Its pretty sad that you want to restrict/take peoples rights to their property, take from home owners and give them to someone else. Clearly you do not understand what the “make up” of these vacation rentals entail. What next will you come up with? You can own a car here on Maui, but not drive it, or you can only drive it if you live here on Maui full time, or you will be forced to give you’re car to someone else? You want to FORCE people to give their properties away, that is as unamerican as it comes. It also screams that you support the hotels and time shares, which by the way are taking over Maui with your blessings. How many hotels/time shares have been built here just in the past 6 years? MANY No restrictions there, and they’re on the water front, greedy hotels that want to squash out the little guy.
I live here on Maui for the past 10 years, and own a small condo, which is a vacation rental, for the past 17 years. You have no idea what those buildings are like, or the cost to own one, they were built 50 years ago specifically for vacation rentals. They have NO fire sprinkler systems, thin floors and walls, you can hear someone walk across the floor or move a chair upstairs, squeaky bed, you can hear their phone conversation, or someone’s sneeze two doors down or across the courtyard, each condo comes with one parking spot per condo, no street parking, one dumpster (that’s all there is room for) this is not conducive to long term rentals, they were not built for long term living, they’re small spaces crowded in, and resemble the years ago old term “living like rats” that’s why they’re short term rentals, they’re hotel rooms, people crowded together long term do not fare well in tiny places.. Parking is always a nightmare, parking lots are tiny, parking stalls are tiny, the parking lots were crammed in and built 50 years ago are for small cars, there is no room for expansion. Pets are not allowed, there is only ONE parking spot, NO storage, no visitor parking, no handicapped parking, and condo’s come with exorbitant payments and condo dues. They are not ADA compliant, they’re too small, no handicapped parking, wheel chairs will not go down cement stairs, nor grassy embankments, nor fit in front doors, or interior doors/bathrooms that are tiny, these buildings were built in the 70’s, electrical wiring does not support AC. Run the dishwasher, microwave, toaster and oven at the same time, or you could blow a breaker. Is that how buildings today are built? The answer is no.
These condo’s were not acquired free, they come with payments. These buildings are NOT like buildings built as apartments, they are small 1 bedroom condos, some with small lofts, or studio apartments, all come with major cost to upkeep. Just the condo dues alone are $1,500 - $2,000 per month, plus taxes, plus insurance, plus flood insurance, and a mortgage payment , this DOES NOT support affordable housing. Forcing people to do long term rentals on these condo’s doesn’t solve any housing problem, payments, dues etc. are tooo high, even selling them for half price does not get rid of condo dues nor payments, nor taxes etc. Are you going to attempt to change the by-laws that govern the use of these buildings? Those by-laws that were created when these condo’s were built? By-laws, can not be changed without a vote of the majority of the condo owners. These bylaws govern the condo’s use, and inflict strict condo rules on owners which are passed on to the occupants whether a home owner or tenant, examples include; no surfboards, no bicycles, no storage bins on lanais, no plants, clothes, towels nothing hanging on the rails of the lanais, no exterior decorations, flags, seasonal decorative lights etc.. some By-laws say no owner occupants nor long term tenants. Condo’s come with those rules and more, they also include a front office, for STR rentals, again they were built for vacation rentals, they’re called condotels, they come with managers, housekeepers, gardeners, office staff, handy men, are you willing to put those people out of jobs as well?
How are tenants going to be able to afford these building’s that come with multiple assessments? Sea Walls that fail, new roofs, new paint, new doors, new windows, siding, doors, pools, , spalling lanai’s, spalling building framework, repave old and crumbling parking lots, failing cast iron pipes in the grounds, and that run thru interior walls, sewer pump stations, that require constant maintenance and huge fines should they fail, none of these items are FREE to fix, they all come with Millions of Dollars of assessments passed on to the condo owners, which add an additional $500- $1,000+ a month, in payments.
People don’t build hotels whose rooms are used for long term rentals, these condo’s mimic hotel rooms they were not built for long term use, they’re built for short term use, bring your suitcase, nothing else. Purchase of food items, cans foods, chips, bread etc. get stored in the fridge because there is no room in the small kitchens whose shelves were not designed for storage other than space for dishes, pots and pans and silverware. These condo’s are different than apartments, they’re like hotel rooms, yet you want families to rent them long term?
Ten years ago I could not find a job here on Maui what so ever. During covid there was no one here to rent short or long term to, the banks and county did not stop collecting taxes or payments from homeowners, and all those buildings sat vacant. What would happen if this happened again? Propose another bill to turn the STR apartments back into vacation rentals so you can collect higher taxes to support the county? Hawaii as well as other states let tenants skip making payments on rents during covid, so landlords went without rents, that isn’t incentive for landlords, as the banks did not forgive payments, condo associations did not forgive condo dues, and the State of Hawaii, Maui County, still collected property taxes, no forgiveness to homeowners, and no one could evict a tenant not paying rent.. . This short sighted attempt to take peoples properties is terrible. You will put banks back in the foreclosure business, which is a way to help collapse an economy. Banks do not sell property cheaply especially when they add on delinquent association condo dues, attorneys fees, and all of the past due interest and payments to the sales price.
A $5,000 mortgage payment, is not affordable tenant housing. This proposal is not a solution to affordable housing. Affordable housing does not involve taking peoples properties, it involves long term planning, and building the right type of housing. The State was flooded with CARES money, where did that go? Why isn’t it being put to good use? If you want affordable housing, build apartments that are equipped for families or multiple tenants, which include parking, storage space, soundproof walls, include space for the handicapped, allows pets, and has affordable rents. How would you like to vacation at your favorite spot in the country and find your only option is a hotel, and oh the rates are exorbitant because there are less options on where to stay, would you go? Probably not, and that may collapse that states economy by people staying away, and oh the flight to get there is crazy money because of the cost of fuel!
With this proposed bill you’re not considering future impact here on Maui, you’re pandering to greedy hotels that are taking over, and you’re allowing it. Why don’t you make the hotels or time shares build affordable housing, they have deep pockets, or suggest they give up some of their rooms for long term rentals? They have plenty of rooms, and make sure the tenants don’t get charged for the hotels daily parking fees, maybe they could share some of their space with the residents here on Maui, I’m sure they’d love to “give back”.
I am the “mom & pop” business you are trying to put out of business, the one you are discriminating against, not to mention that all of us homeowners/condo owners support other businesses here on Maui. Inflation is coming, you are not preparing for things to come, you’re only living for todays “I wants” , not preparing for the future of the disaster that is looming, is a disaster in the making. .
Take a good look at the below for some concerning facts. Before even getting into specifics, the first point explicitly states what should be a major red flag for residents. While the council may think this is beneficial for residents, the unfortunate issue is that if this does pass the amount of taxable income from TVR's is a significant portion (almost 9%! ) of the county budget. That doesn't include the new 3% county TAT. Do we truly think this loss will help the county to achieve its goals of funding affordable housing?
1. This Bill Would Defund Affordable Housing for Maui County:
Maui County’s recent Comprehensive Affordable Housing Plan, calls for the County to “increase funding into the Affordable Housing Fund to $58 million annually.”
This increased contribution to the Affordable Housing Fund will be used to effectuate necessary infrastructure updates and to allow the County to play a meaningful role in the development of truly affordable housing.
If this legislation is passed, we estimate thatthe County stands to lose as much as $74 million in property tax revenue annually (which is roughly 8.77% of the total operating budget!).
This loss in revenue would make it difficult for the County to maintain the services it currently provides, and it would make it impossible to increase funding to the Affordable Housing Fund.
Without the revenue, there is no investment in Affordable Housing, and there will be property tax increases for everyone else.
2. This Bill Will Harm the County, the State, and Many Others:
The STR property tax class in Maui County is expected to produce $137,908,224 in property tax revenue for the County in FY 2022 (more than 5 times as much as the Hotel class or the Owner-Occupied class).
With there being roughly 13,466 properties in the STR class overall, the average amount of tax paid by each property is $10,241 per property.
This legislation is designed to remove just over 7,300 properties from the STR property tax class, which equates to roughly $74 million in lost revenue! That is equal to 8.77% of Maui County’s operating budget for this year.
The only way to make up for this huge loss in revenue is to increase property taxes for everyone else..
This bill will also remove 7,000+ units from paying TAT, which we estimate to be a loss of roughly $69 Million in TAT revenue for the State of Hawaii. Now that the County will also be charging a 3% surcharge, it will result in direct loss of revenue for the County as well
Conveyance Tax losses could be substantial, but are difficult to estimate at this time. These 7,000 properties currently equate to billions of dollars worth of real estate, but some estimate that they could lose as much as half their value the moment this legislation is passed. That will be devastating for conveyance tax revenue, and devastating to individuals who own these properties. There is the distinct possibility that this legislation could also cause a bit of a financial crisis, since many current owners will suddenly own more on their mortgages than the units are worth. That is essentially what happened on a national level in 2008, and we all remember how bad that was.
3. This Bill is Yet Another Gift to the Hotel Industry!:
During the pandemic, the Hotel properties were the only properties that were assessed at a lower value due to lost revenue, and they were openly given priority in reopening when restrictions started loosening.
Now, through this bill, the County is eliminating the only real source of competition on the island that the hotels have.
These impacted properties are not “illegal short term rentals.” They are mostly professionally managed units in buildings that have historically been used for the purpose of transient accommodations. The main difference between these units and the hotels is that they are usually family owned, as opposed to the hotels that are owned by multinational corporations.
The only group that will benefit from this bill is the hotel industry, as the reduction in revenue this bill will cause will be devastating for everyone else in the County.
It will be most devastating to anyone that hoped the Affordable Housing Plan would actually produce affordable housing.
4. The Impacted Properties are Not Suitable for Our Residents:
The proposed legislation aims to “create long-term affordable housing opportunities for residents,” but the reality is that these properties are not suitable for that.
Parking is generally 1-2 spaces per unity, and the spaces are primarily for compact vehicles.
Units were designed as transient accommodations to begin with, and have minimal storage for families or long term occupancy.
Units are all 30+ years old, and have high maintenance fees and high special assessments to cope with aging infrastructure. Some recent special assessments have been as high as $100,000 per unit.
Impacted properties are primarily located in the sea level rise exposure area, and will face financial and practical challenges with climate adaptation. Turning these into “affordable housing opportunities” will almost certainly ensure deferment of critical infrastructure updates for many of these properties, and an increased risk of catastrophic circumstances (like the Miami Condo Collapse).
5. Is this Legislation Even Legal?
The counties are granted zoning authority by the State of Hawaii through HRS § 46-4, which does allow “for the amortization or phasing out of nonconforming uses or signs over a reasonable period of time in commercial, industrial, resort, and apartment zoned areas only.”
However, TVR use is explicitly permitted pursuant to the Maui County Code, and has been conducted in the Apartment Zoning Districts for a very long time by many properties. This is hardly a “nonconforming” use. Therefore, it is unlawful to abruptly eliminate the use in this manner.
These properties clearly have a vested property right to conduct transient rentals, and the proposed legislation will result in a lot of litigation against the county. Some might argue this legislation is a government taking or violation of due process, and there will likely be claims for zoning estoppel, and it will ultimately cost the County (i.e. tax payers) a lot of money to sort out.
Legal memo re Phasing Out the Minatoya condo-TVRs
Submitted as written testimony for the PSLU Committee meeting of 6/2/22
From Michael Williams, 808-264-4884; MichaelWilliams@PueoFarm.com
Background
In 1991, the Council banned TVR use in the Apartment districts. Many owners objected, and soon Corporation Counsel was asked for a legal opinion on whether the non-conforming use could continue in buildings constructed before the ban. Deputy Corp. Counsel Richard Minatoya issued an opinion letter that concluded such use could continue.
These condos, all in buildings constructed before 1989, were allowed to continue renting short term to tourists. In 2016, the Council codified that opinion so that TVR use was explicitly allowed in those older buildings. There are about 7,000 such condos.
Now several Council members want to phase out that nonconforming use so that these condos can no longer be operated as TVRs.
There are two important policy reasons for this proposal:
1. Reduce the number of tourists back toward the Maui Island Plan prescribed balance of 1 visitor for 3 residents. In 2019 and again this year, that ratio has reached 1 visitor to 2 residents. Maui Island has a resident population of about 155,000. Therefore, we should not have more than about 52,000 visitors on any given day. In July and August this summer we had a daily census of about 75,000 visitors---23,000 too many.
2. Increase the amount of housing units available for residents, either as live-in owners, or as long term renters. It is not knowable now how many of these 7,000 condos will become residences for locals, but surely many of them will.
CM Johnson, in July, made this zoning change one of his top five priorities in implementing the Comprehensive Affordable Housing Plan.
CM Paltin agreed to take the issue up in her Planning and Sustainable Land Use Committee. She submitted a draft bill to the Council at its August 24, 2021 meeting, along with a resolution to send the draft bill to the three Planning Commissions, as required by the County Charter for any zoning change. The Council agreed unanimously to the requested referral. CM Paltin has put it on her committee’s agenda for June 1, 2022.
In the meantime, CM Rawlins-Fernandez proposed an alternative bill that would eliminate TVR use only in the Minatoya condos outside the 3.2’ sea level rise zone. That bill is also on tomorrow’s agenda.
LEGAL ISSUES
The affected owners are certain to file legal challenges to this zoning change if the Council approves it. There are likely to be challenges to its constitutionality under the Fifth Amendment Takings Clause and also under a Hawaii statute that deals specifically with the elimination of nonconforming uses in Apartment districts.
1. Federal law:
Under the controlling federal case law, this zoning change would not be a “taking” and would not require compensation to the owners even if they could show a reduction in value. Without going into detail, the basic us Supreme Court rulings on these zoning changes is that if the owner is left with other reasonable uses of the property, no compensation is due even if there is a diminution in value. Here, the owners can still use the property as a long-term rental, as their own principal place of residence, or as a second home. There are a couple very recent lower court decisions that have examined new zoning changes eliminating or greatly curtailing use of residential property for short term rentals and found they dis not violate the federal constitution and did not require any compensation to the owners: Hignell v City of New Orleans, 476 F. Supp 369 (US Dist. Ct E.D. Louisiana 2020); Nekrilov v. City of Jersey City,. ( __ F. Supp. __, 2021 WL 1138360--only the Westlaw citation is currently available—US Dist, Court, D. New Jersey.)
These two decisions thoroughly analyze the case law in reaching their conclusions. (I have attached both to the cover email.)
It is important that the bill contain a statement of the “public purpose” that justifies the change in zoning. Here there are several: preserve the island’s natural resources, reduce strain on its infrastructure, and help to alleviate a critical housing shortage.
2. State law:
When I discussed this proposed phase out with Planning Director Michele McLean last year, she called my attention to a state statute that provides for the elimination of non-conforming uses in Apartment districts. HRS 46-4 (a) provides in relevant part:
“. . . a zoning ordinance may provide for elimination of nonconforming uses as the uses are discontinued, or for the amortization or phasing out of nonconforming uses or signs over a reasonable period of time in commercial, industrial, resort, and apartment zoned areas only.”
The concept of amortization of the financial impact on property owners of a zoning change is a well-established principle in US law. There is a large body of case law from other states, but so far as I have found, no Hawaii case has ever interpreted HRS 46-4 (a). Director McLean suggested a reasonable period of time in this case would be three years.
CM Paltin’s proposed bill would eliminate the TVR use as soon as the condo is sold—i.e., no new owner could acquire the right to TVR use. This rule does not appear to allow any “time period” if the current owner must or wants to sell soon. It also would allow some gamesmanship in the identity of the “owner”. Suppose the owner is a corporation, and a new investor acquires an interest in the corporation, but the recorded ‘owner’ on Maui’s real property rolls stays the same?
CM Rawlins-Fernandez’s alternative would phase out only those TVR’s in the apartment district that are outside the seal level rise zone, allowing those 3000 or so TVR condos threatened by seal level rise to continue operating. But it has the same legal flaw as the Paltin bill—the loss of TVR use is immediate when the bill takes effect, and allows no reasonable amortization time period.
I believe the bills should be redrafted so that TVR use is ended 2-3 years after the bill’s passage. Use of a corporation as owner would not matter, a sale would not matter. Moreover, the time between the passage of the bill and its effective date would allow the courts to rule on the legality of the change before any TVR use must cease. If the court thought the time period should be longer than 2 or 3 years, the bill could be amended accordingly before any tourist was turned away.
3. Corporation Counsel’s analysis.
When this proposed phase out of the Minatoya condos came up in the July 19, 2021 meeting of CM Johnson’s committee, Corp Counsel Daniel Kunkel promised CM Molina to produce an opinion in writing about phasing out TVR use by a future date, like 2025? So, if I could just get comments from Corp. Counsel on that.
MR. KUNKEL: I would need to get back to you on that, and I can do that.
VICE-CHAIR MOLINA: Okay. If we could get that in writing.
MR. KUNKEL: Sure.
Committee Chair Johnson followed up with a letter on July 30 to Corp Counsel that made this request:
“Please indicate whether the Council can legally establish an end date
for the phasing out of the short-term rental homes exemption in the
Apartment District.”
Corp Counsel responded with a formal letter on August 27 but declined to answer CM Johnson’s and CM Molina’s question. Mimi Desjardins said:
“This subject matter was referred to the Planning and Sustainable Land Use Committee during the August 24, 2021, Council meeting (County Communication No. 2l-4221). Because the matter will be taken up by PLSU, the preference is to address this substantial matter in that forum.”
Of course, the affected condo owners will be opposed.
The hotels will favor the bill because it will reduce their competition for tourists. There are several thousand TVR condos in the hotel zone, and they will support the bill for the same reason.
The Realtors Association of Maui has stated its opposition too, maybe because many realtors act as rental agents for the TVRs.
The many small businesses who sell stuff to tourists will probably oppose the bill as well.
On the other hand, residents who would like to own or rent their own home here will be in favor of the bill, as will those of us who think Maui has an over-tourism problem.
Although these condos would not become “affordable” homes, to the extent they increase the supply of homes for owner occupants or long-term renters, that increase in supply should work to open the lower end of the housing market to lower income residents.
2. Are TVRs worth the costs?
It is not at all an established fact that condos with TVR use are more highly priced than similarly situated condos barred from such use. Take the very interesting situation at the Palms at Wailea I and II. These are essentially identical, side by side, high end condo complexes. PW I was built before 1989 and contains Minatoya condos. PW II was finished in 1991 and does not allow TVR use. Yet an analysis of real estate sales records shows that sales prices are consistently higher for PW II condos than for PW II. An owner tells me that second home owners prefer the peace and quiet at PW II, while in PW I there is a constant churn of tenants every week, strangers around all the time, and any more late night parties.
Conclusion
The County should support phasing out TVRs in the Apartment district but grant them 3 years before the phase takes effect, to allow owners to adjust their plans for using their condo in some fashion other than as a TVR.
Its pretty sad that you want to restrict/take peoples rights to their property, take from home owners and give them to someone else. Clearly you do not understand what the “make up” of these vacation rentals entail. What next will you come up with? You can own a car here on Maui, but not drive it, or you can only drive it if you live here on Maui full time, or you will be forced to give you’re car to someone else? You want to FORCE people to give their properties away, that is as unamerican as it comes. It also screams that you support the hotels and time shares, which by the way are taking over Maui with your blessings. How many hotels/time shares have been built here just in the past 6 years? MANY No restrictions there, and they’re on the water front, greedy hotels that want to squash out the little guy.
I live here on Maui for the past 10 years, and own a small condo, which is a vacation rental, for the past 17 years. You have no idea what those buildings are like, or the cost to own one, they were built 50 years ago specifically for vacation rentals. They have NO fire sprinkler systems, thin floors and walls, you can hear someone walk across the floor or move a chair upstairs, squeaky bed, you can hear their phone conversation, or someone’s sneeze two doors down or across the courtyard, each condo comes with one parking spot per condo, no street parking, one dumpster (that’s all there is room for) this is not conducive to long term rentals, they were not built for long term living, they’re small spaces crowded in, and resemble the years ago old term “living like rats” that’s why they’re short term rentals, they’re hotel rooms, people crowded together long term do not fare well in tiny places.. Parking is always a nightmare, parking lots are tiny, parking stalls are tiny, the parking lots were crammed in and built 50 years ago are for small cars, there is no room for expansion. Pets are not allowed, there is only ONE parking spot, NO storage, no visitor parking, no handicapped parking, and condo’s come with exorbitant payments and condo dues. They are not ADA compliant, they’re too small, no handicapped parking, wheel chairs will not go down cement stairs, nor grassy embankments, nor fit in front doors, or interior doors/bathrooms that are tiny, these buildings were built in the 70’s, electrical wiring does not support AC. Run the dishwasher, microwave, toaster and oven at the same time, or you could blow a breaker. Is that how buildings today are built? The answer is no.
These condo’s were not acquired free, they come with payments. These buildings are NOT like buildings built as apartments, they are small 1 bedroom condos, some with small lofts, or studio apartments, all come with major cost to upkeep. Just the condo dues alone are $1,500 - $2,000 per month, plus taxes, plus insurance, plus flood insurance, and a mortgage payment , this DOES NOT support affordable housing. Forcing people to do long term rentals on these condo’s doesn’t solve any housing problem, payments, dues etc. are tooo high, even selling them for half price does not get rid of condo dues nor payments, nor taxes etc. Are you going to attempt to change the by-laws that govern the use of these buildings? Those by-laws that were created when these condo’s were built? By-laws, can not be changed without a vote of the majority of the condo owners. These bylaws govern the condo’s use, and inflict strict condo rules on owners which are passed on to the occupants whether a home owner or tenant, examples include; no surfboards, no bicycles, no storage bins on lanais, no plants, clothes, towels nothing hanging on the rails of the lanais, no exterior decorations, flags, seasonal decorative lights etc.. some By-laws say no owner occupants nor long term tenants. Condo’s come with those rules and more, they also include a front office, for STR rentals, again they were built for vacation rentals, they’re called condotels, they come with managers, housekeepers, gardeners, office staff, handy men, are you willing to put those people out of jobs as well?
How are tenants going to be able to afford these building’s that come with multiple assessments? Sea Walls that fail, new roofs, new paint, new doors, new windows, siding, doors, pools, , spalling lanai’s, spalling building framework, repave old and crumbling parking lots, failing cast iron pipes in the grounds, and that run thru interior walls, sewer pump stations, that require constant maintenance and huge fines should they fail, none of these items are FREE to fix, they all come with Millions of Dollars of assessments passed on to the condo owners, which add an additional $500- $1,000+ a month, in payments.
People don’t build hotels whose rooms are used for long term rentals, these condo’s mimic hotel rooms they were not built for long term use, they’re built for short term use, bring your suitcase, nothing else. Purchase of food items, cans foods, chips, bread etc. get stored in the fridge because there is no room in the small kitchens whose shelves were not designed for storage other than space for dishes, pots and pans and silverware. These condo’s are different than apartments, they’re like hotel rooms, yet you want families to rent them long term?
Ten years ago I could not find a job here on Maui what so ever. During covid there was no one here to rent short or long term to, the banks and county did not stop collecting taxes or payments from homeowners, and all those buildings sat vacant. What would happen if this happened again? Propose another bill to turn the STR apartments back into vacation rentals so you can collect higher taxes to support the county? Hawaii as well as other states let tenants skip making payments on rents during covid, so landlords went without rents, that isn’t incentive for landlords, as the banks did not forgive payments, condo associations did not forgive condo dues, and the State of Hawaii, Maui County, still collected property taxes, no forgiveness to homeowners, and no one could evict a tenant not paying rent.. . This short sighted attempt to take peoples properties is terrible. You will put banks back in the foreclosure business, which is a way to help collapse an economy. Banks do not sell property cheaply especially when they add on delinquent association condo dues, attorneys fees, and all of the past due interest and payments to the sales price.
A $5,000 mortgage payment, is not affordable tenant housing. This proposal is not a solution to affordable housing. Affordable housing does not involve taking peoples properties, it involves long term planning, and building the right type of housing. The State was flooded with CARES money, where did that go? Why isn’t it being put to good use? If you want affordable housing, build apartments that are equipped for families or multiple tenants, which include parking, storage space, soundproof walls, include space for the handicapped, allows pets, and has affordable rents. How would you like to vacation at your favorite spot in the country and find your only option is a hotel, and oh the rates are exorbitant because there are less options on where to stay, would you go? Probably not, and that may collapse that states economy by people staying away, and oh the flight to get there is crazy money because of the cost of fuel!
With this proposed bill you’re not considering future impact here on Maui, you’re pandering to greedy hotels that are taking over, and you’re allowing it. Why don’t you make the hotels or time shares build affordable housing, they have deep pockets, or suggest they give up some of their rooms for long term rentals? They have plenty of rooms, and make sure the tenants don’t get charged for the hotels daily parking fees, maybe they could share some of their space with the residents here on Maui, I’m sure they’d love to “give back”.
I am the “mom & pop” business you are trying to put out of business, the one you are discriminating against, not to mention that all of us homeowners/condo owners support other businesses here on Maui. Inflation is coming, you are not preparing for things to come, you’re only living for todays “I wants” , not preparing for the future of the disaster that is looming, is a disaster in the making. .
Take a good look at the below for some concerning facts. Before even getting into specifics, the first point explicitly states what should be a major red flag for residents. While the council may think this is beneficial for residents, the unfortunate issue is that if this does pass the amount of taxable income from TVR's is a significant portion (almost 9%! ) of the county budget. That doesn't include the new 3% county TAT. Do we truly think this loss will help the county to achieve its goals of funding affordable housing?
1. This Bill Would Defund Affordable Housing for Maui County:
Maui County’s recent Comprehensive Affordable Housing Plan, calls for the County to “increase funding into the Affordable Housing Fund to $58 million annually.”
This increased contribution to the Affordable Housing Fund will be used to effectuate necessary infrastructure updates and to allow the County to play a meaningful role in the development of truly affordable housing.
If this legislation is passed, we estimate thatthe County stands to lose as much as $74 million in property tax revenue annually (which is roughly 8.77% of the total operating budget!).
This loss in revenue would make it difficult for the County to maintain the services it currently provides, and it would make it impossible to increase funding to the Affordable Housing Fund.
Without the revenue, there is no investment in Affordable Housing, and there will be property tax increases for everyone else.
2. This Bill Will Harm the County, the State, and Many Others:
The STR property tax class in Maui County is expected to produce $137,908,224 in property tax revenue for the County in FY 2022 (more than 5 times as much as the Hotel class or the Owner-Occupied class).
With there being roughly 13,466 properties in the STR class overall, the average amount of tax paid by each property is $10,241 per property.
This legislation is designed to remove just over 7,300 properties from the STR property tax class, which equates to roughly $74 million in lost revenue! That is equal to 8.77% of Maui County’s operating budget for this year.
The only way to make up for this huge loss in revenue is to increase property taxes for everyone else..
This bill will also remove 7,000+ units from paying TAT, which we estimate to be a loss of roughly $69 Million in TAT revenue for the State of Hawaii. Now that the County will also be charging a 3% surcharge, it will result in direct loss of revenue for the County as well
Conveyance Tax losses could be substantial, but are difficult to estimate at this time. These 7,000 properties currently equate to billions of dollars worth of real estate, but some estimate that they could lose as much as half their value the moment this legislation is passed. That will be devastating for conveyance tax revenue, and devastating to individuals who own these properties. There is the distinct possibility that this legislation could also cause a bit of a financial crisis, since many current owners will suddenly own more on their mortgages than the units are worth. That is essentially what happened on a national level in 2008, and we all remember how bad that was.
3. This Bill is Yet Another Gift to the Hotel Industry!:
During the pandemic, the Hotel properties were the only properties that were assessed at a lower value due to lost revenue, and they were openly given priority in reopening when restrictions started loosening.
Now, through this bill, the County is eliminating the only real source of competition on the island that the hotels have.
These impacted properties are not “illegal short term rentals.” They are mostly professionally managed units in buildings that have historically been used for the purpose of transient accommodations. The main difference between these units and the hotels is that they are usually family owned, as opposed to the hotels that are owned by multinational corporations.
The only group that will benefit from this bill is the hotel industry, as the reduction in revenue this bill will cause will be devastating for everyone else in the County.
It will be most devastating to anyone that hoped the Affordable Housing Plan would actually produce affordable housing.
4. The Impacted Properties are Not Suitable for Our Residents:
The proposed legislation aims to “create long-term affordable housing opportunities for residents,” but the reality is that these properties are not suitable for that.
Parking is generally 1-2 spaces per unity, and the spaces are primarily for compact vehicles.
Units were designed as transient accommodations to begin with, and have minimal storage for families or long term occupancy.
Units are all 30+ years old, and have high maintenance fees and high special assessments to cope with aging infrastructure. Some recent special assessments have been as high as $100,000 per unit.
Impacted properties are primarily located in the sea level rise exposure area, and will face financial and practical challenges with climate adaptation. Turning these into “affordable housing opportunities” will almost certainly ensure deferment of critical infrastructure updates for many of these properties, and an increased risk of catastrophic circumstances (like the Miami Condo Collapse).
5. Is this Legislation Even Legal?
The counties are granted zoning authority by the State of Hawaii through HRS § 46-4, which does allow “for the amortization or phasing out of nonconforming uses or signs over a reasonable period of time in commercial, industrial, resort, and apartment zoned areas only.”
However, TVR use is explicitly permitted pursuant to the Maui County Code, and has been conducted in the Apartment Zoning Districts for a very long time by many properties. This is hardly a “nonconforming” use. Therefore, it is unlawful to abruptly eliminate the use in this manner.
These properties clearly have a vested property right to conduct transient rentals, and the proposed legislation will result in a lot of litigation against the county. Some might argue this legislation is a government taking or violation of due process, and there will likely be claims for zoning estoppel, and it will ultimately cost the County (i.e. tax payers) a lot of money to sort out.
Legal memo re Phasing Out the Minatoya condo-TVRs
Submitted as written testimony for the PSLU Committee meeting of 6/2/22
From Michael Williams, 808-264-4884; MichaelWilliams@PueoFarm.com
Background
In 1991, the Council banned TVR use in the Apartment districts. Many owners objected, and soon Corporation Counsel was asked for a legal opinion on whether the non-conforming use could continue in buildings constructed before the ban. Deputy Corp. Counsel Richard Minatoya issued an opinion letter that concluded such use could continue.
These condos, all in buildings constructed before 1989, were allowed to continue renting short term to tourists. In 2016, the Council codified that opinion so that TVR use was explicitly allowed in those older buildings. There are about 7,000 such condos.
Now several Council members want to phase out that nonconforming use so that these condos can no longer be operated as TVRs.
There are two important policy reasons for this proposal:
1. Reduce the number of tourists back toward the Maui Island Plan prescribed balance of 1 visitor for 3 residents. In 2019 and again this year, that ratio has reached 1 visitor to 2 residents. Maui Island has a resident population of about 155,000. Therefore, we should not have more than about 52,000 visitors on any given day. In July and August this summer we had a daily census of about 75,000 visitors---23,000 too many.
2. Increase the amount of housing units available for residents, either as live-in owners, or as long term renters. It is not knowable now how many of these 7,000 condos will become residences for locals, but surely many of them will.
CM Johnson, in July, made this zoning change one of his top five priorities in implementing the Comprehensive Affordable Housing Plan.
CM Paltin agreed to take the issue up in her Planning and Sustainable Land Use Committee. She submitted a draft bill to the Council at its August 24, 2021 meeting, along with a resolution to send the draft bill to the three Planning Commissions, as required by the County Charter for any zoning change. The Council agreed unanimously to the requested referral. CM Paltin has put it on her committee’s agenda for June 1, 2022.
In the meantime, CM Rawlins-Fernandez proposed an alternative bill that would eliminate TVR use only in the Minatoya condos outside the 3.2’ sea level rise zone. That bill is also on tomorrow’s agenda.
LEGAL ISSUES
The affected owners are certain to file legal challenges to this zoning change if the Council approves it. There are likely to be challenges to its constitutionality under the Fifth Amendment Takings Clause and also under a Hawaii statute that deals specifically with the elimination of nonconforming uses in Apartment districts.
1. Federal law:
Under the controlling federal case law, this zoning change would not be a “taking” and would not require compensation to the owners even if they could show a reduction in value. Without going into detail, the basic us Supreme Court rulings on these zoning changes is that if the owner is left with other reasonable uses of the property, no compensation is due even if there is a diminution in value. Here, the owners can still use the property as a long-term rental, as their own principal place of residence, or as a second home. There are a couple very recent lower court decisions that have examined new zoning changes eliminating or greatly curtailing use of residential property for short term rentals and found they dis not violate the federal constitution and did not require any compensation to the owners: Hignell v City of New Orleans, 476 F. Supp 369 (US Dist. Ct E.D. Louisiana 2020); Nekrilov v. City of Jersey City,. ( __ F. Supp. __, 2021 WL 1138360--only the Westlaw citation is currently available—US Dist, Court, D. New Jersey.)
These two decisions thoroughly analyze the case law in reaching their conclusions. (I have attached both to the cover email.)
It is important that the bill contain a statement of the “public purpose” that justifies the change in zoning. Here there are several: preserve the island’s natural resources, reduce strain on its infrastructure, and help to alleviate a critical housing shortage.
2. State law:
When I discussed this proposed phase out with Planning Director Michele McLean last year, she called my attention to a state statute that provides for the elimination of non-conforming uses in Apartment districts. HRS 46-4 (a) provides in relevant part:
“. . . a zoning ordinance may provide for elimination of nonconforming uses as the uses are discontinued, or for the amortization or phasing out of nonconforming uses or signs over a reasonable period of time in commercial, industrial, resort, and apartment zoned areas only.”
The concept of amortization of the financial impact on property owners of a zoning change is a well-established principle in US law. There is a large body of case law from other states, but so far as I have found, no Hawaii case has ever interpreted HRS 46-4 (a). Director McLean suggested a reasonable period of time in this case would be three years.
CM Paltin’s proposed bill would eliminate the TVR use as soon as the condo is sold—i.e., no new owner could acquire the right to TVR use. This rule does not appear to allow any “time period” if the current owner must or wants to sell soon. It also would allow some gamesmanship in the identity of the “owner”. Suppose the owner is a corporation, and a new investor acquires an interest in the corporation, but the recorded ‘owner’ on Maui’s real property rolls stays the same?
CM Rawlins-Fernandez’s alternative would phase out only those TVR’s in the apartment district that are outside the seal level rise zone, allowing those 3000 or so TVR condos threatened by seal level rise to continue operating. But it has the same legal flaw as the Paltin bill—the loss of TVR use is immediate when the bill takes effect, and allows no reasonable amortization time period.
I believe the bills should be redrafted so that TVR use is ended 2-3 years after the bill’s passage. Use of a corporation as owner would not matter, a sale would not matter. Moreover, the time between the passage of the bill and its effective date would allow the courts to rule on the legality of the change before any TVR use must cease. If the court thought the time period should be longer than 2 or 3 years, the bill could be amended accordingly before any tourist was turned away.
3. Corporation Counsel’s analysis.
When this proposed phase out of the Minatoya condos came up in the July 19, 2021 meeting of CM Johnson’s committee, Corp Counsel Daniel Kunkel promised CM Molina to produce an opinion in writing about phasing out TVR use by a future date, like 2025? So, if I could just get comments from Corp. Counsel on that.
MR. KUNKEL: I would need to get back to you on that, and I can do that.
VICE-CHAIR MOLINA: Okay. If we could get that in writing.
MR. KUNKEL: Sure.
Committee Chair Johnson followed up with a letter on July 30 to Corp Counsel that made this request:
“Please indicate whether the Council can legally establish an end date
for the phasing out of the short-term rental homes exemption in the
Apartment District.”
Corp Counsel responded with a formal letter on August 27 but declined to answer CM Johnson’s and CM Molina’s question. Mimi Desjardins said:
“This subject matter was referred to the Planning and Sustainable Land Use Committee during the August 24, 2021, Council meeting (County Communication No. 2l-4221). Because the matter will be taken up by PLSU, the preference is to address this substantial matter in that forum.”
Of course, the affected condo owners will be opposed.
The hotels will favor the bill because it will reduce their competition for tourists. There are several thousand TVR condos in the hotel zone, and they will support the bill for the same reason.
The Realtors Association of Maui has stated its opposition too, maybe because many realtors act as rental agents for the TVRs.
The many small businesses who sell stuff to tourists will probably oppose the bill as well.
On the other hand, residents who would like to own or rent their own home here will be in favor of the bill, as will those of us who think Maui has an over-tourism problem.
Although these condos would not become “affordable” homes, to the extent they increase the supply of homes for owner occupants or long-term renters, that increase in supply should work to open the lower end of the housing market to lower income residents.
2. Are TVRs worth the costs?
It is not at all an established fact that condos with TVR use are more highly priced than similarly situated condos barred from such use. Take the very interesting situation at the Palms at Wailea I and II. These are essentially identical, side by side, high end condo complexes. PW I was built before 1989 and contains Minatoya condos. PW II was finished in 1991 and does not allow TVR use. Yet an analysis of real estate sales records shows that sales prices are consistently higher for PW II condos than for PW II. An owner tells me that second home owners prefer the peace and quiet at PW II, while in PW I there is a constant churn of tenants every week, strangers around all the time, and any more late night parties.
Conclusion
The County should support phasing out TVRs in the Apartment district but grant them 3 years before the phase takes effect, to allow owners to adjust their plans for using their condo in some fashion other than as a TVR.