 Erica Muller and this is vacation rentals are the future. Welcome back and a very happy new year to all of you going into 2023. I'm really excited to learn today more about where vacation rentals are heading in the next year. And to talk about that today, we have Joshua Montgomery with us. He's with the Ohana Aina Association Advocates for short-term rentals. And we're gonna discuss today about the regulatory landscape and the benefits that vacation rentals bring to the community. So welcome to the show, Joshua. How are you doing today? I thank you so much. I'm doing great. It's always a beautiful day in Hawaii. Absolutely. So can you tell us a little bit about what you do at the Ohana Aina Association Advocates and how you're helping the vacation rental community make progress over there? Sure. So I took over as the president of Ohana Aina about a month ago and the organization's goal is to promote a few basic principles. One of them is private property. So the idea that folks should be able to do with their property, what they choose. One is the vacation rental as an industry. So advocating to make sure that locals here in Hawaii can participate in Hawaii's largest industry which is tourism. And then also to promote the participation in that industry as capital owners. So here in Hawaii, our major industry as a community is tourism and a lot of folks work in that industry as wage earners. Our goal is to make sure that more people can participate in that industry as capital owners. So people who own things that make money as opposed to people who go out and work for an hourly or an annual wage. Oh, that's beautiful. I love it. And I love to talk to people like you that are actually pushing that for the local homeowners because I'm a big advocate myself on being able to use your own property as you want to use your own property. And when you close that door on people, it creates so many ripple effects in the community. Vacation rentals supply a lot of jobs as well. And I'm sure you know about that in the community. Do you have any statistics or numbers just about as to how many jobs the vacation rental community is actually supplying locally there or do you have an idea around that? Vacation rentals here on the Big Island of Hawaii affect 7,500 families. So that's right around 20,000 folks in our local community or around 10% of the island is involved in the vacation rental industry either as property owners, managers, or as service providers, folks who provide maintenance or cleaning services for vacation rentals. So it's a pretty sizable chunk of our broader economy. And it's one of the few places that locals in Hawaii can participate in the tourism trade as owners of property as opposed to as wage earners. And so much of the vacation industry here in Hawaii is international conglomerates. People fly here on international airlines where the money goes back to airline companies on the mainland. They stay in hotels that are owned by Wall Street hedge funds. When they're here, they rent rental cars from publicly traded rental car agencies. And so even though they come to Hawaii and consume our resources, when they're here the money that they spend doesn't necessarily stay in our community. And so in the vacation rental industry that money goes to homeowners and it goes to service providers who are negotiating with homeowners for wages on a much better level playing field. So they make higher wages and have better working conditions than they would at a big hotel. Oh, that's really great information. And that's kind of what I was looking for. And so what do you think the effects of what happened last October when we had this sweeping regulatory mandate go across? I think it was in Honolulu and the surrounding area. What do you think the effects of that were on this local economy that you're talking about that is made up of the home sharing economy? Yeah, so it's important to look at the vacation rental industry holistically. So as a broader industry, not simply as absentee owners or as folks who run hosted rentals or as home stays but simply as people who participate in the tourism trade by providing rooms in small establishments. So I would argue that bed and breakfasts probably fall in our category as well. And the regulatory changes that are being pushed through in large part of being supported by the HTA, the Hawaii Tourism Authority, which has historically acted as a mouthpiece for the big hotels. So think of these big hotels that are owned by hedge funds and Wall Street firms. That's their voice in the market. And the regulations are being driven by local hotel managers and local hotel operators. And I kind of want to unpack who that is. The tourism industry is such a huge percentage of our economy and it's so important. And yet the HTA is being managed and driven by people who are middle managers and hotel conglomerates. Many of these folks, they wouldn't be able to get the CEO of their company on the phone if they tried. And yet we're turning over the economic development of our communities to these people. They may have a two year degree in hospitality management. They're not PhDs in economics. And they're advocating for a world that's a zero sum game, right? So they look at the industry and they say, a hotel room or a family that stays in a hosted vacation rental is a family that didn't stay at my four-star four seasons hotel on the coast. Not really realizing that they're two very different markets. That the family that flies to Honolulu on Southwest Airlines, spends maybe $1,000 on airline tickets. They really need a hosted rental that has multiple rooms in a kitchen because they can't afford that champagne and fine dining experience that the four seasons is providing. And so they're looking to stay in the types of accommodations that our industry provides and they actually grow the market. So these hosted rentals or these vacation rentals actually increase the size of the tourism trade and make it available to more middle-class families. The regulatory regulations that they're putting in place to limit that are really detrimental to the broader economy because what they're effectively doing is reducing the amount of money that's flowing into Hawaii. And since this is the biggest industry in Hawaii, that's effectively putting constraints on the broader economy. And so not only does it affect the individual families who are being regulated out of this market, but it affects the broader economy in a really negative way. And it concentrates even further wealth in the hands of these corporations and these corporate hotels. Yeah, well, like they say, follow the money and then you always find the answers. So thank you for sharing all that. And it kind of breaks my heart what's happening. How can we, what are you guys doing right now to kind of balance that out and prevent more of that power of taking over and pushing more people out of the home sharing economy? Sure, so here on the big island, a couple of members of the county council have proposed some legislation that would put severe constraints not on vacation rentals in general, but on hosted rentals. So on people who host a family in their home or in an Ohana on their property. And since 95% of the big island is agriculture, it's very much affecting farmers, so farmstays. One of the things that we're doing is working really hard to tell our stories. Here on the big island, the only way that many families can make ends meet is by renting a room or renting an Ohana or renting part of their home as a home stay. If they don't do that, they don't have the same type of economic opportunities that you have in some of these other high cost markets. So for example, if you were in San Francisco, you might have access to a job that pays a quarter of a million dollars a year at Google or Facebook or YouTube or Amazon or Tesla. If you're in New York, you might have access to that type of employment with Goldman Sachs or Citigroup or one of the other big investment firms. Here on the big island of Hawaii, we don't have any of that industry. And so even though we have real estate prices and cost of living that are similar to what you pay in Manhattan or in San Francisco, we don't have that type of income. And what that's really driven is a wedge between the haves and the have nots. And one of the ways to continue to maintain that middle class, the people who can afford to live here and own a home is for people to rent their home stays. So one of the things we're doing is telling that story is having families that depend on this income, get up and say, hey, you know, this legislation effectively forces me to sell my home. And then one of the other things that we're doing is we're debunking the myth that home stays create an affordable housing crisis. We have an affordable housing crisis in Hawaii because they're not building enough homes. The permitting department and the regulatory environment are such that it's next to impossible to build a new housing development on our islands. And as a result, housing construction is not keeping up with housing demand. That is not the fault of somebody who is renting a converted garage to tourists who come and visit the island. That is the fault of the very regulators that are proposing this type of regulation. And so, you know, when we look at the broader housing market, we're starting to look and say, how can hosted rentals improve the market? And we're starting to tell that story as well. And I'd be happy to share a little bit more about that with you. Yeah, I'd actually love to hear it. And then too, before you get into that, you had brought up the topic of agritourism, which you said is really kind of how a lot of people are making ends meet on the big island. I'd love to hear more about that as well when you're done, but please go ahead and continue that story because it's very interesting. Sure, so, you know, here in the big island with Hawaii, one out of every five houses is sitting empty every year. So, I mean, just think about that. Like you walk down the street and every fifth house doesn't have anybody in. And a lot of that is because those houses are being used as second homes or as vacation homes from people who are in some of those higher end markets. So San Francisco and Los Angeles and Seattle. And so the question for how to return affordable housing to local ownership, isn't so much a question of whether we have enough housing. It's a question of how that housing is distributed. And you know, there's two ways to put those houses into the hands of locals. One is to reduce the cost, right? Is to get prices down. And I don't think that anybody is advocating for all of us to lose our home value. And so that approach doesn't seem to be something that would be palatable to the broader community. The other way to do it is to increase the income of locals so that they can afford these homes. And one of the ways to do that is to take those homes and turn them into hosted vacation homes. So larger homes that might cost $2 million or $3 million where a family lives in the home and rents a part of it as a vacation home. And the economics of that make sense. You can't take that home and divide it into two long-term rentals because they actually, they don't cover the cost of the mortgage. But if one of them is a hosted vacation rental, it does generate enough income for that family that they can afford that two or that $3 million home. And so we're working to create a fund that we're calling the Ohana Aina Fund that helps locals that have good credit and might participate in the tourism industry as maybe in a cleaning capacity or in a maintenance capacity or management capacity to actually purchase their own home and convert that home into a portion of it as a home stay the rest of it to house their family. And what we do by doing that is we take vacation homes that are high end that a family might not otherwise be able to afford and we create a revenue stream that allows a local family to purchase that property and both live there and use it as their source of income. But of course we can't do that if the state government and the local governments regulate these folks out of business. And so we look at the home stay industry as a way to create wealth in our communities and to make sure that local families can participate in the tourism industry as owners instead of as wage owners. And that's a big part of what we're promoting here on the big island and a big part of our story for using hosted rental income to improve access to housing. And in that case, we call the housing obtainable housing, not affordable housing. The idea is to put it within the grass so the local family not necessarily to make it cheap. No, I love that. I think that's gonna benefit not only the community as a whole because you're keeping property values up but you're also helping people find homes and stay in them and that's huge. How are you doing that? I mean, who owns the house? Is it the local family that's buying it that owns it or is it like a co-ownership with you guys? What is the structure of that look like? So we're not a hundred percent certain. We're just launching this initiative here in the first half of 2023. The method that we're looking at doing is purchasing the homes through the fund and doing the remodel with a professional contractor and all the appropriate permits and stuff under the assumption that a lot of folks who might wanna participate in this type of an effort might not have the skills to manage a big construction project and all of the permitting and all of the architecture and all of the other pieces that takes to divide that home and to increase the density, right? But once that's done, the idea is to create a work to own situation for the homeowners that's not exploited, right? So the goal is that after a couple of years they've demonstrated that income to the point that they can get a traditional mortgage and purchase the home outright as their own home. Really the place where there's a need in the industry is the place from purchasing the home to getting the revenue stood up so that it's provable. The reason that many families couldn't do that today is in order to buy a $2 million home they would have to demonstrate hundreds of thousands of dollars in income in the prior two years or the bank wouldn't lend them the money, right? And so the Hina-Aina Association would effectively act as a bridge between the original purchase and when the businesses stood up to the point that they can get a traditional mortgage and proceed the same way that other high-income families would. Interesting. And so what's your underwriting process gonna be like on that? Because I know for us at my company I don't know if you know what we do. We do data for short-term rentals. And so we have data on every property in the country and the cap rates and all that stuff. And what I've noticed is especially in markets like where you're at the property prices have appreciated so much over the last two years and the revenue that you can make off of the rental income even as a short-term rental hasn't quite caught up with those purchase prices. So whereas two years ago where something would have been a 10 cap was returning a 10% return. Now it might be at like a four or a five and it would barely be able to cover the mortgage, right? And so go ahead. The idea isn't to do it as a, the way that you would as an absentee owner. The idea is that these are hosted home stays are not necessarily the primary employment for the family. And so the family would be involved day-to-day in operation of the home stay, but that if you're operating a single vacation rental that does, as somebody who operates several, yeah, it does leave you with a lot of time to do other things. And so it's not intended as a replacement for employment but it's intended as a mechanism so that people can obtain housing. Yeah. So basically it's gonna offset the expense of that mortgage whereas maybe their current employment might not cover all of it plus be able to give them enough money left to live with inflation and everything. So that's just the additional rev stream that you guys are helping create for them. So it becomes affordable for them to own it, right? Exactly. It creates, it makes that housing obtainable whereas today, if you're, if you were let's say a maintenance person for a bunch of STBRs or maybe acting as the host or acting as a manager, maybe you're making $100,000 a year each. Here in Hawaii wages are much, much higher than they are in the mainland. But even with $150,000 a year in income, you still couldn't purchase a home in Hawaii. The average cost of a home in Hawaii is now north of a million dollars. Yeah. And so the idea is to create a new revenue stream that goes along with the employment that makes it possible for people to obtain housing. And so, the numbers do work. We've done a couple of them now just internally. And the idea is to take it and expand it and make it available to more families. It's really cool. Are you going to train them at all on the management side, teach them a little bit about how to be a host? Some of them maybe aren't coming from those backgrounds of being a host before. Are you guys going to put them through a crash course or something? The goal, there's so many people that with 7,000 families working in the industry here there's so many people who have experience that are just looking for the access to the capital that certainly we can provide some guidance and some best practices. But capitalism works because people take risk and they innovate and they solve their own problems. So certainly we can provide some resources but ultimately it's up to the family to be successful or not, that people do fail. And it's that risk and that willingness to learn and that dynamic, that dynamic panic maybe might be a good word as somebody who's a multiple three or four time entrepreneur, that panic of not being able to make payroll in two months and oh boy, I got to innovate. That's what drives innovation and in many cases leads people to success. Yeah, you're right. I mean, it's kind of been our tagline for a long time is discomfort drives innovation because at the end of the day, if you're too comfortable, you're not innovating anything. So I do love that and have a big appreciation for that philosophy right there. What is it? Necessity is the mother of invention, right? So if you, I got to make payroll in two months and I don't know how to do it. Like that's where you sit down and you say, hey, well, maybe we could add a component of, here on our farm, we're looking at doing farm tours starting next August. The idea is that guests can come and park on the street that we would have a social media enabled gate. So you have to basically contact us or give us your contact information through social media to get on the property, which gives us a little bit of security. We kind of know who you are, but also gives us access so we can market to you in the future. And then we have a nice walking tour where they can learn about all the coffee and how it's grown and how it's processed and maybe have a picnic on the property and then a vending machine on the way out so that they can buy coffee. And in an ideal world, they subscribe to the coffee and get a pound every month from that point on. And that becomes a part of our revenue stream. That's something that we're looking to stand up as one innovative way to continue to pay the bills in one of the most expensive markets in the United States. Yeah. And I'm kind of getting a similar, okay, so when I went to Portugal about seven years ago and they have a similar, even though it's not as expensive to live there, property prices have gone crazy and the locals don't make a lot of money there. They make a very small salary. So they're kind of priced out because of all the expats moving there and tourism. And I stayed at a house, it was a guest house one time and it was beautiful. It was as gorgeous, probably 10,000 square foot property they inherited from their family. And you can tell that they just couldn't afford it unless they rented it out. They had to rent it out or they couldn't hold this property. But you also got the vibe as a guest that they really didn't want you there. They had to have you there and they knew this. So it was a little bit of that, like they were begrudgingly renting it out to us even though they wanted the house, they had to keep the house to do it. So my point with us story is, are you getting at that vibe at all from any of the owners were in your market that have been there for 20, 30, 40 years maybe? And now it's becoming to the point where they have to start renting their property out and doing these innovative things or they can't afford to keep it? Or is this more just like younger families that are starting out and don't really have much yet? And this is the only way they can afford to live. Mostly it's younger families that are participating in newly hosted rentals. And that's one of the reasons that we're looking to protect those folks from regulation. There's a lot of grandfather clauses in here that take care of folks who've been doing this for 20 or 30 years, but it's the incoming family, the young family that wants to purchase a whatever, a 3,000 square foot house and use 1,000 as a posted rental and the other 2,000 for the family. Those are the folks that are really in danger of not being able to participate in the market anymore. And almost universally across the board, the hosts that we interact with and the hosts that are a member of our community love most of their guests. Now from time to time, you always get a guest who's a little harder to deal with or a little bit more of a pain. But for the most part, guests who come and stay at least at our farm are super polite. They're just really excited to be here in Hawaii. They know they're in awe of the ocean views and the weather and the beautiful coffee. And they're here to do the same thing. They all want to go do the Monterey dive. They all want to go to the beach. They all want to go see the volcano. And for the most part, people who are on vacation are pretty nice. And I would say that's especially true of people who are staying in vacation rows. The types of folks that are high demand and high maintenance and want to have their, for lack of a better example, to have their nails and toes done in their hotel room, those are the ones that are staying at the Four Seasons down at the beach. It's the family that just got off a six hour flight with a screaming two-year-old that just wants some peace and quiet and want to enjoy a local setting. Those are the types of guests that at least we get up here at the farm. And certainly I know another bunch of the farm stays do. And then many of our members have stories of long-term friendships that they've built with their guests. We had a family from Alaska come stay with us for two full months towards the end of COVID. They just became really, really good friends. And they come back every year and visit and we love to have them. And those are the types of experiences, I think that are typical here in Hawaii. And then of course from time to time you get people who misbehave and that's true both of hosted and unhosted Reynolds. And I think that most of the regulation in the industry should be focused on identifying the folks who are misbehaving and the hosts that are not enforcing rules and making sure that we provide them with the support they need to enforce the rules and help the guests to understand and behave in our communities. And I think that if we focus on that as opposed to regulating a grandma who's trying to rent an Ohana, a small second home I think that we could get a lot further in improving the reputation of the industry. Yeah, that's great. Now we talked a lot about the people that have lived there, the locals, people that have grown up there, people that are living there currently doing this. What are your feelings towards investors that are cash flow driven people? They don't live there. They're absentee owners coming in, buying things up to try to make a profit. And capitalism is great and there's nothing wrong with that. But with this being such a problem already for locals do you feel that these investors coming in are maybe taking opportunities away from the locals that are already having a hard enough time dealing with the regulatory landscape or do you feel that that's healthy? I think that it doesn't matter whether it's hosted or unhosted it matters how the guests behave. And so I think the issue with absentee STBR owners isn't necessarily that they're gobbling up real estate. In fact, I think on all of the major islands they've already regulated the absentee owners and there's a process in place to limit that's impact on the local housing market. It really comes down to the behavior of the guests. And I think that absentee owners really struggle to create rules and to identify a local host that can help to manage the property and then to manage the behavior of the guests on the property. And that's really I think where the conflict with neighbors comes in. It's the parking and the noise and all of the things that are associated with poorly managed vacation rentals rather than whether it's owned by somebody in California or owned by somebody who's living on the site. And I would argue that there are hosted rentals here that are hosting reality TV series on the beach where they're getting $10,000 and $15,000 a night but they're having wild parties and bright lights and loud music and camera crews and parking and like all these other issues, those are hosted. The host is there on site watching over all that chaos. And once again, that's creating impacts for the neighbors. So I don't think it really comes down to how the ownership's structured. I think it more comes down to the behaviors. Yeah, that makes sense. Thanks for sharing that, Joshua. One other thing, we talked a lot about everything else but we didn't talk about you personally yet. So we have about a minute left. Why don't you tell us something about you as to like your why you're doing this, why you got into this and how you kind of found yourself where you are right now in this industry. Sure, so I built the open source version of Siri or Alexa or Google Assistant and open source voice assistant. And in 2018, we decided to go out and work to support a bunch of smaller languages. So things like Catalan and Hawaiian and Icelandic and Welsh. And as part of that, I lived in Airbnb for an entire year. So we stayed in a different Airbnb for two weeks in cities all over the world, for an entire year, everywhere from Reykjavik to Auckland. And as part of that process, I realized what a great thing it would be to have a hosted rental or have a vacation rental somewhere because you can rent it and travel anywhere in the world and take that rent and pay for a Airbnb wherever you happen to be. And so, having identified that, we moved to Hawaii and we bought a house and divided it in half and we live upstairs and we have guests downstairs every night. And it's a fantastic way for us to afford to live on our farm. Certainly the coffee doesn't pay the mortgage. And then also, as our kids head out to college, it's a path for us to travel in the future. So we're really excited to be part of the industry and as responsible owners, we manage our guests and make sure that we enforce the rules and are hoping for many decades to come of successful participation in the tourist industry. Wonderful, that's such a great story. I love Reykjavik, by the way, great town or great city. Real quick, if we could just put the website up one more time for everybody to see before we hop off, there we go. If you want to connect with Joshua and you wanna be a part of what he's doing, either with his fund or talk to him about becoming a property owner, you can visit the website, it's up on the, the link is on the screen. Joshua, thank you so much for being a part of the show today. You were absolutely fascinating to interview and I wish you all the best with what you're doing and I think it's a beautiful thing to give back to the community the way you are. So have a wonderful day, everybody. Thank you for joining us and we hope to see you in a couple more weeks on our next episode of Vacation Runtles or the Future. Thank you so much for watching Think Tech Hawaii. If you like what we do, please like us and click the subscribe button on YouTube and the follow button on Vimeo. You can also follow us on Facebook, Instagram and LinkedIn and donate to us at thinktechhawaii.com. Mahalo.