Maui’s mayor, Richard Bissen, has proposed phasing out vacation rentals to address a severe housing shortage exacerbated by wildfires in 2023. University of Hawaii economists have found that while this policy would increase housing affordability, it would also lead to job losses, income reductions, and a decline in tax revenues. Visitor spending is also expected to sharply decline as a result.
The proposal, which would convert vacation rentals into long-term housing units, would add thousands of new housing units to Maui’s housing stock, resulting in a 13% increase in supply. This would also lead to a significant drop in condo prices. Additionally, the policy would not require the county to develop additional water sources, which are scarce on the island.
However, the study predicts that the policy would eliminate one-quarter of visitor accommodations, leading to a decrease in visitor spending, job losses, and a reduction in GDP. Property taxes would also likely decline. To mitigate the economic disruption, the county could consider increasing taxes on vacation rentals, taxing empty homes, and implementing zoning and permitting reforms.
Alternatively, the county could cap the number of vacation rental licenses and auction them off, similar to practices with taxi medallions or fisheries management. This approach would push less profitable units out of the vacation rental market, according to the report.
The study was conducted at the request of the Hawaii Community Foundation and aims to provide valuable insights into the potential economic impacts of Mayor Bissen’s proposal.
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