owners dependent on income from their investment properties. They also said vacation rentals would not be converted to residential housing because they’re too expensive and inappropriate for housing because of a lack of living space, storage, parking and recreational areas.

Stephen Thiele, a Kamaole Sands condominium owner, asked the commission to “reject this draconian and unconstitutional bill.”

“This bill stands on the thin ice of a falsehood that the Minatoya properties were built for long-term workforce housing,” he said. “However, the facts are that many of these properties were clearly built to be vacation resorts, operated and managed by hotel companies.”

Thiele said a housing report submitted to the commission contains no information about skyrocketing apartment owner association fees and lacks a full analysis of devastating economic impacts if the bill were to become law. He predicted a class-action lawsuit, based on the constitutionality of taking away a recognized property right.

Maui Tomorrow Foundation Executive Director Albert Perez said decision-makers have ignored the policy of keeping the island’s visitor population below 33% of the resident population while also disregarding the purpose of apartment-zoned districts to provide high-density housing for long-term residents.

Decision-makers need to stop “approving luxury housing,” he said. “It uses up our infrastructure and brings more wealthy people who can pay more for everything.”

Perez cited a UHERO estimate that the phase-out bill would increase Maui’s housing inventory by 13%, “a dramatic increase that will lower housing prices, whether for sale or for rent.”

UHERO also says short-term rentals are operated by those who run multiple vacation properties who would likely sell or rent their units. “So many properties would likely be converted to long-term use,” Perez said.

While addressing commissioners’ questions Tuesday, Bissen also responded to the argument that vacation rentals would not be converted to residential use.

If an apartment unit becomes either owner-occupied or a long-term rental, “I think by it’s very nature, they will go to somebody who resides on Maui.”

The goal is to increase residential housing inventory, and even if a small percentage of conversion from vacation rental to housing yields even 500 units, then “I’ll take that,” Bissen said.

However, he said he thought the number of homes for residents will be higher than a few hundred because even if an owner has two, three or five homes, “you can only live in one.”

“If you can only live in one, what are you going to do with the others?” he asked. “Keep ‘um vacant?” Then owners face losing money on their investments, he pointed out. “If you’re losing money using it as a short term, then maybe switch the model and rent it to somebody long-term.”

Bissen also said his administration is committed to enforcing laws against illegal vacation rentals. He pointed out that his administration reversed a policy not to investigate anonymous complaints. “We’re gonna take every complaint, even if it’s anonymous,” he said.

The mayor said zoning should reflect actual use. So, if some apartment complexes operate as hotels, then they should get hotel zoning, Bissen said. “I mean, if you walk like a duck, you quack like a duck and look like a duck, you’re a duck.”

For decades, Maui County’s policy has been to allow transient vacation rentals to continue operating, legally, in apartment-zoned areas meant for residential use. This has led to real estate speculation, rising property values and an industry in support of vacation rental promotion, sales, management, cleaning and maintenance.

The county currently permits vacation rentals in A1 and A2 apartment districts, provided that units are in buildings constructed before April 21, 1989, and that owners meet other criteria, such as paying higher real property taxes and transient accommodations taxes.

Former Hawaiʻi Attorney General David Louie testified in opposition to the bill on behalf of client Airbnb, giving commission members a preview of likely legal challenges to the measure if it becomes law.

“This bill will effectively eliminate STRs, despite the fact that STRs have been lawful residential uses for decades,” he said.

Deputy Corporation Counsel Michael Hopper told commissioners that the Legislature’s recent change in the law allows the county to amortize, or phase-out, nonconforming uses over a reasonable period of time. That came after a change in “some case law that came up recently.”

Residential uses cannot be phased-out, he said, but recently passed legislation says vacation rental use, as defined by respective counties, would not count as a residential use.

So the legislation “made clear that that type of use (vacation rentals) can be phased out over a reasonable period of time,” he said.

Louie disputed the contention that the enactment of Senate Bill 2919 has paved the way for legally phasing out vacation rentals.

In written testimony, Louie said statutory protections for vacation rental owners derive from constitutional law. Even after statutory protections are removed, “the constitutional foundation remains,” he said. “Maui’s proposed TVR bill likely violates such constitutional protections.”

“The proposed TVR bill is likely unlawful, violating well-established rights under the United States and State of Hawaiʻi constitutions, and would invite years of lawsuits,” he said. “Both the State of Hawaiʻi and federal courts of Hawaiʻi have explicitly recognized the vested rights of apartment owners to use their homes for short-term rentals. As such, there is a likelihood that the TVR bill [will be] ultimately deemed unconstitutional.”

On Tuesday, a number of testifiers expressed concern that the proposed phase-out of vacation rentals has become a divisive, “us-versus-them issue.” Some suggested finding a middle ground and ways to address Maui’s housing crisis, such as using revenue generated by vacation rentals to pay for infrastructure needed for residential housing development.

Bissen told commissioners that “the last thing we wanted to do from the administration is to divide our community… This is the time for us to be together.”

“The whole idea is to make the inventory available for people who choose to make Maui home,” he said.

The Molokaʻi Planning Commission has recommended approval of the vacation rental phase-out, including a caveat that, if the Council were not to approve it for Maui, that the ban would still apply to Molokaʻi. The Lānaʻi Planning Commission remained neutral on the bill, but provided comments.

Commission Vice Chair Dale Thompson, who has a vacation rental property, was absent Tuesday and did not participate in the commission’s deliberations. The nine-member commission has three vacant seats.

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