Maui is grappling with a severe housing crisis exacerbated by last year’s wildfires. Two possible solutions are currently being discussed: 1) maintain status quo or 2) a ban on short-term rentals (STRs), as proposed by Mayor Richard Bissen, in the hopes of converting the approximately 6,172 homes on Maui that are currently used as STRs into long-term housing.
With locals increasingly priced out of their community, maintaining the status quo seems untenable. However, a recent University of Hawaiʻi Economic Research Organization (UHERO) blog notes that while a STR ban could increase the residential housing supply in Maui by as much as 13%, it comes with significant risks including fewer tourists, resulting in job losses and reduced revenue for both the county and state in the form of transient accommodation tax, general excise tax, income taxes from tourism jobs and property taxes.
Middle ground: STR tax hike
According to a new UHERO blog by Assistant Professor Dylan Moore published on July 29, there is a middle ground between these extremes: a tax hike. Maui already levies higher property taxes on STRs (1.25–1.5% vs. 0.3–0.8% for long-term rentals). Increases to the STR rate would push the least profitable short-term rentals out of the market, freeing up housing. The most profitable rentals would persist, and continue paying county taxes. This revenue could support affordable housing initiatives, infrastructure, or other public projects, ensuring the short-term rental market better serves residents’ needs.
This approach parallels a policy solution that a growing number of cities have used to try and address housing shortages: levying higher taxes on vacant housing units. The available evidence shows that such taxes succeeded in reducing the number of vacant housing units in France and Vancouver, while also generating additional revenue from the remaining vacancies.
“Increasing Maui’s property tax rate on STRs would likely achieve similar results: some STR properties would be turned to other uses, but the market would not be eliminated entirely,” writes Moore. “This offers an intermediate option between the status quo and an outright ban. Unless the rate is absurdly high, a tax hike will never free up as many housing units as a ban but, consequently, it will also have a smaller negative impact on tourism. The higher the rate, the more STRs will be eliminated, and the larger the tourism impact.”
For the entire blog, visit the UHERO website.
UHERO is housed in UH Mānoa’s College of Social Sciences.
