by Robert Stec

The rise of short-term rentals (STRs) has transformed housing markets globally, creating new economic opportunities while simultaneously generating concerns about housing affordability and community preservation. Island economies like Maui provide particularly valuable case studies for understanding these dynamics, as their geographical boundaries create natural “economic laboratories” where the effects of policy interventions can be more clearly observed.

Recent research by the University of Hawaii Economic Research Organization (UHERO) on Maui County’s proposal to phase out transient vacation rentals offers a comprehensive look at the economic tradeoffs involved in STR regulation. This “natural experiment” provides mainland communities with valuable insights that may be less visible in their more interconnected economies.

This article explores how studying STR economics in island settings can illuminate broader principles applicable to all communities considering regulation of this sector. By examining the unique characteristics of island housing markets, the broader economic impacts of STRs, and the potential consequences of various regulatory approaches, we can better understand how to balance economic growth with housing affordability and community preservation.

Islands as Economic Laboratories

The Contained Economy Advantage

Island economies offer distinct advantages for economic analysis that make them ideal for studying the impacts of STRs:

1. Geographical boundaries: Physical limitations create clearer supply constraints and market boundaries than mainland areas, where housing markets blend into neighboring jurisdictions.
2. Limited substitution effects: When mainland communities regulate STRs, tourists and investors can easily shift to nearby municipalities, making it difficult to isolate policy impacts. Islands offer fewer alternatives, making policy effects more pronounced.
3. Traceable economic flows: Island economies typically have more visible tourism dependencies, making it easier to track how STR spending circulates through local economies.
4. Clear before-and-after comparisons: When policies change, islands provide cleaner pre- and post-implementation data points with fewer confounding variables from neighboring markets.

Maui: A Perfect Case Study

Maui County faces an unprecedented housing affordability crisis that was exacerbated by the destruction of more than 3,000 housing units in the devastating 2023 wildfires. In response, the county has proposed phasing out transient vacation rentals in Apartment districts by eliminating long-standing exceptions granted to properties built or approved prior to 1989.

The scale of this policy proposal is globally unprecedented. While most jurisdictions worldwide implement regulations affecting a relatively small share of housing (typically 1-3%), Maui’s proposal would impact properties that represent 21% of the county’s total housing stock. This exceptionally large intervention creates a uniquely valuable opportunity to observe comprehensive market effects that might be too subtle to measure in other settings.

Property Valuation Effects

Direct Price Impacts on Regulated Properties

Comprehensive economic modeling from UHERO shows that banning STRs in Maui’s Apartment districts would likely cause significant decreases in property values. Their analysis projects that condo prices would decline by 20-40%, depending on implementation specifics and market conditions.

This notable drop stems from fundamental economic principles:

1. Income capitalization effect: Property values reflect their income-generating potential. When high-revenue STR use is prohibited, the discounted cash flow value of properties declines accordingly.
2. Investor demand evaporation: Approximately 85% of Maui’s Apartment-zoned vacation rentals are owned by out-of-state investors, particularly from California, Washington, and Canada. When STR options disappear, this investor pool largely exits the market, reducing buying competition.
3. Supply surge effect: Converting Maui’s 6,127 vacation rentals to long-term housing would increase the housing stock by 13% – equivalent to a decade’s worth of new construction all entering the market at once.

Spillover Effects on Broader Housing Markets

Perhaps more instructive for non-island communities is how STR regulations affect properties beyond those directly regulated:

UHERO’s analysis indicates that price declines would affect not just the regulated vacation rentals but the entire condominium market throughout Maui. The policy would likely create “market-wide price declines [that] also impact owner-occupants” who never operated STRs.

This spillover occurs through multiple mechanisms:

1. Substitution effect: As previously unavailable units enter long-term housing markets, buyers gain options, reducing competition for existing housing.
2. Comparable sales impact: Real estate appraisals rely heavily on recent comparable sales. As former STR units sell at lower prices, these sales establish new comparables that affect all property valuations.
3. Market psychology: Significant price drops in one segment often create market uncertainty that affects buyer confidence more broadly.

For mainland communities, these spillover effects may be muted by more porous geographical boundaries, but the fundamental mechanisms remain relevant. A city banning STRs might see less dramatic price effects if neighboring municipalities maintain permissive policies, yet the directional impact would likely be similar.

Broader Economic Impacts

Tourism Economy Effects

UHERO’s analysis found that eliminating all STRs in Apartment zones could reduce visitor accommodations by 25% and visitor days by 32%. Total visitor spending is projected to decline by $900 million annually (-15%).

Such spending reductions create ripple effects throughout the economy:

The decline in spending also results in the loss of 1,900 jobs (-3% of total payroll jobs), concentrated in accommodations, food service, arts, entertainment, and retail trade. Real GDP contracts by 4%, falling from $11.8 billion in 2022 to $11.3 billion.

These findings highlight how STRs have become integral to tourism infrastructure in many destinations. While mainland communities might have more diversified economies less dependent on tourism, those with significant visitor economies should anticipate similar proportional impacts.

Tax Revenue Considerations

The fiscal impacts of STR regulations provide particularly valuable insights for local governments considering similar policies. In Maui’s case:

Property tax revenues could fall by up to $60 million annually by 2029 due to both changes in tax class and decreasing valuations. General Excise Tax (GET) and Transient Accommodations Tax (TAT) revenues are projected to fall by 10% and 8% respectively, totaling an additional -$15M annually.

This multi-faceted tax impact stems from several sources:

1. Property classification shifts: STRs typically pay higher tax rates than residential properties. Conversion reduces tax revenue even if values remained stable.
2. Property value decline: As property values fall, so does the tax base.
3. Visitor spending reduction: Fewer tourists means less spending subject to sales and lodging taxes.
4. Employment impacts: Job losses reduce income tax revenue and may increase public assistance needs.

Non-island communities should anticipate similar directional impacts, though their magnitude may differ based on tax structures and economic diversification.

Housing Affordability Tradeoffs

Benefits for Housing Access

The UHERO study projects that adding 6,127 units to the long-term housing stock would meaningfully improve housing affordability. At current incomes, prices, and interest rates, only the top 14% of families in Maui County could afford an Apartment-zoned vacation rental without spending more than 30% of their income. After the policy takes effect, this proportion would rise to 21%.

This affordability improvement operates through several channels:

1. Direct supply increase: More available housing reduces competition and bidding wars for existing units.
2. Filtering effects: As more housing becomes available at higher price points, the benefits cascade through various market segments as households upgrade.
3. Rent stabilization: A 20-40% decline in condominium prices would exert downward pressure on rents through both direct and indirect mechanisms, as properties are often substitutes for one another in housing markets.

Wealth Distribution Considerations

While improved affordability benefits those seeking housing, existing homeowners face wealth losses:

Decreasing home values as a result of adding thousands of homes into Maui’s housing stock would mean decreased wealth for Maui’s existing homeowners. With 65% of Maui County’s homes owner-occupied, a decrease in home values would result in a negative wealth shock for a significant portion of the local population.

This wealth effect has consumption implications:

A household with a home valued at $1 million would reduce their spending by $6,600 to $13,200 per year if their home value declined by 20% to 40%.

This tension between improving access for homebuyers while potentially harming existing homeowners represents a fundamental policy tradeoff that all communities face, though islands demonstrate it more dramatically.

Policy Design Considerations

The Maui case study also illuminates various regulatory approaches that mainland communities might consider:

Alternative Regulatory Approaches

Instead of outright bans, communities could consider market-based approaches that incentivize conversions rather than mandating them. Increasing property taxes on STRs would discourage short-term rentals while generating additional revenue. A tiered tax structure could also target higher-value properties or those in high-demand areas.

Another approach would set a cap on the total number of short-term rental licenses and auction them to the highest bidders. This would maximize revenue from operators willing to pay for permits while maintaining tighter control over STR numbers. Only the most profitable units would continue as short-term rentals, while less profitable ones would be repurposed for other uses including long-term housing.

Implementation Strategies

Even with outright bans, communities can adjust implementation to ease transitions. Options include extending transition periods, phasing out STRs more slowly in smaller increments or geographic areas, employing lottery-based phase-outs that randomly select properties each month for transition, or allowing limited STR use to continue in designated areas.

These approaches offer mainland communities a spectrum of regulatory options that might achieve similar housing goals with less economic disruption.

Mitigating Factors in Non-Island Settings

While island studies provide valuable insights, several factors may moderate impacts in mainland settings:

Geographic Substitution

When a mainland community regulates STRs, both visitors and investors can easily shift to nearby areas, potentially reducing:

1. Tourism impacts: Visitors may still come to the region but stay in neighboring communities, maintaining spending at local businesses.
2. Property value effects: Investor demand doesn’t disappear but redistributes geographically, possibly inflating values in adjacent communities.
3. Housing supply effects: If investors convert properties in neighboring jurisdictions to STRs, this could offset affordability gains in the regulating community.

Market Diversification

Mainland economies typically have greater economic diversification than islands:

1. Employment resilience: Workers displaced from tourism-related jobs may more easily find employment in other sectors.
2. Economic dependency: Less tourism-dependent economies may see smaller GDP impacts from reduced visitor spending.
3. Property investment alternatives: Mainland real estate investors have more alternative investment options, potentially moderating panic selling.

Implementation Challenges

Property owners affected by STR regulations may pursue legal challenges or political action to delay or overturn restrictions. Prolonged uncertainty over a policy’s future could discourage owners from selling or renting their units at lower prices. Additionally, if enforcement is weak or inconsistent, some STRs may continue to operate illegally.

These issues can be more pronounced in mainland settings where:

1. Political jurisdictions are smaller and more numerous
2. Enforcement resources may be more limited
3. Legal challenges can more easily reference precedents from neighboring communities

Comprehensive Policy Approaches

The Maui case study demonstrates that STR regulation works best as part of a comprehensive housing strategy. Beyond simply restricting STRs, communities should consider:

An empty homes tax targets properties that remain vacant for most of the year, particularly those held as vacation homes or speculative investments. By discouraging prolonged vacancies, such a tax incentivizes property owners to rent or sell underutilized housing. Cities such as Vancouver and Paris have adopted such policies to reduce housing vacancies, increase the availability of long-term residences, and generate public revenue.

Amending zoning regulations to allow for denser mixed-use developments could create new commercial opportunities, encourage reinvestment in aging properties, and facilitate additional housing development. This could include allowing greater floor area ratios, easing parking minimums, and streamlining permitting for multifamily projects.

Homeownership assistance programs could help residents take advantage of increased housing supply. For example, communities could expand down payment assistance for first-time homebuyers, implement deed restrictions that lower unit market prices while ensuring they remain part of the workforce housing stock, or provide loan guarantees to help homebuyers overcome financing barriers.

Such complementary policies can help ensure that STR restrictions achieve their intended housing benefits rather than simply shifting problems elsewhere.

Conclusion

Island economies like Maui offer mainland communities valuable insights into the potential impacts of STR regulations. Their geographical boundaries create natural experimental conditions that make economic effects more visible and measurable than in more interconnected mainland economies.

The UHERO analysis of Maui’s proposed vacation rental ban demonstrates several key principles:

1. Significant property value impacts: STR restrictions can substantially reduce property values, both for directly affected properties and the broader market.
2. Meaningful affordability improvements: Converting STRs to long-term housing can meaningfully improve housing access, particularly for middle-income households.
3. Substantial economic tradeoffs: Tourism spending declines, job losses, and tax revenue reductions represent real costs that must be weighed against housing benefits.
4. Policy design matters: The magnitude of both costs and benefits depends heavily on regulatory approach, implementation timeline, and complementary policies.

While mainland communities will likely experience more muted effects due to geographical substitution and economic diversification, the fundamental economic principles remain applicable. By examining island case studies like Maui, local governments everywhere can better anticipate the full range of impacts from STR regulations and design more effective policies to balance economic vitality with housing affordability.

For communities considering STR regulations, the island lesson is clear: these policies create real tradeoffs that should be carefully analyzed and addressed through comprehensive, thoughtful policy design rather than simple prohibitions.Retry

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The Economics of Short-Term Rentals: Lessons from Island Communities

Introduction

The rise of short-term rentals (STRs) has transformed housing markets globally, creating new economic opportunities while simultaneously generating concerns about housing affordability and community preservation. Island economies like Maui provide particularly valuable case studies for understanding these dynamics, as their geographical boundaries create natural “economic laboratories” where the effects of policy interventions can be more clearly observed.

Recent research by the University of Hawaii Economic Research Organization (UHERO) on Maui County’s proposal to phase out transient vacation rentals offers a comprehensive look at the economic tradeoffs involved in STR regulation. This “natural experiment” provides mainland communities with valuable insights that may be less visible in their more interconnected economies.

This article explores how studying STR economics in island settings can illuminate broader principles applicable to all communities considering regulation of this sector. By examining the unique characteristics of island housing markets, the broader economic impacts of STRs, and the potential consequences of various regulatory approaches, we can better understand how to balance economic growth with housing affordability and community preservation.

Islands as Economic Laboratories

The Contained Economy Advantage

Island economies offer distinct advantages for economic analysis that make them ideal for studying the impacts of STRs:

1. Geographical boundaries: Physical limitations create clearer supply constraints and market boundaries than mainland areas, where housing markets blend into neighboring jurisdictions.
2. Limited substitution effects: When mainland communities regulate STRs, tourists and investors can easily shift to nearby municipalities, making it difficult to isolate policy impacts. Islands offer fewer alternatives, making policy effects more pronounced.
3. Traceable economic flows: Island economies typically have more visible tourism dependencies, making it easier to track how STR spending circulates through local economies.
4. Clear before-and-after comparisons: When policies change, islands provide cleaner pre- and post-implementation data points with fewer confounding variables from neighboring markets.

Maui: A Perfect Case Study

Maui County faces an unprecedented housing affordability crisis that was exacerbated by the destruction of more than 3,000 housing units in the devastating 2023 wildfires. In response, the county has proposed phasing out transient vacation rentals (TVRs) in Apartment districts by eliminating long-standing exceptions granted to properties built or approved prior to 1989 (also known as the “Minatoya List”).

The scale of this policy proposal is globally unprecedented. While most jurisdictions worldwide implement regulations affecting a relatively small share of housing (typically 1-3%), Maui’s proposal would impact properties that represent 21% of the county’s total housing stock. This exceptionally large intervention creates a uniquely valuable opportunity to observe comprehensive market effects that might be too subtle to measure in other settings.

According to property tax records, Maui County has a total stock of 63,000 housing units. Of these units, 47,400 are long-term housing units, 13,000 are TVRs, and 2,500 operate as timeshare units. There are 8,834 units eligible to operate as TVRs under Minatoya List exemptions, but only 6,127 units are currently operating as TVRs in apartment zones.

Property Valuation Effects

Direct Price Impacts on Regulated Properties

Comprehensive economic modeling from UHERO shows that banning STRs in Maui’s Apartment districts would likely cause significant decreases in property values. Their analysis projects that condo prices would decline by 20-40%, depending on implementation specifics and market conditions.

This notable drop stems from fundamental economic principles:

1. Income capitalization effect: Property values reflect their income-generating potential. When high-revenue STR use is prohibited, the discounted cash flow value of properties declines accordingly.
2. Investor demand evaporation: Approximately 85% of Maui’s Apartment-zoned vacation rentals are owned by out-of-state investors, particularly from California (36%), Washington (12%), and Canada (8%). When STR options disappear, this investor pool largely exits the market, reducing buying competition.
3. Supply surge effect: Converting Maui’s 6,127 vacation rentals to long-term housing would increase the housing stock by 13% – equivalent to a decade’s worth of new construction all entering the market at once.

Unit Characteristics and Market Position

The 6,127 units affected by the proposed policy are a mix of small and mid-size condominium units: 7% are studios, 51% are one-bedroom units, 39% are two-bedroom units, and the remainder have three or more bedrooms. The median unit is a little over 800 square feet, and almost three-quarters of the units are smaller than 1,000 square feet. Nearly all of the units (99%) include a single parking stall. The median date of construction is 1977.

While these units are generally small, there is significant range in appraised value. The median appraised value of Apartment-zoned TVRs is $971,500, which is about 15% higher than the median condominium unit on Maui ($845,000). About a quarter (1,593) of the properties are valued under $750,000 and about 500 properties are valued under $500,000.

Spillover Effects on Broader Housing Markets

Perhaps more instructive for non-island communities is how STR regulations affect properties beyond those directly regulated:

UHERO’s analysis indicates that price declines would affect not just the regulated vacation rentals but the entire condominium market throughout Maui. The policy would likely create “market-wide price declines [that] also impact owner-occupants” who never operated STRs.

This spillover occurs through multiple mechanisms:

1. Substitution effect: As previously unavailable units enter long-term housing markets, buyers gain options, reducing competition for existing housing.
2. Comparable sales impact: Real estate appraisals rely heavily on recent comparable sales. As former STR units sell at lower prices, these sales establish new comparables that affect all property valuations.
3. Market psychology: Significant price drops in one segment often create market uncertainty that affects buyer confidence more broadly.

For mainland communities, these spillover effects may be muted by more porous geographical boundaries, but the fundamental mechanisms remain relevant. A city banning STRs might see less dramatic price effects if neighboring municipalities maintain permissive policies, yet the directional impact would likely be similar.

Broader Economic Impacts

Tourism Economy Effects

UHERO’s analysis found that eliminating all TVRs in Apartment zones could reduce visitor accommodations by 25% and visitor days by 32%. Total visitor spending is projected to decline by $900 million annually (-15%).

This projection considers visitor spending includes both accommodation costs and non-lodging expenditures. While per-person accommodation spending is estimated to increase by 15% due to supply constraints (to $174 per day), overall spending would decline dramatically due to fewer total visitors.

Such spending reductions create ripple effects throughout the economy:

The decline in spending results in the loss of 1,900 jobs (-3% of total payroll jobs), concentrated in accommodations, food service, arts, entertainment, and retail trade. Real GDP contracts by 4%, falling from $11.8 billion in 2022 to $11.3 billion.

In a more severe contraction scenario with a 25% visitor spending decline, the job losses could reach 3,800 positions (5% of payroll jobs), with real GDP falling by 8% – over $1 billion in reduced output.

These findings highlight how STRs have become integral to tourism infrastructure in many destinations. While mainland communities might have more diversified economies less dependent on tourism, those with significant visitor economies should anticipate similar proportional impacts.

Tax Revenue Considerations

The fiscal impacts of STR regulations provide particularly valuable insights for local governments considering similar policies. In Maui’s case:

Property tax revenues could fall by up to $60 million annually by 2029 due to both changes in tax class and decreasing valuations. General Excise Tax (GET) and Transient Accommodations Tax (TAT) revenues are projected to fall by 10% and 8% respectively, totaling an additional -$15M annually.

This multi-faceted tax impact stems from several sources:

1. Property classification shifts: STRs typically pay higher tax rates than residential properties. Conversion reduces tax revenue even if values remained stable.
2. Property value decline: As property values fall, so does the tax base.
3. Visitor spending reduction: Fewer tourists means less spending subject to sales and lodging taxes.
4. Employment impacts: Job losses reduce income tax revenue and may increase public assistance needs.

In UHERO’s reconstructed FY 2023-2024 analysis, TVRs in Apartment zones generated an estimated $64M in property tax revenue for Maui County, while residential condos in all zones contributed an additional $52M. This combined $116M represents roughly 22% of all property tax revenue and 11% of revenue from all sources. By 2029, the gap between pre-policy and post-policy tax revenue could widen to $61M annually.

Non-island communities should anticipate similar directional impacts, though their magnitude may differ based on tax structures and economic diversification.

Housing Affordability Tradeoffs

Benefits for Housing Access

The UHERO study projects that adding 6,127 units to the long-term housing stock would meaningfully improve housing affordability. At current incomes, prices, and interest rates, only the top 14% of families in Maui County could afford an Apartment-zoned vacation rental without spending more than 30% of their income. After the policy takes effect, this proportion would rise to 21%.

The price-to-income ratio would fall from 8.8 to 7.3, indicating improved affordability (though any ratio above 5.0 still indicates an unaffordable market). Monthly mortgage payments on the median unit would decline from $4,912 to $3,684, while total housing costs (including carrying costs like maintenance fees, HOA dues, and property taxes) would fall from $5,829 to $4,601.

This affordability improvement operates through several channels:

1. Direct supply increase: More available housing reduces competition and bidding wars for existing units.
2. Filtering effects: As more housing becomes available at higher price points, the benefits cascade through various market segments as households upgrade.
3. Rent stabilization: A 20-40% decline in condominium prices would exert downward pressure on rents through both direct and indirect mechanisms, as properties are often substitutes for one another in housing markets.

Wealth Distribution Considerations

While improved affordability benefits those seeking housing, existing homeowners face wealth losses:

Decreasing home values as a result of adding thousands of homes into Maui’s housing stock would mean decreased wealth for Maui’s existing homeowners. With 65% of Maui County’s homes owner-occupied, a decrease in home values would result in a negative wealth shock for a significant portion of the local population.

This wealth effect has consumption implications:

A household with a home valued at $1 million would reduce their spending by $6,600 to $13,200 per year if their home value declined by 20% to 40%.

This tension between improving access for homebuyers while potentially harming existing homeowners represents a fundamental policy tradeoff that all communities face, though islands demonstrate it more dramatically.

Market Dynamics and Housing Scenarios

UHERO developed three scenarios for how the housing market might respond to the STR ban:

Scenario A: High-Frequency Sales

In this scenario, more than 6,000 units are added to the market between March 2025 and August 2026. Sales begin at a slow pace, causing a sharp rise in inventory as many sellers compete for relatively few buyers. The resulting downward pressure on prices discourages new listings, particularly from non-TVR owners who avoid selling into a declining market. Gradually, sales increase, surpassing 170 units per month by the end of the decade. This scenario would lead to a more than 40% decline in median condo prices by the end of the decade.

Scenario B: Rapid Sales Uptake

In this scenario, over 6,000 units are still added to the market, but the extra inventory is absorbed more quickly. Sales quickly reach a peak of 200 units per month, limiting the decline in prices. While sales taper off once prices hit their lowest point, they remain elevated through the end of the decade. Median prices would stabilize after a 25% decline, with the market recovering faster than in Scenario A.

Scenario C: Low-Frequency Sales

In this scenario, only 2,600 units are added to the market. Sales remain near the post-Great Recession average of 100 units per month, preventing a substantial inventory buildup. Price declines are more moderate, falling by less than 20%. This gradual market adjustment minimizes the shock and leads to greater price stability.

These scenarios illustrate how the timing and volume of units entering the market can dramatically influence price outcomes, with implications for communities considering similar policies.

Policy Design Considerations

The Maui case study also illuminates various regulatory approaches that mainland communities might consider:

Alternative Regulatory Approaches

Instead of outright bans, communities could consider market-based approaches that incentivize conversions rather than mandating them. Increasing property taxes on STRs would discourage short-term rentals while generating additional revenue. A tiered tax structure could also target higher-value properties or those in high-demand areas.

Another approach would set a cap on the total number of short-term rental licenses and auction them to the highest bidders. This would maximize revenue from operators willing to pay for permits while maintaining tighter control over STR numbers. Only the most profitable units would continue as short-term rentals, while less profitable ones would be repurposed for other uses including long-term housing.

As Steven Bond-Smith, an assistant professor at the University of Hawaii and report co-author noted, auctioning licenses is common practice for taxi medallions and is used to manage fisheries, though it hasn’t been widely applied to vacation rentals.

Implementation Strategies

Even with outright bans, communities can adjust implementation to ease transitions. Options include extending transition periods, phasing out STRs more slowly in smaller increments or geographic areas, employing lottery-based phase-outs that randomly select properties each month for transition, or allowing limited STR use to continue in designated areas.

These approaches offer mainland communities a spectrum of regulatory options that might achieve similar housing goals with less economic disruption.

Mitigating Factors in Non-Island Settings

While island studies provide valuable insights, several factors may moderate impacts in mainland settings:

Geographic Substitution

When a mainland community regulates STRs, both visitors and investors can easily shift to nearby areas, potentially reducing:

1. Tourism impacts: Visitors may still come to the region but stay in neighboring communities, maintaining spending at local businesses.
2. Property value effects: Investor demand doesn’t disappear but redistributes geographically, possibly inflating values in adjacent communities.
3. Housing supply effects: If investors convert properties in neighboring jurisdictions to STRs, this could offset affordability gains in the regulating community.

Market Diversification

Mainland economies typically have greater economic diversification than islands:

1. Employment resilience: Workers displaced from tourism-related jobs may more easily find employment in other sectors.
2. Economic dependency: Less tourism-dependent economies may see smaller GDP impacts from reduced visitor spending.
3. Property investment alternatives: Mainland real estate investors have more alternative investment options, potentially moderating panic selling.

Implementation Challenges

Property owners affected by STR regulations may pursue legal challenges or political action to delay or overturn restrictions. Prolonged uncertainty over a policy’s future could discourage owners from selling or renting their units at lower prices. Additionally, if enforcement is weak or inconsistent, some STRs may continue to operate illegally.

These issues can be more pronounced in mainland settings where:

1. Political jurisdictions are smaller and more numerous
2. Enforcement resources may be more limited
3. Legal challenges can more easily reference precedents from neighboring communities

Comprehensive Policy Approaches

The Maui case study demonstrates that STR regulation works best as part of a comprehensive housing strategy. Beyond simply restricting STRs, communities should consider:

Empty Homes Tax

An empty homes tax targets properties that remain vacant for most of the year, particularly those held as vacation homes or speculative investments. By discouraging prolonged vacancies, such a tax incentivizes property owners to rent or sell underutilized housing.

Cities such as Vancouver and Paris have adopted such policies to reduce housing vacancies, increase the availability of long-term residences, and generate public revenue. In Vancouver, a 3% property tax surcharge on homes vacant for more than six months per year coincided with a 54% reduction in vacancy rates and raised $47 million CAD in new revenue.

Zoning and Permitting Reform

Amending zoning regulations to allow for denser mixed-use developments could create new commercial opportunities, encourage reinvestment in aging properties, and facilitate additional housing development. This could include allowing greater floor area ratios, easing parking minimums, and streamlining permitting for multifamily projects.

Given Maui’s constrained land supply, enabling more intensive use of already-developed properties could be more cost-effective and environmentally sustainable than greenfield construction. Developed parcels are already served by sewer, water, and transportation infrastructure, reducing the need for costly new public investments.

Homeownership Assistance Programs

Homeownership assistance programs could help residents take advantage of increased housing supply. For example, communities could expand down payment assistance for first-time homebuyers, implement deed restrictions that lower unit market prices while ensuring they remain part of the workforce housing stock, or provide loan guarantees to help homebuyers overcome financing barriers.

Maui has already experimented with this approach with its ‘ohana assistance program, which provides a grant in exchange for a 10-year deed restriction limiting occupancy to long-term residents and maximum rent to HUD affordability standards.

Such complementary policies can help ensure that STR restrictions achieve their intended housing benefits rather than simply shifting problems elsewhere.

Perspectives from Key Stakeholders

The debate around STR regulation involves multiple stakeholders with different priorities:

Government Officials

Maui’s Mayor Richard Bissen introduced the policy idea to boost Maui’s limited supply of long-term housing after the fires wiped out more than 3,000 housing units in Lahaina. While acknowledging the economic impacts identified in the UHERO study, he noted that “economic models don’t reflect the lived experiences of residents crowded into multigenerational homes, commuting long distances and leaving Maui because they can’t afford housing… Most importantly, they fail to acknowledge the cultural loss we face when our people are forced to leave—when generations of knowledge, tradition, and aloha are displaced from the very communities that shaped them.”

Housing Researchers

Trey Gordner, one of the UHERO study’s authors, observed that “there are always trade-offs associated with decisions of this kind. We find that the policy would increase housing affordability somewhat at the cost of jobs, incomes and tax revenues.”

Local Government Representatives

Maui County Council Chair Alice Lee expressed concern that “the study doesn’t address the legal implications and associated costs of the policy.” She noted, “My understanding is that many (short-term rental) owners will elect to retain their units and not sell or rent their units and use them when they visit Maui.”

These varying perspectives highlight the complexity of STR regulation and the importance of considering multiple stakeholder interests when designing policies.

Conclusion

Island economies like Maui offer mainland communities valuable insights into the potential impacts of STR regulations. Their geographical boundaries create natural experimental conditions that make economic effects more visible and measurable than in more interconnected mainland economies.

The UHERO analysis of Maui’s proposed vacation rental ban demonstrates several key principles:

1. Significant property value impacts: STR restrictions can substantially reduce property values, both for directly affected properties and the broader market.
2. Meaningful affordability improvements: Converting STRs to long-term housing can meaningfully improve housing access, particularly for middle-income households.
3. Substantial economic tradeoffs: Tourism spending declines, job losses, and tax revenue reductions represent real costs that must be weighed against housing benefits.
4. Policy design matters: The magnitude of both costs and benefits depends heavily on regulatory approach, implementation timeline, and complementary policies.
5. Long-term sustainability: While the proposed policy would create a one-time downward shock on prices, they would continue rising at the same rate if demand for housing on Maui continues to exceed supply. Without addressing long-term construction issues, prices could return to their current levels within a decade.

While mainland communities will likely experience more muted effects due to geographical substitution and economic diversification, the fundamental economic principles remain applicable. By examining island case studies like Maui, local governments everywhere can better anticipate the full range of impacts from STR regulations and design more effective policies to balance economic vitality with housing affordability.

For communities considering STR regulations, the island lesson is clear: these policies create real tradeoffs that should be carefully analyzed and addressed through comprehensive, thoughtful policy design rather than simple prohibitions.

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