There is a disastrous and ill-advised bill being considered by the County Council, and backed by the mayor, ostensibly with the purpose being to free up housing for local renters. But without taking the law of supply and demand into account, the exact opposite of the desired effect will take place. The end result will be a real estate crash that will be far worse than the crash of 2006 when property values went down by about 50 percent.
The intent of the bill is to limit the number of private vacation rentals and B&B homes in residential neighborhoods and agriculturally zoned homes so that these homes will be made available to local renters at lower than current rates. The idea is, that with more homes being offered for long-term rentals, the cost of renting will go down and the children of local families can thereby afford to remain on the island rather than move to the mainland. What the framers of this bill are not taking into consideration is that the resulting crash in real estate and the resulting drop in visitor numbers will put the businesses where these local families work out of business. With no jobs, their children will have to move to the mainland anyway.
Literally thousands of people have purchased homes now, prior to retiring in five to 10 years, to beat the future increase in interest rates. They can’t afford to keep them vacant, so they have enlisted the assistance of vacation rental management companies to keep the properties rented until they are ready to move over.
In many cases, the amount of rent they would get from long-term renters would not cover their mortgages. So they would either have to sell or go into foreclosure. The resulting glut of homes on the market will drive prices into the basement. Future retirees will get the news that vacation rental is no longer allowed on the Big Island so they will search for others retirement destination. This will lower the demand for homes even further causing a double whammy on home prices; high supply and low demand equals lower prices.
Hotel occupancy is as high as it’s ever been. If thousands of vacation rentals are forced to close there won’t be enough hotel rooms for the number of vacationers who want to come to the Big Island. No doubt this will also force up the cost of hotel rooms causing many visitors to go elsewhere. Many of the people who stay in vacation rentals come as groups. Six to 10 people rent a house and share the cost. Often times they can get an entire house for the cost of one hotel room instead of renting three to five hotel rooms; plus they have a kitchen where they can prepare their own meals.
If the cost of a vacation is forced over what these people can afford they just won’t come. This will virtually kill tourism on the Big Island. The result will be many businesses depending on tourism going out of business; restaurants, dive boats, fishing boats, snorkel cruises, island adventure tours, property management companies, handypersons and cleaning crews. All the employees of these businesses will be out of a job. These workers are the renters this bill is trying to help.
But without a job they won’t have any money to pay rent. They’ll have to go to the mainland to find work. So not only will all of the former vacation rentals be vacant, but all of the places these workers were renting will be vacant. Many of these homes were investments for retirees. Without the rental income they will have to let the banks take the homes back resulting in a wave of foreclosures. But with tourism dead, who’s going to come in to buy these foreclosures? So property values for all the local people and permanent residents will plummet. Empty homes will dot every neighborhood on the island resulting in the further deterioration of property values. Empty store fronts will be prevalent in every town. It will be a total disaster.
Everyone who is concerned, whether you own a vacation rental or not, if you are concerned about your property values, come to the Planning Commission meeting Sept. 20 in Building G at the West Hawaii Community Center at 9 a.m.
Harry M. Pritikin is a resident of Kona.
