Hawaiian Judge Rules For Home Owner Rentals

Good morning, and happy new year, folks. Hope 2024 is off to a good start. Today we’re considering the opportunities and challenges of themed rentals, and an important court decision in Hawaii. We’ll also take a peak into 2024 with a forecast.

Let’s go:

• Hawaii’s short-term rental operations
• Themed rentals: a growing niche
• AirDNA’s 2024 predictions

Hawaii’s Changing Rental Rules

A district court judge in Hawaii ruled in favor of a group of property owners, granting a permanent injunction against an ordinance passed in 2022. The ruling allows existing short-term rentals to continue their operations and advertising.

Ordinance 22-7 passed in October 2022, and redefined “short-term” rentals from a minimum of 30 to 90 days, making rentals from 30 to 89 days illegal and subject to fines.

The Hawaii Legal Short-Term Rental Alliance challenged the ordinance, claiming it violated their longstanding rights and would lead to financial losses. The judge emphasized that the ordinance conflicted with state zoning laws and clarified that it cannot eliminate existing lawful residential uses within zoned areas. 

What does this change?

• It granted HILSTRA a permanent injunction allowing them to claim its grandfathered-in rights and operate consistent with the 30-day minimum just before the ordinance was set to go into effect.
• The new ruling, however, doesn’t apply to any short-term rentals that opened after the ordinance was put in place.
• The judge emphasized that the ordinance conflicted with state zoning laws and clarified that it cannot eliminate existing lawful residential uses. 

Themed Rentals – Many Takers?

Themed rentals are often overlooked in the business, yet they are gaining significance. Examples include Airbnb’s Barbie House in Malibu, the Hobbiton in New Zealand, and Booking.com’s recently introduced Willy Wonka-inspired rooms in Los Angeles and New York City. While they are commonly classified as “unique stays” for data purposes, these themed accommodations are emerging as a distinct sub-category within the industry.

• The City of Orlando is a top ranker in the themed rental market. Hitching a ride on zoned short-term rental permits and Disney’s marketing dollars, themed rentals in the Orlando area are popular.
• These rentals are good for branding too: The Barbie house was Airbnb’s most popular listing ever with over 250 million social media impressions. 
• But it’s not zero-risk either: Themed rentals lose the inherent advantage of being a primary home and they are mostly investor-owned, hence making the property harder to repurpose. 

Barbie’s DreamHouse, Star Wars Galaxy: Growing Trend of Themed Rentals

2024: The Year of Small Cities and Rural Towns?

2023 was the year that all the occupancy gains from the short-term rental boom went away. Demand for short-term rentals declined in the U.S. as Americans opted for overseas trips and cruises. While demand for international stays rose by 17%, domestic trips had moderate growth of 4.5%. Economic uncertainty, weak consumption growth, and unexpected events, such as wildfires and hurricanes, further added to the slowdown. 

But AirDNA’s 2024 outlook predicts a rebound in demand, thanks to expected lower inflation rates and domestic travel picking up. 

Why?

• The Federal Reserve has stopped raising interest rates, and could start cutting in 2024. The housing market could see a 2% decline in home prices through 2024. 
• Wage growth above inflation suggests increased purchasing power for consumers. Put simply, more disposable income for travel. 
• The normalization is likely to balance demand and supply in 2024

Chart of the Week

The AirDNA’s 2024 prediction report expects coastal resorts to experience significant growth due to sustained interest in shoulder seasons. Mid-size and small city/rural markets are projected to lead demand growth and increase their share of the U.S. rental market. But urban locations, which saw rapid growth in 2022 and early 2023, will face challenges in 2024 due to increased competition and regulatory restrictions.