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What to do with short-term rentals? Senator calls for deeper look at booming industry

Updated: 
July 14, 2016 - 12:05am

KAILUA-KONA — U.S. Sen. Brian Schatz implored the Federal Trade Commission Wednesday to investigate commercial use of the burgeoning short-term rental market on websites like Airbnb and VRBO, citing specific concerns of housing shortages, subsequent rent hikes, illegally zoned or maintained properties and discriminatory practices.

Schatz (D-Hawaii), along with Sens. Dianne Feinstein (D-California) and Elizabeth Warren (D-Massachusetts), drafted a letter to FTC Chairwoman Edith Ramirez requesting studies be conducted to provide more clarity on the matter.

“In order to assess the use and impact of the short-term rental market, we need reliable data on the commercial use of online platforms,” Schatz said in a release. “We believe the FTC is best positioned to address this data gap in an unbiased manner and we urge the Commission to conduct a review of commercial operators on short-term rental platforms.”

The Hawaii State Legislature also tackled the issue last session, with a particular emphasis on evasion of the transient accommodation tax (TAT), which has become more prevalent in the aftermath of the explosion of the short-term rental market.

The Legislature passed HB1850, a bill permitting transient accommodations brokers like Airbnb and VRBO to register as tax collection agents, which would smooth the logistics of tax collection.

“If people have vacation rentals, they should legally be paying,” said Rep. Nicole Lowen (D-District 6). “But in reality, probably a lot of them are not. It’s just an easier way to collect taxes already owed.”

But Gov. David Ige vetoed the measure Tuesday.

The governor echoed some of the concerns voiced by Schatz, namely that implementing an intermediary system would provide a shield for proprietors currently failing to comply with county laws.

“From our point of view, what we were looking at was collecting on state taxes that were owed, so that was the intent of the bill,” said Rep. Mark Nakashima (D.-District 1), who supported the bill. “Many have seen it as if we are collecting the taxes, then we are permitting the operation. But it’s still in the county’s jurisdiction to enforce (permitting and zoning).”

Ross Birch, executive director of the Big Island Visitors Bureau, said consumer safety issues may arise on illegal rental properties in the event of a natural disaster, as disseminating information to visitors regarding pending danger becomes substantially more difficult.

Ige continued his list of qualms with the bill, citing potential for owner-occupants to opt for transient accommodation renters rather than long-term renters, which would contribute to an affordable housing shortage that has plagued the state for several years.

According to the 2016 Out Of Reach Report by the National Low Income Housing Coalition, an individual must earn $34.22 per hour, or more than $70,000 annually, to afford a modest, two-bedroom apartment in Hawaii. Figures are based on tabulations of Fair Market Rent, which is set by the U.S. Department of Housing and Urban Development.

Based on the generated hourly figure, Fair Market Rent statewide is approaching $1,800 monthly, up nearly $150 per month from 2015. Hawaii also has a greater per capita homeless population than any state in the nation.

But because income from tourism will continue to be a driving economic force in Hawaii regardless of governmental concerns over housing, Birch said common expenses like the TAT must remain uniform to maintain a competitive marketplace.

The TAT, commonly referred to as the hotel tax, is a rate hotel users pay. From that amount collected, counties get a capped amount divied back to them. Hawaii Island’s share is around $19 million.

Birch added that discussions throughout Hawaii Island’s tourism industry have centered around creating equal footing for all operators.

“Those taxes go back into the state to support marketing, to support everything we need to keep the islands in the shape we need them for visitors to come in,” Birch said. “If one entity is paying and another isn’t, then it’s not a legitimate business. We all need to be playing the same game.”

Birch added, however, that options afforded by Airbnb, VRBO and the like provide a healthy category of alternate accommodations, which create more inventory and drive up visitor numbers. Ultimately, that means a healthier Hawaiian economy.

Matt Kiessling, who oversees short-term rental policy for the Travel Technology Association, upbraided Ige for his decision, saying it devalued both tourism and technology.

“This veto is a missed opportunity for the state,” Kiessling said in a release. “Short-term rental platforms have grown in popularity because the consumer demand is there — it is indisputable. To reject a viable and reasonable public policy solution like this sends a clear message that travel and technology innovators, as well as the travelers that utilize them, are not welcome in Hawaii. We hope the legislature will act to override this veto and the message it sends.”

Nakashima said at this point, an ovverride vote of the governor’s veto is unlikely.

Darla Mabery, owner and operator of Hawaiian Oasis Bed &Breakfast Inn as well as a separate vacation property, lists rentals both on her own website as well as venues like Airbnb and VRBO.

Regradless of the method employed, it is still up to the owner-occupant of the rental property to record taxation and turn the money into the state. Ultimately, any system rendering that process easier and more uniform is one Mabery would support.

“Not everybody probably charges their guests legally the way that they should,” she said. “If everybody is on a level playing field, it would actually help us, because we might be unknowingly trying to compete with people who don’t collect and pay those taxes.”

While legislation could have ultimately helped the state claim owed taxes, create a level playing field for operators and contributed to a more competitive marketplace, concerns regarding affordable housing and illegal practices drew the governor’s veto.

They are also what prompted Schatz’s desire to know more.

“By facilitating homeowners to get into (the industry) … it takes rentals off the market in a rental market where we already have soaring prices and low inventory,” Lowen said. “We know the high number of vacation rentals we have is a factor that figures into our affordable housing problem.”

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