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Illegal vacation rentals may have marred the fabric of residential neighborhoods around Oahu, but a new study concludes that they haven’t inflated primary rental housing rates. Read more

Illegal vacation rentals may have marred the fabric of residential neighborhoods around Oahu, but a new study concludes that they haven’t inflated primary rental housing rates.

The study by local housing market researcher Ricky Cassiday found that monthly rents for housing in residential communities with the highest concentrations of vacation homes generally didn’t become more expensive during the industry’s explosion in recent years compared with the whole island or most neighborhoods with relatively few vacation rentals.

Instead, average monthly rental rates for available housing between 2016 and this year declined in areas most popular with vacation rentals, including a 1.5% dip for apartments in the Waikiki-Kapahulu area, where most vacation rental property listings exist.

By comparison, rents for available apartments in the same period rose 2.9% around downtown Honolulu and 1.1% in the McCully- Moiliili area, the study said.

Rental rates for single- family residences in Kailua, the top market for such vacation rentals, decreased 3.5%, which was weaker than eight out of nine other predominantly single-family home communities examined.

More broadly, the average rental rate for homes on Oahu from 2016 to this year rose 2.6% for apartments and slipped 3.3% for single- family homes, according to the report.

Cassiday said he was surprised that rental rates in vacation rental market hotbeds such as Waikiki and Kailua were weaker than the general market.

“All these units who are serving tourists or short-term guys have not made the price of rent go up,” he said. “Economics says it’s supposed to go up.”

The economic theory is that taking long-term rental housing off the market for use as short-term vacation rentals reduces the supply of primary rental housing. Reduced supply in the face of steady demand should result in higher rental rates.

Cassiday suspects that this didn’t happen because the number of vacation rentals represents a relatively small part of Oahu’s housing inventory, and because developers have built a considerable number of new affordable rental housing projects as Hawaii’s vacation home rental industry was exploding in recent years. He also said some property owners operating short-term rentals built those units to take advantage of record tourism and the historical absence of city enforcement against illegal vacation rentals.

For instance, in Kuliouou fronting Kalanianaole Highway, there is a two-bedroom home listed in the vacation rental section of Craigs­list for $250 a day, which increases to $350 and $500 for peak and holiday periods, respectively. This home was built last year, according to property records.

Cassiday’s report noted that vacation rental homes represent 2.5% of Oahu’s housing inventory, or about 7,000 units out of roughly 277,000. This count excludes about 2,500 homes where owners offer to rent out only part of their property to vacationers. Including these units would bring the share of vacation rentals to 3.4% of the housing market.

Another factor for vacation rentals as they relate to primary housing is that about 3,000 of the apartments advertised to visitors are in Waikiki, and many of these units are in condominium-hotels that include the Ala Moana Hotel, Ilikai and Trump International Hotel Waikiki. These properties are zoned for resort use where vacation rentals are legal, and are generally not considered primary housing.

There were some vacation rental hot spots on Oahu where primary housing rental rates were found to have gone up, albeit only slightly, according to Cassiday’s report.

Monthly rental rates in Haleiwa, which was second to Kailua for single-family home vacation rentals, edged up 0.4%. In Hawaii Kai, which was sixth on the list for vacation rentals, average rent feathered up 0.3%.

The gain for the Kapolei area including Ko Olina Resort &Marina, where some vacation rentals are legal, was 1.3%.

The biggest 2016-19 rental rate increase was 3% in Waialua. The biggest decrease was 6.6% for Palolo/Kaimuki/Kahala.

Cassiday produced his report for a developer considering a new rental housing project in Honolulu, and used data from online residential rental listings as well as vacation rental data commissioned by the Hawaii Tourism Authority.

The City and County of Honolulu enacted an ordinance Aug. 1 that imposes fines of up to $10,000 a day for owners and hosting platforms that advertise homes in residential-zoned neighborhoods as being available for rent for less than 30 days. Since then the city has issued a handful of violation notices, many listings have been removed from vacation rental industry platforms and a few property owners are challenging the regulation in court. Also, some vacation rental listings, like the one for the Kuliouou home, note a 30-night minimum is required under the law.