Aloha Committee Chair Molina and Committee Members,
I am submitting this testimony on behalf of the REALTORS Association of Maui and our 2,000+ members in my capacity as their Government Affairs Director. The REALTORS Association of Maui (RAM) is deeply concerned over the amendments to the Landlord-Tenant Code that are proposed in Resolution 22-196, and we strongly urge this committee to file the resolution and pursue other options.
It is clear that Resolution 22-196 is well intentioned and seeks to address some very real problems that are having an acute effect on our community. Nevertheless, the changes sought in Resolution 22-196 are not likely to solve our current rental housing crisis. If the bill attached to Resolution 22-196 was ever actually passed by our state legislature, it would create the perfect market conditions for even higher inflation in the rental housing market, and almost certainly reduce inventory of private rental housing overall. To put this in terms of the commonly mentioned metaphor of the “house on fire,” this legislation is likely to add fuel to the fire.
Recent and severe increases in rental housing costs are not specific to Maui County, or even the State of Hawaii. Instead, this is a growing issue both nationally and globally. This issue largely stems from a severe lack of rental housing inventory (particularly at lower cost levels), and largely a result of increased inflation overall. There is a robust body of economic research that has analyzed the impacts of rent control in communities where it has been implemented, and that research generally indicates that rent control leads to decreased inventory (particularly at lower cost levels), and significantly less reinvestment in rental housing from landlords (i.e. higher costs for lower quality housing, or, inflation). These impacts will only make our rental housing market more difficult for our residents in the long run. Additionally, there are a slew of other unintended consequences that will have to be combated as well. Some of these consequences might include:
- Refusal to grant 12 month leases or let tenants stay beyond 12 months in order to avoid being subject to these proposed revisions to the landlord tenant code.
- Increased evictions for minor infractions in order to remove tenants without having to lose a month of rent or be subject to these proposed amendments. This would create broader housing insecurity because landlords often check court records and avoid renting to tenants that have had an eviction action filed against them.
- Changes to the standard rental contract that incorporate the maximum number and amount of rental increases allowed under law. This would essentially guarantee 5% rent increases each year for the first 2 years of every tenancy (as there is a limit to 2 increases every 36 months for the same tenant).
- Significant inflation on the value of new leases once this is implemented, because property owners will be aware that they may be likely to lose the last month’s rent and their security deposit will become largely meaningless. Therefore, 11 months of rent will soon cost as much as 12 months used to, in order to make up the difference for the potential loss.
- Increased burden on landlords, as they will be likely to lose the 12th month’s rent if the tenant is given no-fault notice, and they will also be limited on covering repair costs with the restrictions the Landlord-Tenant Code already places on use of the security deposit. If landlords feel this new law is overly burdensome, they will remove their rental housing from the market or sell to someone else, which may have the same impact in the end.
Ultimately, if the County of Maui wants to address the issues of inventory and inflation, there are other solutions that could be pursued more effectively. You are already doing outstanding work in your efforts to bring new inventory online through new development and through existing incentives, but greater efforts could be made on “public/private partnerships” with property owners through new incentives. Rather than imposing new rules and threats of penalties on landlords, the county should make better efforts to establish robust incentives for landlords who are willing to work with the County of Maui and help solve the housing crisis.
For example, the county could provide monetary incentives and continued support services to local landlords who are willing to give long-term leases at affordable rates. The monetary incentives could be something like a signing bonus and improved real property tax rates, and the support service could be grants for damages that exceed the security deposit and/or access to discounted services from qualified local contractors that are vetted by the county. Similarly, you could scale the incentives in relation to the length of the lease provided and the income level that the lease targets. To go a step further with the incentive idea, the county could also consider increased assistance related to the development of ohana units on private residential properties, and have favorable financing, grants, and expedited permitting linked to the use of the ohana for kamaaina rental housing. These are just a few ideas that might help address the root causes of our rental housing crisis without the likely result of reduced inventory.
We are in a housing crisis, and I applaud Councilmember Johnson and this council for your continued efforts to address this crisis. Though I agree with your motives, the good intentions behind Resolution 22-196 are not sufficient to remove the likely consequences of the legislation. Good intentions do not automatically make good law. Even if you do not file Resolution 22-196, I strongly urge you all to conduct further research on the history of rent control and its impacts, and to pursue more incentive-based alternatives.
Mahalo,
Jason A. Economou
Government Affairs Director
REALTORS Association of Maui
Aloha Committee Chair Molina and Committee Members,
I am submitting this testimony on behalf of the REALTORS Association of Maui and our 2,000+ members in my capacity as their Government Affairs Director. The REALTORS Association of Maui (RAM) is deeply concerned over the amendments to the Landlord-Tenant Code that are proposed in Resolution 22-196, and we strongly urge this committee to file the resolution and pursue other options.
It is clear that Resolution 22-196 is well intentioned and seeks to address some very real problems that are having an acute effect on our community. Nevertheless, the changes sought in Resolution 22-196 are not likely to solve our current rental housing crisis. If the bill attached to Resolution 22-196 was ever actually passed by our state legislature, it would create the perfect market conditions for even higher inflation in the rental housing market, and almost certainly reduce inventory of private rental housing overall. To put this in terms of the commonly mentioned metaphor of the “house on fire,” this legislation is likely to add fuel to the fire.
Recent and severe increases in rental housing costs are not specific to Maui County, or even the State of Hawaii. Instead, this is a growing issue both nationally and globally. This issue largely stems from a severe lack of rental housing inventory (particularly at lower cost levels), and largely a result of increased inflation overall. There is a robust body of economic research that has analyzed the impacts of rent control in communities where it has been implemented, and that research generally indicates that rent control leads to decreased inventory (particularly at lower cost levels), and significantly less reinvestment in rental housing from landlords (i.e. higher costs for lower quality housing, or, inflation). These impacts will only make our rental housing market more difficult for our residents in the long run. Additionally, there are a slew of other unintended consequences that will have to be combated as well. Some of these consequences might include:
- Refusal to grant 12 month leases or let tenants stay beyond 12 months in order to avoid being subject to these proposed revisions to the landlord tenant code.
- Increased evictions for minor infractions in order to remove tenants without having to lose a month of rent or be subject to these proposed amendments. This would create broader housing insecurity because landlords often check court records and avoid renting to tenants that have had an eviction action filed against them.
- Changes to the standard rental contract that incorporate the maximum number and amount of rental increases allowed under law. This would essentially guarantee 5% rent increases each year for the first 2 years of every tenancy (as there is a limit to 2 increases every 36 months for the same tenant).
- Significant inflation on the value of new leases once this is implemented, because property owners will be aware that they may be likely to lose the last month’s rent and their security deposit will become largely meaningless. Therefore, 11 months of rent will soon cost as much as 12 months used to, in order to make up the difference for the potential loss.
- Increased burden on landlords, as they will be likely to lose the 12th month’s rent if the tenant is given no-fault notice, and they will also be limited on covering repair costs with the restrictions the Landlord-Tenant Code already places on use of the security deposit. If landlords feel this new law is overly burdensome, they will remove their rental housing from the market or sell to someone else, which may have the same impact in the end.
Ultimately, if the County of Maui wants to address the issues of inventory and inflation, there are other solutions that could be pursued more effectively. You are already doing outstanding work in your efforts to bring new inventory online through new development and through existing incentives, but greater efforts could be made on “public/private partnerships” with property owners through new incentives. Rather than imposing new rules and threats of penalties on landlords, the county should make better efforts to establish robust incentives for landlords who are willing to work with the County of Maui and help solve the housing crisis.
For example, the county could provide monetary incentives and continued support services to local landlords who are willing to give long-term leases at affordable rates. The monetary incentives could be something like a signing bonus and improved real property tax rates, and the support service could be grants for damages that exceed the security deposit and/or access to discounted services from qualified local contractors that are vetted by the county. Similarly, you could scale the incentives in relation to the length of the lease provided and the income level that the lease targets. To go a step further with the incentive idea, the county could also consider increased assistance related to the development of ohana units on private residential properties, and have favorable financing, grants, and expedited permitting linked to the use of the ohana for kamaaina rental housing. These are just a few ideas that might help address the root causes of our rental housing crisis without the likely result of reduced inventory.
We are in a housing crisis, and I applaud Councilmember Johnson and this council for your continued efforts to address this crisis. Though I agree with your motives, the good intentions behind Resolution 22-196 are not sufficient to remove the likely consequences of the legislation. Good intentions do not automatically make good law. Even if you do not file Resolution 22-196, I strongly urge you all to conduct further research on the history of rent control and its impacts, and to pursue more incentive-based alternatives.
Mahalo,
Jason A. Economou
Government Affairs Director
REALTORS Association of Maui