Oahu might suffer a 4% drop in tourism because of a new law to toughen restrictions on short-term vacation rentals, University of Hawaii economists predict in a quarterly economic outlook released Friday.

The prediction is part of a sobering outlook that continues the tone of previous recent forecasts by the University of Hawaii Economic Research Organization. While the view of a slowing economy is nothing new, the sudden elimination of thousands of accommodations from Oahu’s room inventory could have a particularly onerous impact, UHERO predicts.

Based on the most recent tourist data from the Hawaii Tourism Authority for the month of July, the predicted drop in visitors to Oahu would cause a drop of more than $30 million per month in direct spending by tourists.

The prediction is the most alarming part of a generally pessimistic economic outlook for next year. Although UHERO said construction remains a bright spot for Hawaii, it reports even that has seen a decline in growth.

Cory Lum/Civil Beat

The outlook for the U.S. economy as a whole is hardly rosy.

The Federal Reserve on Wednesday cut interest rates, making it cheaper to borrow money, an apparent attempt to stoke the U.S. economy. That came as the U.S. Chamber of Commerce reported trade tensions with China are hurting firms throughout the U.S. economy. Meanwhile, late August brought an inversion of the Treasury bond yield curve, an unusual situation when short-term bonds pay more than longer-term ones – often the sign that a recession is coming.

Against that backdrop, a blow to one of Hawaii’s biggest industries is particularly worrisome.

Backlash Against Overtourism

Oahu’s new short-term rental law, which went into effect in August, represented a backlash against a tourism industry that many believe has grown out of control.

With the number of annual visitors to Hawaii heading toward 10 million annually, even tourism officials are concerned that Hawaii’s spirit of aloha — not to mention its roads, hiking trails and beaches — is being spread thin.

To put the numbers in perspective, the tourism authority reports that just less than 1 million tourists visited Hawaii in July compared to a resident population of 1.4 million.

And even as the number of tourists has grown, spending per visitor is down. UHERO notes, for instance, that inflation-adjusted spending by international visitors has declined more than 9% this year. Such numbers have contributed to concern that the negative side effects of tourism are starting to outweigh its benefits.

In this context, thousands of vacation rentals operating contrary to Oahu’s zoning law, many in residential neighborhoods that had been turned into de facto tourist districts, was especially annoying for many residents. Despite vocal testimony by supporters of Airbnb and property owners who said the county’s zoning laws were outdated, the opponents prevailed and pushed the Honolulu City Council to impose a tough law designed to make the zoning laws easier to enforce.

And now?

“Oahu tourism is set to take a significant hit from the recent crackdown on transient vacation rentals (TVRs),” UHERO reports. “Honolulu Ordinance 19-89, which went into effect on August 1, prohibits advertising illegal TVRs. While we are only now getting the first data, the ordinance has already led to a sharp reduction in the number of TVRs advertised on online sites.”

UHERO predicts a drop of more than 4% in “visitor days,” which equals one visitor staying one day.

The approximately 601,000 visitors who came to Oahu in July stayed a little more than seven days on average, representing about 4.3 million visitor days. The tourists spent on average about $179 per day, for a total of about $765 million. Cutting that by 4% would reduce spending by about $30.6 million.

Since the ordinance went into effect, about 3,500 listings on Oahu have been taken down, UHERO reports. That’s more than 8% of the island’s visitor accommodation inventory of 40,000 units.

It could get worse if all the illegal rentals are shut down. UHERO estimates that of about 10,000 rentals advertised on Airbnb, about 6,000 have been operating unlawfully outside resort zones where short-term rentals are allowed. That represents about 15% of Oahu’s total accommodations.

“While some of these potential visitors will find alternative accommodations—in hotels, timeshares, condos, TVRs in resort areas, and on the Neighbor Islands — others will choose to forgo a Hawaii vacation,” UHERO reports. “As a result, some of the rise in visitor numbers that had been fueled by the proliferation of vacation rentals will now be reversed.”

“Tourism’s Tipping Point” is part of Civil Beat’s year-long series, “Hawaii’s Changing Economy.” That work is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.