Everywhere you turn these days, you are bound to see an ad for Airbnb or VRBO. These businesses are changing where people stay on vacation. They are also leading to an increase in the number of buyers looking for single family homes that they can buy to rent on Airbnb. That said, Hawaii is similar to a lot of other locales in that they are increasing regulations on single family home vacation rentals.

The goal of this post is to delve into the rules and regulations that one might face if they have ambitions to vacation rent. It should be a prerequisite so that you can make an informed decision as to whether or not pursuing a home to vacation rent ultimately makes sense for your needs.

To be clear, this post is applicable to homes and not condos. There are a large number of condos on Maui zoned to allow short term rentals.

Are There Any Legal Vacation Rental Homes on Maui?

Hotel/Resort is the only type of zoning on Maui that allows for vacation/rentals. The bulk of the properties located within this zoning are hotels or vacation rental condominiums. There are literally a handful of homes around the island that have hotel/resort zoning. It is extremely rare that you will see the a hotel/resort zoned home on the market.

If a property does not have hotel/resort zoning, a homeowner could seek one of two different types of permits. 1. Short term rental 2. Bed and Breakfast.

Short Term Rental Permits

The short term rental permit is applicable to those who want to own a second home that they vacation rent. Maui County has legislation in place to regulate vacation rentals of single-family homes and agriculturally zoned properties. The application/licensing process is lengthy. The County does not approve all applications. If there are multiple short term rental homes in a neighborhood, new applications are subject to a formal review and public hearing by the Maui Planning Commission. For those that want to take a deep dive into the short term rental legislation, it is available online via the county website.

Some important things to know about the short term rental rules include the following:

1. There is a five year ownership requirement to be eligible to apply for a short term rental permit. In other words, you cannot apply until you have owned the home for five years.
2. The short term rental permits do not transfer with the sale of the property. New owners must wait five years and then apply for a new permit.
3. Any short term rental on agriculturally zoned land requires Maui Planning Commission Approval.
4. Accessory dwellings, also known as ohanas or cottages, may not be rented on short term basis.
5. There are geographic caps for permits. In non-planning speak, that means there are limits to the number of vacation rentals in a community. As of this date (April 2019), no areas on Maui have met their caps.

Bed and Breakfast Permit

The Bed and Breakfast permit process is similar to the Short Term Rental Permit process in that there are no guarantees that a permit will be approved. The ordinance is available for review in its entirety online. Here are some key components of the Bed and Breakfast legislation:

1. To obtain a bed and breakfast license, the owner needs to be an owner occupant. They need to live on the property.
2. You do not need to own the property for five years to apply for a permit. A new owner may submit an application for a permit right after the purchase of the property.
3. As with short term rentals, there a caps on the number of bed and breakfasts in a community.
4. Like short term rentals, Bed and Breakfasts on agriculturally zoned properties require Maui Planning Commission Approval.
5. Like short term rental permits, the county ordinance prohibits the transfer of bed and breakfast permits with a sale.
6. Bed and Breakfast owners may serve simple breakfasts, but any more formal cooking would require a separate commercial kitchen license.

Subdivision Restrictions

The County isn’t the only entity that regulates vacation rentals in a community. Prior to applying for a short term rental or bed and breakfast permit, applicants should check the rules of their homeowner’s association. That is particularly true for the resort communities. All of the subdivisions in Wailea and Kapalua prohibit vacation rentals. All but one of the subdivisions in Ka’anapali prohibit vacation rentals.

Additional Rules and Regulations

The State of Hawaii recently passed a law requiring that any owner renting their property on short-term basis (a duration less than 6 months) must:

• A. Register and obtain a state tax id. 

• B. Have an on-island representative. 

• C. Include your license and permit information in all advertising (media, web etc).

Taxes on Rentals

State law requires the payment of two state taxes on any rental income from bed and breakfasts or vacation rentals. Most landlords / owners accomplish this by making it a pass through tax (For Example: You advertise your rental as $500 / night plus applicable fees and taxes). These taxes are currently 14.42%, the same amount as guests would pay a hotel or a vacation rental condominium.

Additional Taxes

Although Maui County has some of the lowest property tax rates in the Country, vacation rental properties are subject to higher property tax rates.  Here are the tax rates for 2019:

Residential Rate – $5.52 / $1,000 of assessed value. 

Homeowner Rate – $2.85 / $1,000 of assessed value with a homeowner’s exemption of $200,000. 

Bed and Breakfast Rate – Commercial residential (plus no exemption) – $4.55 / $1,000 of assessed value. 

Short Term Rental Homes – Commercial – $7.28 / $1,000 of assessed value.

Vacation Rentable Condominiums – Hotel Resort –  $9.28 / $1,000 of assessed value.  

Maui County Property Tax Rates

These rates are reviewed on an annual basis and may be subject to change. The changes usually are not very drastic.

Penalties and Fines

There are quite a few properties on island that are being vacation rented illegally without permits. We can neither condone or recommend this practice. The county of Maui recently raised the stakes for vacation renting illegally. Voters recently voted to raise the penalty for illegal rentals to $20,000. The fines combined with advanced enforcement efforts make illegal rentals a particularly risky proposition.

Is it Worth it?

When we present clients with the information provided above, most have refocused their efforts on vacation rental condos. We have a fair number of buyers who want to buy now and move to Maui in the long term. If that is the case, they may decide to buy a home and rent it long term until they are ready to relocate. Those that want to open a Bed and Breakfast have a less strenuous path than those who want a short term rental permit. That said, the permit process isn’t easy. We do not assist with this process, but we may be able to line you up with some resources who could help. Contact the Maui Real Estate Team with questions or for additional assistance.

The County of Maui Recently updated its laws regarding accessory dwellings. For those that don’t speak zoning, the term accessory dwellings refers to cottages or attached apartments. Locally, we refer to these structures as ohanas. With the island feeling the pinch of a housing shortage, the county council recently voted to remove the limit on minimum lot sizes for ohanas. The new zoning laws also allow for a second ohana unit on certain size lots. The change in laws increased the size limits for ohanas, and it also allows for larger deck spaces. The last significant change is a prohibition on accessory dwellings for use as a bed and breakfast home, short-term rental home or a transient vacation rental. The intent of all of this legislation is to address the shortage of long term rentals on island.

Accesory Dwellings on Smaller Lots

Previously, a lot had to be 7,500 square feet or larger to legally have an ohana. The new rules stipulate that any property may have an accessory dwelling. That said, smaller properties would still need to have sufficient space for off street parking to get a permit for an accessory dwelling.

Two Accessory Dwellings are now Allowed on Lots that are 7,500 Square Feet or Larger.

Lots that are 7,500 square feet or above have always allowed for ohanas. They are now allowed a second ohana on the property. As with the smaller lots, the stipulation is that any additional ohana also has sufficient off street parking.

New Size Limits for Accessory Dwellings

The county has increased the size of the ohana units allowed on a property. The table below shows the new size limits based on lot size.

Lot Area in Square Feet	Maximum Gross Covered Floor Area (sq. ft)
Up to 7,499	500
7,500 to 9,999	600
10,000 to 21,799	720
21,780 to 43,599	840
43,560 to 87,119	960
87,120 or more	1,200

It is notable that these numbers are per “ohana” and not the total for the two structures. Covered floor area includes “any covered storage; excludes carports, parking spaces, and garages (including areas therein that contain laundry facilities and utility equipment such as water heaters); and covered walkways or landings up-to four feet wide under eaves or overhangs that are not part of an uncovered open deck, patio, lanai or similar structure.”

Who Doesn’t Want to Have a Bigger Deck?

The changes in accessory dwelling rules also allows for bigger covered and uncovered lanai spaces. The new covered lanai spaces are shown via the table below.

Lot Area in Square Feet	Maximum Gross Covered Floor Area (sq. ft)
Up to 7,499	200
7,500 to 9,999	240
10,000 to 21,799	280
21,780 to 43,599	320
43,560 to 87,119	360
87,120 or more	400

The table above includes the square footage for covered decks, walkways, patios, lanai or similar structures.

There are similar allowances for uncovered decks, lanais and patios.

Lot Area in Square Feet	Maximum Cumulative Floor Area (sq. ft)
Up to 7,499	200
7,500 to 9,999	240
10,000 to 21,779	280
21,780 to 43,559	320
43,550 to 87,119	360
87,120 or more	400

For both of the above tables, “cumulative floor area” excludes walkways or landings up to four feet wide under eaves or overhangs that are not part of a deck, patio, lanai or similar structure.

No More Vacation Renting Accessory Dwellings

The underlying goal of the changes to accessory dwelling laws was to create more housing inventory for local residents. With that in mind, the county established a prohibition on using accessory dwellings as short terms rentals, vacation rentals or as part of a Bed and Breakfast. This is to ensure that the new accessory dwellings don’t become Airbnb rentals.

What’s Not Covered by the Bill

The changes to accessory dwelling laws are limited to properties with the appropriate zoning. One place where there might be some confusion is with properties that are zoned agricultural. While ag zoning allows for “ohanas,” the cottage structures on agricultural lots are considered to be “accessory farm dwellings.” The rules for “Accessory farm dwellings” have not been changed by this bill.

While this bill allows for an increase in density, home owners will find that that parking and water could be a constraint to building out a property to its full capacity. I had already mentioned the need for sufficient off street parking for any accessory dwelling. Fixture count will also be a factor for that property owners will need to consider if they want to take advantage of the new law.

Maui County limits the number of plumbing fixtures that can be installed with a standard 5/8ths inch water meter. It is pretty easy to hit fixture limits with a main house and an ohana. Within the last few years, the county started to allow home owners to buy additional fixture points. If someone wants to build a second accessory dwelling, they may need to buy the additional fixture points or even a second water meter. In places like the North Shore and Upcountry, a second water meter is not an option. Let’s hope that water constraints do not undercut the potential of the bill. With Maui in desperate need of more long term rentals, this bill seems like a positive step to generate some much needed rental housing.