Short-Term Vacation Rentals in Hawaii

My spouse just informed me of the great news that Hawaii is thinking of banning short-term vacation rentals. We had one of our many honeymoons on the island of Kauai (because why have just one honeymoon). While visiting, we thought to ourselves that we would enjoy life far greater living on the island and began to look at housing prices. Most things there like food, groceries, and travel were affordable, but the housing costs were insane.

Anything you could consider a house costs a minimum of $1,000,000. We found a 500 square foot shack with no yard listed at over $2 million.

The story is that with services like Airbnb and VRBO, people started buying homes purely to rent out for vacations. It makes sense. Short-term vacation rental properties can earn a lot of money for the landlord. For example, I could rent an apartment unit to a tenant for $2,000 a month. Or I could rent that same apartment as a vacation unit to 4 different tenants for a week at $100 per day. That adds up to a total of $2,800 for the same amount of time.

Airbnb and VRBO definitely incentivize this practice because they make it straightforward to list the property you own. You basically own your own hotel with fewer obstacles, barriers to entry, and challenges.

The story continues that, especially in Hawaii and other high tourist destinations, real estate developers reacted to the uptick in demand by building nicer homes and developing property to specifically be used as short-term vacation rentals. That also makes total sense.

It’s a smart business decision to create a building that customers want to buy. Creating a niche product is also one way you can increase your profit margin. Short-term vacation rentals don’t need as much infrastructure as a regular home or even a vacation home. You can build them in the style of a townhome or apartment to maximize space and minimize development. The homes also become easier to manufacture because they all look identical.

The next part of the story is that the ever-increasing demand for properties to be used solely as short-term vacation rentals (which I’m just going to abbreviate from now on), the price for those new buildings also increased. The price of STVRs shot into the millions of dollars because a person could charge guests over $1,000 for a 5-night stay in tropical destinations with the comforts of home. This would earn them tens of thousands of dollars every year.

Property development also involves developing the land around the property. The land itself becomes more valuable just because nicer homes are being built on it. This raises property taxes and leads to gentrification, but it also means other homes in the area become more valuable without actually changing anything about their structure. This explains why housing prices in Hawaii shot through the roof.

The super expensive STVRs drove the total price of housing in the entire state way up. Hawaii is being rapidly gentrified which means the people who live there are being priced out of their homes. Families who have lived there for hundreds of years soon won’t be able to afford their mortgage payments, rent, or property taxes as it soars to thousands of dollars a month.

The climax of the story is that the residents have banded together to demand the government put an end to the craziness of STVRs. A true victory for the common people in a state that faced so much hardship through its history.

That’s the story.

Of course, what really happened is those million-dollar properties were by and large purchased by Vacation Rental Companies and not by average people.

If the ban passes, regular people will no longer be able to rent their homes to earn money through convenient services like Airbnb and VRBO. The regular people who owned vacation rentals will be forced to sell because they can’t afford the property taxes on a $2 million building that earns no money.

Vacation agencies and hotel groups will swoop in to buy those properties for half of their value because of how desperate the people are to sell. The companies will then brand their newly acquired homes in both name and legal status as hotels, resorts, and condominiums instead of STVRs. Now that they have more control over the market, the companies will raise rental prices, which will raise property values, which will continue to price residents out of their homes.

Eventually, the slums and ghettos will be the only place regular people can afford to live. These regular people are the ones who are needed to maintain the infrastructure and tourism services that make the Vacation Companies money. A lot of those necessary and crucial workers will simply move to another state so they can earn a living.

That will be the end of the story of Hawaii. The end of the story of a beautiful land filled with rich culture that was systematically destroyed at the expense of natives for the profit of foreigners.