Tax incentives proposed to get Maui vacation unit owners to rent to survivors

Maui’s post-fire efforts to find long-term housing for survivors of the Aug. 8 wildfires could serve as a new model to convert short-term vacation rentals across the state into badly needed long-term housing for residents, beginning with “eye popping” tax changes and increased income that would reward owners of long-term rental units, Gov. Josh Green told the Honolulu Star-Advertiser on Tuesday.

For owners of short-term vacation rentals who resist, Green said Maui Mayor Richard Bissen also has the authority under post-fire emergency powers to impose a countywide moratorium on short-term rentals, further encouraging landlords to provide long-term housing to fire survivors, Green said.

“Under emergency rules, the mayor has a need to house his people,” Green told the Star-Advertiser in his fifth-floor conference room at the state Capitol.

He called the possibility of a moratorium “the nuclear option” that likely would lead to lawsuits and motions for temporary injunctions by Maui property owners.

Instead, Green said owners’ arguments of the government illegally taking their property likely would be offset by proposed rental increases — beginning Feb. 1 — of up to 400% of fair market value if they provide long-term housing for fire evacuees, along with proposed tax incentives.

But so far, the majority of owners of Maui short-term vacation rental units have been reluctant to rent long term to fire evacuees, even at upcoming increased rates of $5,000 per month for a one-bedroom unit to $7,000 per month for a three-­bedroom unit, Green said.

Tuesday night, Bissen said he submitted a bill to be considered by the County Council beginning Dec. 3 to change the County Code to exempt owners of short-term vacation rentals, timeshares and non-owner-­occupied homes from paying property taxes “to increase the inventory of housing available to survivors of the August wildfires.”

“We can help more survivors in need of housing by immediately exempting short-term units from real property taxation when they are rented to displaced residents impacted by the wildfire disaster,” Bissen said in a statement. “I believe that a shared sacrifice is necessary at this time. Therefore, I also intend to propose to the County Council an increase of property taxes for all short-term vacation rentals, timeshare units and non-owner-­occupied properties assessed at over a million dollars that do not participate in this program designed to help our Maui people secure housing. Owners who help our disaster-impacted families by making their units available will receive a tax waiver. While those who choose not to can help by contributing more in taxes to make up for the loss of tax revenue.”

For example, Bissen said that owners assessed at $1 million will receive a reduction in this year’s second installment of taxes of $5,925 on a lease that runs from Jan. 1 through Dec. 31, 2024 — “and the full $11,850 in next year’s taxes if you apply by January 30, 2024. That is an estimated savings of $17,775.”

Maui County currently has 2,500 to 3,000 timeshare units, 12,000 to 14,000 non-owner-occupied homes and 12,000 to 14,000 short-term rentals, according to Bissen.

Under the post-fire emergency proclamation, the tax change proposal requires only two hearings, with the second likely Dec. 12, Green said.

At the same time, Green said that in February he plans to issue another emergency proclamation barring evictions on Maui, which would prevent Maui landlords from evicting existing tenants to take advantage of more favorable rates for them that would kick in Feb. 1 by renting to fire evacuees.

Maui lost 3,700 structures in the wildfires, most of them homes, which further exacerbated the island’s housing shortage.

Some 561 families owned and occupied their homes, and over 1,800 families were renters.

Even before the fires, one of Green’s key priorities had been to add 50,000 more homes across the state to help keep island families, workers and kupuna from leaving for less expensive communities.

“Most people want to stay in Hawaii,” he said.

He and his administration, along with Bissen, the Federal Emergency Management Agency, the American Red Cross and state housing agencies, have been looking at a wide range of ideas to get fire evacuees out of Maui hotels and into more comfortable, long-term housing near their children’s schools that could include yards and kitchens.

But building new homes could take years, and finding infrastructure for so-called modular units has proved difficult, along with encouraging Maui homeowners to build up to 1,000 accessory dwelling units on their properties.

Increasing homes on Maui represents “a big lift no matter how you look at it,” Green said.

Short-term vacation rentals are already operating on Maui, and converting them into long-term rentals for survivors of the Maui wildfires provides the quickest solution — along with a template for converting them statewide into badly needed housing for residents — while assuring landlords of above-market rates and tax incentives, Green said.

Most of the changes would be aimed at owners of Maui condo units on an island where some Maui property owners of luxurious short-term vacation rentals charge as much as $2,000 per day for “super-beautiful beachfront houses,” he said.

So Green hopes the potential of increased rents, tax breaks and the threat of a moratorium on short-term rentals provides the right balance of incentives to lead to changes on Maui and eventually across the state.

He wants Maui vacation property owners to be able to clear their bookings of holiday travelers.

Then, beginning Feb. 1, Green wants to begin an 18-month program looking at increasing Maui’s housing inventory, with an emphasis on converting short-term vacation units into long-term housing for fire evacuees at rates 400% of fair market rate. Owners also would not have to pay transient accommodations taxes for two years.

The rental rates for fire survivors would be paid directly to landowners, Green said.

He estimates that Maui has over 8,000 legal vacation rentals and another 7,000 illegal units, and hopes to see an initial flurry of 2,000 landlords converting to long-term rentals.

He expects some landlords to switch to long-term rentals while others watch how the market adjusts in the following months.

“People are reluctant to be the first through the door,” Green said.

Asked about illegal vacation rentals, Green suggested that Maui and other counties could follow the example of Honolulu, which has been cracking down on illegal landlords in response to complaints from neighbors about loud parties, increased garbage and reduced street parking.

As the four-month mark since the wildfires approaches in the middle of the holiday season, hundreds of families remain in hotel rooms, mostly in West Maui.

“We need to move people into really stable housing,” Green said.

Statewide, with Hawaii residents in need of 50,000 more affordable units, what happens next for short-term vacation rental units on Maui could prove to be a “catalyst for change” about how Hawaii and its residents view vacation rentals, he said.

“We just need to have an honest discussion about short-term rentals in our state,” Green said. “A fire may be what sets that off. … The truth is that has to happen, something has to happen.”