Blog: A taste of what you may find on Maui

Vacation rentals yeah or nay

Short-term rentals or vacation rentals are a hot topic these days, both in Hawaii and elsewhere in North America. They are often seen as a scapegoat and quick-fix solution to solving the housing shortage. In this post I am using the terms ‘short-term rental’ and ‘vacation rental’ interchangeably.

So should you be staying in a vacation rental? Are you taking housing from a local family? I would argue, that depends.

The zoning

To start, let’s state the obvious. Please stay in a legal vacation rental. Don’t rent a vacation rental that is not properly zoned or properly remitting taxes, though I realize that can be tricky to determine. Here is a blog I wrote a number of years ago on legal vs illegal vacation rentals. The transient accommodation tax has gone up since.

Many (though not all) vacation rental apartment buildings on Maui were purpose-built as vacation homes for mainlanders, not intended for long-term residents. They were mainly built in the 70s and 80s (are 40 to 50+ years old), are small with limited storage and one parking spot (if that). Many of these are included on the Minatoya List of properties grandfathered to operate without a short-term rental permit. The County estimates there are about 16,000 short-term rental condos on Maui.

Did you know that on Maui no short-term rental buildings have been constructed since 2009 (the Honua Kai Resort in Ka’anapali)? Politicians and residents don’t have the stomach for more short-term rentals. Ironically that hasn’t stopped the construction of hotels or time-shares.

On Maui there are roughly 200 residential homes legally permitted to vacation rent. In addition to the permit, owners must post a large sign at the road stating the name, permit#, local contact name and phone number.

The expense

Back to vacation rental condos. These 40 to 50-year-old short-term rental buildings have high maintenance costs due to aging infrastructure. In Kihei most have maintenance costs starting at $800/month and up (our own most expensive is currently $1400/month, though other properties charge much more) which covers day-to-day expenses and puts money into reserves to help pay for future repairs and replacement of infrastructure elements. With rising costs these reserve accounts often ‘help pay’ for but don’t cover all the costs. Most vacation rental buildings in this age bracket face spalling, failing cast-iron pipes, roof replacement etc. These are big ticket expenses.

Kamaole Sands 2-206
The Kamaole Sands complex is starting a $32 million roof and cast-iron pipe replacement project in 2024/25. Special assessments average at $56,800/condo owner.

The buildings along the shoreline (and most popular with visitors) also face sea-level rising. Did you know, in Hawaii it is illegal to harden the shoreline? If owners are caught doing so, they face stiff fines and need to remove the hardening even if the ocean swell will damage to their property. There are several condo buildings in West Maui dealing with this as we speak. Eventually they will need to tear down their buildings and consider if they can rebuild on another part of their property or have to abandon altogether.

The economic impact

Many residents and politicians don’t seem to realize the economics of ownership at these vacation rental buildings. They see the ‘big dollars’ being charged in vacation rents and assume these short-term rentals are cash cows, often not realizing the large expenses involved.

Did you know, most short-term rental owners subsidize their condos? Once you pay your local property manager (20-35% of gross income), homeowner fees, property taxes, insurance, cleaners, maintenance people, supplies and replacement costs, there isn’t much left to cover the mortgage. All those expenses mentioned are dollars that stay on Maui.

Let’s talk taxes paid by vacation rental owners. Short-term rentals contribute substantially to both the County and State budget. In the 2023-24 budget year they contributed 40% of all property taxes collected on Maui. Short-term rental revenue is also taxed at 10.25% transient accommodation tax to the State and an additional 3% transient accommodation tax to the County. And don’t forget about State income tax if you’re lucky enough to do better than break even. If you do away with vacation rentals, politicians will need to increase the tax burden to local residents if they want to maintain current services.

What if?

What would the impact of shutting down short-term rentals on Maui be? It doesn’t make financial sense to long-term rent these properties with costs being what they are. Many owners would be forced to sell, real-estate prices would drop and some locals may be able to afford to buy a condo. Would they however be able to afford all the costs? If owner-occupied, property taxes would drop substantially, but the HOA and insurance costs and special assessments would remain.

I think other mainlanders would swoop in and buy the ‘deals’, using the condos as vacation homes for themselves, friends, and family. Instead of 70-80% occupancy, the condos would now be used 20-30% of the year, dramatically slowing things for restaurants, shops and activity providers. Remember the Covid shut-down when Maui County had 32% unemployment? If you eliminate short-term rentals, that would cut Maui’s tourism numbers by half. Property tax and transient tax revenue to the County would dip substantially, and the County would have to raise rates on residents and long-term rentals to make up the shortfall.

Conclusion

Politicians need to have a long hard look at short-term rentals and work to understand the economic impact of shutting them down. In the immediate, yes, converting all short-term rentals to long-term rentals and owner-occupied condos would theoretically solve the housing crisis. However, it would also have significant economic consequences on Maui. What good is housing if you can’t afford to pay for it?

Should you stay in vacation rentals? I think the answer is yes, but. Take the time to research where you are staying. Ask questions. Support the local economy.