City to ramp up enforcement of fines for illegal Oahu vacation rentals

Honolulu Mayor Rick Blangiardi put owners and operators of illegal vacation rentals on notice Monday that the city is hiring a collection agency to handle the fines —up to $10,000 per day.

The move is a major part of the tougher enforcement policies outlined in Ordinance 22-7 (Bill 41), which took effect in October.

“We have retained and are in the process of finalizing our own collection agency on this, which is something that the city hadn’t had before, and so we are playing hardball and I expect we are going to have some very strong results in the weeks and months ahead,” Blangiardi said.

Blangiardi said working with debt collection company Municipal Debt Collections is in addition to other enforcement efforts by the city Department of Planning and Permitting, which has dedicated a seven-person investigative team to monitor compliance. The city also has software that actively scans advertisements on websites to find violators, he said.

“It actually clears 60 websites a day,” Blangiardi said. “We’ve worked also closely with Airbnb and Expedia … not to have them advertising illegal vacation rentals. Thus far, we are getting good cooperation.”

Blangiardi made these remarks Monday during the Honolulu Star-Advertiser’s “Spotlight Hawaii” livestream program, hosted by Ryan
Kalei Tsuji and Yunji de Nies. His comments come about a week after DPP acting Director Dawn Takeuchi Apuna told the Star-Advertiser that the owners of at least 274 Oahu properties with
outstanding fines exceeding $100,000 owe the city more than $130 million for building and other permit violations such as operating an illegal vacation rental, according to DPP data.

Previous administrations had taken the tack that the main goal of fines was compliance, rather than punishment. However, under Blangiardi’s administration DPP is establishing that property owners are expected to pay 100% of the fines levied against their property, unless there is some exigent circumstance.

Before imposing a fine, DPP first issues a notice of violation to the property owner, who has 30 days to correct the problem. If the owner doesn’t comply, a
notice of order is issued. Landowners then have two months to pay any fines issued in the order; after that comes a demand letter, giving landowners three more months to pay. If no payment is forthcoming, DPP will move to put a lien on the property.

Since Ordinance 22-7 took effect, Blangiardi said, about 100 notices of violation have been issued. He said that he also has been told by the hotel industry, which tracks short-term vacation rentals, that short-term vacation rentals are down about 37% on Oahu — a drop he expects is correlated to owners’ beliefs that the city is going to enforce the law.

“So far there’s been no pushback. We’ve been really serious about this. And so I think we are just building some momentum,” he said. “There’s going to be a tipping point because this is $10,000 a day.”

To be sure, Oahu’s vacation rental market is shrinking. Oahu vacation rental supply in September, the month before Ordinance 22-7 began, was 181,500 available unit nights, which was 25.9% lower than in September 2019 and 11.3% higher than September 2021, according to the Hawaii Vacation Rental Performance Report produced for the state Department of Business Economic Development and Tourism.

Unit demand for Oahu
vacation rentals in September was 110,600 unit nights, which was down 11.7% from September 2019 and up 21.9% from the same month in 2021.

Occupancy at Oahu vacation rentals in September was at 60.9%. The average daily rate for a vacation rental in September on Oahu was $214, up 34.2% from the same month in 2019 and 13.5% from 2021. In comparison, Oahu hotels reported an ADR of $260 and occupancy of 76.7% for September 2022.

Blangiardi said, “We aren’t doing this for the benefit of hotels. Although, they will be a beneficiary.”

“It’s really an important piece of legislation for us, and there’s a lot hanging in the balance because the intent here is to recapture our neighborhoods,” he said.

Larry Bartley, executive director of Save Oahu’s Neighborhoods, said he welcomes stepped-up enforcement given that for many years he and others in the group have fiercely fought to protect residential-zoned neighborhoods from vacation rentals.

However, the nonprofit Hawaii Legal Short-Term Rental Alliance filed a lawsuit in June claiming that the new city ordinance, which took effect Oct. 23, is unconstitutional because it interferes with owners’ vested rights to own and rent property and violates state zoning law.

Save Oahu’s Neighborhoods is one of five community groups that have filed a motion in U.S. District Court seeking to intervene in the HILSTRA v. City &County of Honolulu lawsuit.

Bartley said the “devil is in the details” when it comes to the city’s decision to hire a collection agency, given that the agency will take a cut of money it collects.

“As long as they are improving enforcement by actually charging those people something, even if the city doesn’t get the full amount, by my estimation it’s a good thing,” he said. “I’m glad to see that the mayor is taking action in putting teeth behind the city’s threats.”

On the other hand, Malia Hill, policy director at Grassroot Institute, questioned why the city “is pushing really hard on enforcement of this law that has been partially enjoined and is the subject of a lawsuit.”

U.S. District Judge Derrick Watson on Oct. 13 issued an order in the HILSTRA lawsuit enjoining the city “from enforcing or implementing Ordinance 22-7, signed into law on April 26, 2022, insofar as it prohibits 30-89-day home rentals, or the advertisement of such rentals, in any district on Oahu, pending further order from this Court.”

“That preliminary injunction is an indication of what the judge thinks about the law,” she said. “It does feel like this full-court press (from the city) — when we don’t even have a full opinion about all the nuances of this law and the constitutional rights at stake.”

While the preliminary injunction was about enforcing a time frame, Hill said there are other elements of the lawsuit that are important, such as the claim that
a $10,000-a-day compounding fine is excessive and
unconstitutional.

“The one that really leaps out to me given all the statements about the collection agency is excessive fines,” she said.

Hill said lawsuits over the constitutionality of excessive fines have happened in other states and cities.

“It’s something that is becoming more and more of an issue as municipalities try to turn to fines as a way to bring in revenues,” she said

The 9th Circuit Court of Appeals recently ruled in
Pimentel v. The City of Los Angeles that the Eight Amendment’s Excessive Fines Clause applied to parking meter fines, which were made excessive through late-payment penalties.

“If someone is losing their house over (Ordinance 22-7), I could certainly see them bringing a lawsuit against the city for that,” she said.

Hill said given the $10,000 daily fine, it wouldn’t take much for someone to lose their home.

“That’s a very literal taking back of the neighborhood, but I don’t know if that’s really what people were thinking of when this was brought to them as
an idea,” she said. “It just seems a piece of rhetoric that isn’t really looking at the whole picture as though to make us think that this is really just about neighborhood. There are other ways to look at that and ways that this law could negatively affect neighborhoods, especially harsh enforcement of it.”