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Saturday, May 18, 2024
Plan to ban thousands of TVRs on Maui has rocky road ahead
By Grassroot Institute @ 5:16 PM :: 2254 Views :: Maui County, Land Use, Tourism

This “explainer” article was first published by Maui Now on May 17, 2024. The Maui Now post includes an audio version of the text that lasts about five minutes. Hyperlinks have been added to the version below.

Plan to ban thousands of TVRs on Maui has rocky road ahead

from Grassroot Institute of Hawaii, May 17, 2024

A plan to phase out more than 7,000 transient vacation rentals that have been operating legally in Maui apartment districts since 1989 likely has a long and rocky road ahead of it.

The plan, which will have its first hearing on June 25 before the Maui Planning Commission, was put forward publicly by Maui Mayor Richard Bissen and Maui County Council member Keani Fernandez-Rawlins just the day before Gov. Josh Green signed a new state law authorizing the counties to phase out short-term rentals under certain conditions.

According to a draft of the proposed ordinance obtained by the Grassroot Institute of Hawaiʻi, the measure is needed to address Maui’s critical housing shortage, especially following the Aug. 8, 2023, wildfires that destroyed more than 5,400 homes and displaced thousands of people more.

Flanked by Fernandez-Rawlins and members of Lahaina Strong, a group formed to “provide immediate relief to those most impacted by the devastating Maui fires,” Bissen suggested at a May 2 news conference that revoking the right of TVR owners to continue renting their properties on a short-term basis was among “innovative solutions to providing critical, long-term housing to the people of Maui County.”

He said it was “important to note that most if not all of the TVRs impacted by this legislation were previously built and designed as workforce housing in West Maui,” and the goal of the proposal is “to return them to their intended purpose.”

The 7,167 TVRs in question are in 104 multi-unit buildings constructed before April 21, 1989. They are listed in a document titled “Apartment District Properties Allowed to be Used for Short-Term Occupancy,” also known as the Minatoya List, named after county attorney Richard K. Minatoya who in 2001 wrote the opinion that grandfathered them in for short-term use. This list was codified in 2014 as Ordinance No. 4167.

If the proposed new ordinance is enacted, its mandates will take effect July 1, 2025, for the 2,200 TVR units on Maui’s west side, and on Jan. 1, 2026, for the rest of the units, located mainly along Maui’s Kīhei-Wailea coast.

Pushback begins

Bissen’s proposal has been welcomed by many, but not everyone believes that it represents an “innovative” solution to Maui’s longstanding housing crisis.

Joe Kent, executive vice president of the Grassroot Institute of Hawaiʻi, said this week “there’s a much easier way county lawmakers could free up housing on Maui, and that would be to simply get out of the way.”

Referring to the fact that Maui has some of the most burdensome housing-related regulations in the nation, Kent said the focus should be on making it easier to build homes, rather than penalizing people who already have them.

He said that as a practical matter, the proposed ordinance “probably will not have the intended effect of producing any housing for those on low or medium incomes. Instead, it’s likely to shuffle these properties among wealthy individuals.”

In addition, he said, “the economic effects of this move could extend well beyond short-term rentals. For starters, it will take a giant bite out of Maui County’s tax revenues, and generally will dampen the entire island’s economy.”

Kent said that as a legal matter, essentially seizing privately owned TVR units and mandating that they be used for other purposes “is a clear property-rights violation that will bring even more lawsuits against the county and cost taxpayers dearly.”

Even supporters of the proposed ordinance recognize that expensive and long-lasting legal challenges are likely.

At about 18:45 minutes into his news conference, Bissen was asked if he expected any legal pushback from the people potentially affected by the bill.

“The short answer is yes,” he replied. However, he said, he is pursuing the TVR phase-out anyway because “now is our best opportunity — because we need it now.”

He continued: “Of course, the courts will decide ultimately, but I think the way to look at it is that these [TVRs] were originally built for housing, and became short-term rentals. So to try to return them to their original state, especially with our need now, I think is proper, it’s appropriate. We wouldn’t be doing it if we didn’t think so. But it’s not because we thought it’s going to be easy. People are going to take whatever position they take, and they’re welcome to do that.”

The most likely legal vulnerabilities

Supporters of the TVR phase-out already are bracing for the main arguments they expect to face from phase-out opponents. Michael Williams, president of the Maui Tomorrow Foundation, which supports the phase-out, wrote in an email that:

Once the Minatoya phase-out bill is passed, and the notices go out to those [TVR] condo owners, lawsuits will be filed by owners, probably both in state and federal court, arguing it is a taking requiring just compensation, and that the amortization concept is bogus — or if not, that it is still a taking because the amortization period is too short. It doesn’t matter how many lawsuits get filed — they all will raise these two federal constitutional issues, and no others.

I suppose there would be opposing expert opinions on why the amortization period is or is not reasonable. The US District Court in Honolulu might defer to the state courts first, as these are also state constitutional issues, but ultimately, it will end up in a petition for certiorari to the US Supreme Court. Not a quick fix – we won’t know if it worked until several years from now.

So about those phase-out deadlines in the proposed ordinance? If the bill passes, look for an injunction to be filed immediately to prevent it from going into effect until the legal issues are hashed out at the highest levels of America’s legal system.

Legal experts think the amortization issue especially could be the Achilles heel of the proposed ordinance.

In 2021, prestigious Vermont law professor John Echeverria concluded in an opinion to Williams that: “In the present situation on Maui [in 2021], given the evidence suggesting that phasing out short- term vacation rentals will not have any significant adverse effect on the market values of the affected units, a phase-out period of a few years appears more than adequate to avoid any constitutional concerns.”

In 2005, Echeverria was co-counsel with the Hawaiʻi attorney general in a case before the US Supreme court that successfully defended Hawaiʻi Gov. Linda Lingle administration from a “takings” claim filed against her by Chevron U.S.A., so he knows a little something about the US Constitution’s “Takings Clause.”

The 2024 draft ordinance, however, is not proposing a phase-out of “a few years.” Noting that the new state law requires a “reasonable” phase-out or amortization period for the targeted properties, the draft ordinance states: “This Council deems that approximately six months for West Maui and one year for the remainder of the County is a reasonable phase-out period due to the pre-existing long-term housing shortage.”

Other arguments to consider

The housing argument: Opponents of the TVR phase-out say it is deceptive to claim it will help the local housing situation because even with a change to long-term use, few if any of the Minatoya units would be suitable or affordable for local residents.

All of the properties under discussion are in aging buildings on or near the ocean. Many are small studio or one-bedroom units with limited parking, and almost all have high valuations, which, even if significantly reduced, would still not be within the range of the local residents.

In addition, because the buildings are old, they have high homeowner association fees, which owners pay in addition to their mortgage payments. Many also have additional “special assessments” for costly maintenance and repairs. Also, many face very large increases in condo insurance fees.

In reality, according to many real estate professionals, it is unlikely that any significant amount of housing for working Maui families would actually result. Most if not all of the Minatoya units would be out of reach for local families.

In addition, If the legislation passes and future buyers are restricted to long-term occupancy, they would likely be purchased by wealthy individuals who could afford to keep them for private use or rent them out at rates well above the budgets of average working families.

Further, the argument that a structure must always be used according to its original purpose would affect all sorts of structures that no longer do so, such as vacant office and retail buildings that are being converted into residences, and small homes in mixed-use districts that these days house small businesses.

The fact is, the uses of structures can change as the needs and wants of their owners change. The idea that a structure can never be used for anything but its original purpose almost seems unnatural — and certainly compromises the concept of private property.

The tax-revenue argument: Temporary vacation rentals are the largest single revenue source in the Maui County budget. For fiscal 2024, the TVR property class accounted for $212.5 million of all county income, or 39.9%.

The properties on the Minatoya List comprise more than half of the county’s 12,959 legal TVRs, so the revenue loss could be substantial.

To make up for the reduction in revenue, the county could try to raise tax on other property categories, as well as new categories such as so-called empty homes — though tax hikes could be the last straw for many Maui residents already struggling with high taxes, high housing costs and a high cost of living in general.

The Council is already looking at higher tax rates for TVRs. For the coming tax year, it has proposed increasing the rates from $11.75 per $1,000 of valuation to $13 to $18 per $1,000, with the actual number increases linked to the assessed value of the units.

The political argument: Some observers are contending that the proposed ordinance is really just a political ploy to make it appear that elected officials are doing their best to make housing available to Maui residents while knowing full well that the legislation, if approved, will end up in court.

If the courts go their way, they win. But if they don’t, they still win politically because they can say “At least we tried.”

The next steps

But before the proposed ordinance can be taken to court, it first must be considered by the members of Maui County’s three planning commissions — one each for the islands of Maui, Molokaʻi and Lānaʻi — then make it through the County Council and the mayor.

At the moment, it appears the TVR proposal will make it through all these venues without any trouble.

The first of planning commission meetings, by the Maui Planning Commission, is scheduled in the Council’s chambers on June 25.

An agenda will be posted on June 17 that will include the full text of the proposed legislation with instructions on how to submit testimony.

Of possible concern is that the Maui Planning Commission is supposed to have nine members, but currently three of those seats are vacant. In addition, none of the current members represents the Kīhei-Wailea region, where most of Minatoya List units are located.

No meeting dates have been set yet for the Molokaʻi or Lānaʻi commissions.

Assuming the commissions all favor the plan, the Maui County Council is expected to consider it this summer.

If the ordinance is approved by the Council and signed by the mayor, immediate legal challenges are anticipated.

---30---

BH: Maui Vacation Rental Ban's Many Inadvertent Consequences. Ready, Set, Go.

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