Honolulu council passes short-term rental bill with strict penalties

Short-term rentals on Oahu will be strictly regulated under new legislation passed by the Honolulu City Council. Bill 89 prohibits new permits for whole-home rentals, called “transient vacation units,” but allows roughly 1,700 units on the island to be rented for short terms, as long as they’re in homes where the owner lives (called "bed-and-breakfast homes").

The law also requires short-term rental owners to obtain a permit from the City and County of Honolulu and include the permit number on any advertisement. Listings without permit numbers are prohibited. Operators would also have to provide neighbors within 250 feet of a property a number that can be called 24 hours a day to receive complaints.

The ordinance also sets requirements for short-term rental platforms such as Airbnb and VRBO. Those platforms must take down listings that don’t include permit numbers, and report data on hosts monthly, including names, addresses, tax identification numbers, length of stays, and amount paid. 

The new ordinance outlines strong penalties for running illegal short-term rentals. Fines start at $1,000 for an initial violation and escalate to $5,000 a day for ongoing noncompliance, and up to $10,000 per day. The law also allows the city to confiscate rental earnings.

Honolulu Mayor Kirk Caldwell has indicated he’ll sign the bill into law. Part of the law would go into effect in August, with the rest starting October 2020.

The council also passed Bill 85, an even stricter law that would ban all short-term vacation rentals in residential areas, including bed-and-breakfast home units. However, Caldwell has indicated he prefers Bill 89, so he may not sign Bill 85.

It’s estimated there are approximately 800 legal Oahu short-term rentals, while around 10,000 are operating illegally without a required permit. Honolulu hasn’t issued any new short-term rental permits since 1989.

In Hawaii, short-term rental income is subject to transient accommodations tax (TAT) as well as general excise tax (GET). Short-term rental operators can pass these taxes on to guests, but hosts must register with the state, collect and pay the taxes, and file regular tax returns. MyLodgeTax automates lodging taxes to simplify compliance for Hawaii short-term rental operators. For more on lodging taxes in Hawaii, see our state Vacation Rental Tax Guide.

This spring, state lawmakers in Hawaii passed legislation that would require short-term rental platforms such as Airbnb, HomeAway, and VRBO to collect lodging taxes on bookings on behalf of their hosts. Under the bill, vacation rental operators would be required to include tax license numbers in all advertisements. The bill has yet to be signed into law by Governor David Ige.

While short-term rental taxes come under state jurisdiction, short-term rental regulations and permits are governed by counties. In addition to Oahu, other counties have been active in passing new regulations.

On the Big Island, new rules for short-term rentals have gone into effect in Hawaii County. Under the ordinance, new short-term vacation rentals are barred in single-family residential and agricultural zones, and only allowed in hotel, resort, commercial, and multifamily commercial zones. Preexisting short-term rentals hoping to be grandfathered in under the new rules must apply by September 28. As part of the permit process under the new rules, applicants must also submit current state GET and TAT licenses.

On Maui, voters last year approved a ballot initiative to dramatically increase penalties for short-term rentals operating without a permit, with fines of up to $20,000, plus $10,000 per day that the unlicensed rental continues to operate.    

Hawaii is not alone in cracking down on short-term rentals. Cities such as Boston, New Orleans, and New York City have enacted strict rules and are increasingly enforcing them. In Colorado, for example, a Denver couple faces felony charges for allegedly operating an illegal short-term rental. They’re accused of not using their rental property as a full-time residence, as required by city law.