Tourism & Hospitality

Hawaii's Lodging Supply Squeeze: Up to 10,000 Vacation Rentals May Be Removed, Impacting Availability and Pricing

·4 min read·👀 Watch

Executive Summary

Hawaii's regulatory environment suggests up to 10,000 vacation rentals could be removed from the market, potentially leading to tighter lodging availability and higher prices. Tourism operators and real estate investors must monitor policy implementation and market shifts.

  • Tourism Operators: Expect reduced inventory and potentially increased demand for traditional hotels.
  • Real Estate Owners: Properties currently used as short-term rentals may face new operating constraints or require conversion.
  • Investors: Shifting lodging supply could present new investment opportunities in traditional hospitality.
  • Action: Watch county-level enforcement and legislative updates; reassess booking strategies.
👀

Watch & Prepare

High Priority⏰ Ongoing assessment as details emerge

The actual implementation and timeline of these rental disappearances are unclear, requiring stakeholders to assess their current operations and future booking strategies to adapt to potential capacity reductions.

Monitor county planning department announcements and legislative updates on STR regulations and enforcement. Assess booking strategies for potential inventory reductions. For real estate owners, consult legal counsel to understand specific compliance requirements or conversion feasibility. Investors should track lodging occupancy and ADR shifts and evaluate opportunities in traditional hospitality or long-term rentals.

Who's Affected
Real Estate OwnersTourism OperatorsInvestors
Ripple Effects
  • →Reduced STR inventory → Increased demand and pricing for hotels and remaining STRs
  • →Higher accommodation costs → Potential decrease in visitor spending on other local goods/services
  • →Lower overall visitor capacity → Potential reduction in tourism volume and hospitality employment
  • →Conversion of STRs to long-term rentals → Minor easing of long-term housing affordability
A breathtaking aerial view of luxurious coastal homes in Kihei, Hawaii next to the ocean.
Photo by Griffin Wooldridge

Hawaii's Lodging Supply Squeeze: Vacancy Potential Rises as Regulations Tighten

The potential removal of up to 10,000 vacation rental units from Hawaii's market looms, a consequence of evolving state and county regulations aimed at addressing housing shortages and managing tourism impacts. While the exact number and timeline are subject to legal and implementation complexities, the prospect necessitates proactive assessment from businesses reliant on lodging inventory.

The Change

Hawaii's approach to regulating short-term rentals (STRs) has escalated, with new legal frameworks and enforcement mechanisms potentially accelerating the removal of a significant portion of the existing STR stock. The exact mechanisms and timelines are still being clarified at the county level, but the stated intention is to curb the proliferation of STRs operating outside of specific zoning districts, particularly those not classified as part of a "resort zone" or operating without valid non-conforming use certificates. Enforcement is expected to become more stringent across all islands, pushing operators to comply with stricter zoning or cease operations.

Who's Affected

Tourism Operators Businesses in the tourism sector, including hotels, tour operators, and even existing vacation rental management companies, are likely to experience the most immediate effects. A reduction in available STR units could lead to increased demand and potentially higher pricing for traditional hotel rooms and other forms of accommodation. This shift may also impact the overall capacity for visitor arrivals if lodging scarcity becomes a significant bottleneck.

Real Estate Owners Property owners with units currently operating as short-term rentals face heightened uncertainty. Depending on the island and specific county ordinances, they may need to secure new permits, operate only within designated resort areas, or convert their properties to long-term rentals. This could significantly impact the revenue streams for owners who have relied on the higher margins of STRs. Developers and landlords should also consider the implications for future multi-unit residential projects and the long-term rental market.

Investors For investors, the potential reduction in STR inventory represents a significant market shift. Properties that can legally continue to operate as STRs in resort zones may see increased value and rental rates. Conversely, investors might find opportunities in traditional hotel acquisitions or development, or in the burgeoning long-term rental market as former STRs convert. The regulatory landscape adds a layer of risk that must be factored into investment decisions.

Second-Order Effects

The potential removal of up to 10,000 vacation rentals from the market is not an isolated event. This reduction in lodging supply could exert upward pressure on prices for remaining STRs and traditional hotels. Increased accommodation costs for tourists may, in turn, lead to a decrease in visitor spending on other goods and services, impacting local retail and dining establishments. Furthermore, if fewer visitors are able to secure lodging, overall tourism volume could decrease, potentially affecting employment in the hospitality sector and related industries. If properties are converted to long-term rentals, this could slightly ease housing affordability pressures, but the scale of such conversions remains uncertain.

What to Do

Given the ongoing nature of regulatory clarification and enforcement, the recommended action level is 'WATCH'. Stakeholders should:

For Tourism Operators:

  • Monitor announcements from county planning departments regarding STR ordinance enforcement dates and specific compliance requirements.
  • Assess current booking calendars and adjust availability/pricing strategies based on potential supply reductions.
  • Explore partnerships with traditional hotels or other lodging providers if STR inventory becomes severely constrained.

For Real Estate Owners with STRs:

  • Review the specific STR regulations for the island and county in which your property is located. Understand the zoning requirements and permit application processes.
  • Consult with legal counsel or a specialized STR consultant to determine compliance options or the feasibility of converting to long-term rentals.
  • Prepare for potential income disruption and budget for any necessary property modifications or permit fees.

For Investors:

  • Track official pronouncements from county governments and Hawaii Tourism Authority regarding STR compliance and enforcement outcomes.
  • Analyze shifts in lodging occupancy rates and average daily rates (ADRs) for both STRs and hotels.
  • Evaluate potential investment opportunities in traditional hospitality assets or in the long-term rental market as supply dynamics change.

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