• Vacation rentals Vacation rentals By Raymond Chuan As I watched the County Council deliberate on the issue of what to do with vacation rentals, either in person at the Council Chambers or via television on Ho‘ike, I have been
• Vacation rentals
Vacation rentals
By Raymond Chuan
As I watched the County Council deliberate on the issue of what to do with vacation rentals, either in person at the Council Chambers or via television on Ho‘ike, I have been continually baffled by the lengthy and convoluted discussions as members of the Council labor over how to craft some law (ordinance) to deal with vacation rentals, presumably to discourage or disallow them in favor of “long- term rentals” with the goal that such actions might create some affordable rental residences.
Two things are clear: (1) vacation rental (or, as the state tax people call it: transient accommodation) is a business (or commerce, whichever way one wishes to define it.)
(2) Vacation rentals are invariably operating in residential areas, or, even more likely, in R-1 zoned areas.
From these two obvious observations one would immediately realize that there are existing rules and procedures by which the Planning Commission and (possibly also) the County Council can issue a Permit to allow Commerce in R-zoned areas, usually with certain conditions attached to the Permit. There is clearly no need to devise a new ordinance with which to process a Permit. As a matter of record, the Planning Commission did exactly that, recently, when it issued a permit to allow a family to operate a bed-and-breakfast in Hanalei in an apparently mixed-use area which also happens to be in a
Special Management Area in which the issuance of a Special Management Area permit to engage in commerce requires, among other steps, a public hearing. The commission could, and did, impose any number of conditions relating to such matters as noise and other disturbance to the neighbors, off-street parking with the requisite number of parking spaces. It is true that by the nature of the commerce being related to tourism that a vacation rental could very likely be situated in a Special Management Area.
Whether it is in an SMA or not it seems to be a no-brainer, too, that once the property is recognized as commercial its property tax status is that of a place of commerce, for which the tax rates, under the current Kaua‘i Tax Code, would be $8.55 per thousand dollars of building assessment and $8.55 per thousand dollars of land assessment, but not the Residential Rates of $4.50 per thousand for building and $5.49 for land. So why are the council and, possibly also the Finance Department, struggling over how to tax vacation rentals. It also becomes clear that, failing to recognize this bit of simply recognizing vacation rental as commerce, the county has been losing millions of dollars in un-collected property tax revenues!
Thus it is abundantly clear that it requires no special legislation (creating new law or amending existing laws) to achieve the above. It is not so clear at all whether the imposition of a higher tax burden (nearly doubling it) would induce the property owner to convert to “long-term rental”, however that may be defined. The state’s tax code apparently does not treat long term rental as transient accommodation; and it is not clear whether the state code would impose an excise tax. My understanding by checking with people who do long term rental is that they don’t pay excise tax on the rent, but most of them do pay county property tax based on the residential tax rate, not the homestead rate. All that may be needed here is for the tax assessor’s office to recognize the use and the accompanying tax rates in some uniform and consistent manner, again requiring no new or amended legislation.
The next issue the council seems to be treading on thin ice is the question of what is affordable rent. People on this island probably don’t build homes for rental, because to do so while following simple economic principles would involve questions of return on capital. If the council ventures to define what is affordable and limit how affordable can rise, it is getting into the highly controversial issue of rent control. Them are fighting words to the real estate industry!
In reviewing how we got to where we are today compared to where we were, say, five or six years ago, when working people north from Kilauea lived somewhere between Kilauea and Ha‘ena, we invariably point to the proliferation of vacation rentals in the absence of any government concern over the disappearance of community and neighborhood. That is an easy cause-and-effect situation to understand; but whether the situation works in reverse, or can be caused to move in the reverse direction, now, by action of the government is a tough question to answer.
Perhaps one way to deal with this fait accompli is to collect the added property tax due the county from the thousands of commercial enterprises popularly referred to as vacation rentals, and use that money, which some simple calculations would reveal to be not insubstantial, to buy land and build affordable housing. In the more extreme cases, as can be seen in Hanalei, Ha‘ena and Kekaha, where investors build “single-resident” homes with ten bed-rooms and six baths or second motels on the same lot masquerading as ‘ohana units (or additional dwelling unit, ADU, as the officials call them), doubling the property tax is not at all likely to discourage these folks who can take in ten thousand a week. (If you think this description is too fanciful, just take a drive down Weke Road in Hanalei and look at the new large ADUs nearing completion, and up to six rental cars and 10 trash cans lined up inside and outside the properties).
The county can easily pick up $10 million a year in extra property tax — not through new legislation but just by implementing existing rules in the tax code.
There your are, council members anticipating certain re-election, you don’t even have to pay a thousand dollars a page to some fancy consultant as you usually do, to begin solving the affordable housing problem!
And collect some extra votes to ensure your return to the council — at an increase in pay yet!
Raymond Chuan is a resident of Hanalei.
