Musings: Abuse Chronicles 7

[Owner update at end of post.] Though the phrase Kauai-grown usually refers to plants, it could as easily apply to the process that grows humble little beach cottages into luxury vacation rentals. All it takes is a load of manure, and the signature of county building division chief Doug Haigh.

To illustrate, let's look at Hale Haena, which began life in 1967 as a 720-square-foot, one-story, three-room home — the last house on the makai side of the road before Hanalei Colony Resort. Locals might recall it as the Nishimoto house.

In 1972, the downstairs was partially enclosed to create a little carport, with a washing machine and toilet. And so it remained until March 2004, when it was sold for $550,000, primarily because of its large, oceanfront lot. The house, according to county tax records, was valued at just $64,500 that year.

Within a month, the owner applied for a building permit to perform construction work estimated at $106,000. Under FEMA flood regulations, any project that exceeds 50 percent of the building's value is considered "substantial improvements,” which means the structure must be brought into compliance with flood standards. As the flood hazard certificate states:

“All new construction and substantial improvements will have the space below the lowest floor free of obstructions. Such space will not be used for human habitation.”

The trick, some folks have learned, is to put a high value on the building, and a low value on the construction, so as to fall below the 50 percent threshold. In this instance, Tom Hegerty submitted an “opinion of value,” in which he claimed the house's value was actually four times its assessed value, or $252,975. He based that number on the replacement cost of the house, which he figured using construction costs of $225 per square foot. To justify those square-footage costs, Hegerty wrote:

“The cost of construction in the Wainiha/ Haena area greatly increases because the five single lane bridges on Kuhio Highway have weight restrictions causing the cost of concrete and lumber to increase. I trust this satisfies your concerns.”

But in figuring the cost of adding 465 sq. feet to the house, construction costs of just $50 per sq. ft. were used. This resulted in a total of $89,563, which thus rendered the alterations “unsubstantial.” Doug Haigh signed off on this scenario (scroll to the end of the PDF) and the “unsubstantial” work began. 

 You can see the original ground floor utility room in this picture.

By the time the “unsubstantial improvements” were completed, the house had grown by 672 square feet, and the downstairs had been enclosed, within the flood zone. The carport and laundry room had been converted into two bedrooms and two and a quarter baths.

Upstairs, a new roof was added, along with a new bath. The former kitchenette was remodeled into a “fully-equipped gourmet kitchen with top-of-the-line appliances, custom cabinetry and granite countertops.” The floors were refinished with “beautifully aged zebrawood floors and natural slate, “ while “oversized sliding doors” were installed leading to the new to “ipe wood lanai.” 

At the end of the day, it looked like this. All for under $89,563. 

County flood inspector Don Lutao signed the certificate of occupancy, despite a provision in the county zoning ordinance that states:

Any non-conforming structure [i.e., a house built before the flood law]... may be repaired, maintained or altered in any manner which does not increase non-conformity.

Wouldn't it seem that enclosing the downstairs to make bedrooms would be increasing its non-conformance with the flood law, which is intended to minimize property damage and keep people out of harm's way?

On March 12, 2009, the owners applied for a non-conforming use certificate to operate the Hale Haena transient vacation rental (TVR). Thirteen days later, the planning department granted the certificate, even though the application lacked the documentation of prior use required by law, including a reservation log and proof that transient occupancy and general excise taxes had been paid.

The house was placed on the market in 2009, with a listing that described it thusly (emphasis added):

Hale Haena is a newly remodeled 3-bedroom, 3.5-bath tropical retreat steps from a golden sand beach in the heart of Haena. Private Remarks: County of Kauai (TV-1057-NCU) approved vacation rental. 2008 gross revenues approximately $100K+/-.

The house was sold for $1.1 million cash on Dec. 24, 2009. In just five years, the owners had doubled their money, thanks to $89,563 worth of construction and the vacation rental certificate.

The new owner renewed the certificate on April 29, 2010. Though no subsequent renewal applications were included in the file, the county's on-line TVR log showed it as renewed for 2011 and 2012. The log, as you may recall, was created as a way for citizens to monitor TVR activity and report possible violations. But if it doesn't jive with the planning department file, is it a valid tool? [Update: The owner of Hale Haena has advised me that she is current with all her county TVR renewals and is also up-to-date on payment of her state general excise and transient accommodation taxes. She also uses an on-island property management company. She further contends that she had no knowledge of the property's history until she read it here.]