Oahu's Short Term Rental Inventory Is about to Decline

By
Real Estate Agent with Century 21 iProperties Hawaii RS-54129

Honolulu Mayor Rick Blangiardi signed Bill 41 into law on April 26, 2022 and it will take effect on October 23, 2022. The bill takes effect six months from now presumably to provide time to short term rental owners to make adjustments to their rental activities.

Earlier this year (January 11, to be exact) the Honolulu City Council passed and the Mayor signed Bill 2, stipulating that home sellers must disclose whether short term rentals are legal or not for their property being sold. 

If the seller represents their property as being legal for short term rentals, they must also present evidence, in the form of a permit number, zoning information and tax clearance certificates showing their compliance in paying General Excise Tax and Transient Accommodations Taxes paid to the State of Hawaii.  Violation of these requirements may subject the seller to a fine not exceeding $2,000 or up to one year in prison or BOTH. This is serious business!

Where to Operate a Legal Short Term Rental?

There are specific areas where short term rentals are legal. For this discussion, let's include all rentals that are legal for daily, weekly and other periods less than 30 days.  These are vacation rentals.  The important point is the zoning - a property should be zoned "resort" in almost every case.

Resort zoned properties can be found in these Oahu neighborhoods:

- Waikiki

- Ko Olina

- Turtle Bay

- Makaha

Some, not all properties in these neighborhoods are legal for vacation rentals.  In Waikiki for example, most resort-zoned condos (legal for short term rentals) are on the Makai (ocean-side) of Kuhio Avenue.  That does not mean every condo Makai of Kuhio is legal for vacation rentals and there are at least two condos that are Mauka (mountain-side) of Kuhio that are legal.  The best way to find out is by inquiring with a knowlegable real estate agent or doing the homework on your own.

One area find particularly interesting is at Mauna Olu Estates in Makaha.  Why?Because there are new construction homes (built in 2021-2022) in a resort zone.  They are the only new construction homes on Oahu that are legal for vacation rentals.  Stanford Carr is the developer.

How Did This Happen?

Resort zoning is allowed due to a 1989 decision by the Honolulu City Council to rezone the land from country to resort.  At that time a Japanese company, Hawaii Aistar who owned the land at that time intended to build a 300-room conference center.  The change in zoning was needed for the company's intended use.  When Aistar sold the land to Stanford Carr in 2016 the resort zoning remained with the land. 

Property Tax Rates for Resort and Residential Zoning

Resort zoned real property tax rates are significantly higher than residential zoning rates.

As of 2022, resort zone tax rates are 1.39% per $1,000 of assessed valuation.  Residential tax rates are .035% per $1,000 of assessed valuation.  Put another way, resort zone property taxes are about four times the rate of residential zoning.

For the Mauna Olu Estates new construction homes, buyers have the option of paying the resort zoning property taxes and operating legal short term rentals OR contacting the Honolulu Real Property Tax office and indicate the intent to use the home as a residence and thus qualify for the residential property tax rates.

Buying a Home at Mauna Olu Estates

About 100 homes of the total 120 homes in Stanford Carr's development have been sold.  That leaves approximately 20 homes for buyers interested in a new residence in a gated community or for a legal short term vacation rental home on Oahu as of May, 2022.  Of course there will be resales in the future, for prospective buyers who aren't ready now.

For people looking for new homes for residential use in a gated community, Mauna Olu Estates remains a great option. 

Mauna Olu Estates

Photo courtesy of the City and County Honolulu shows the "Mauna Olu Subdivision" resort-zoned area in salmon color. Below that, the "Makaha Resort" is also in salmon color. 

The Makaha Resort was formerly the Sheraton Makaha Resort back in the 1980's through the late 1990's. Post-Sheraton, the property operated as the Makaha Resort and Golf Club through 2011 when it was acquired by its present owner. In recent years plans were in place to remodel and reopen the resort, at the moment those plans seem to be on hold.

Aloha, Mike

Mike Bates (Realtor Associate)
RS-54129
Century 21 iProperties Hawaii
1585 Kapiolani Blvd #1533
Honolulu, HI 96814

Oahu MLS

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