Living Hawaii: Priced Out of Paradise — Where $600K Is a Bargain Home
Editor’s Note: Civil Beat is examining why life in the islands is so expensive in an ongoing series, Living Hawaii. Over the course of a year we are looking at what’s behind high prices here and discussing ways to bring them down.
When Herve Lejeune moved to Hawaii from Tahiti with his wife and two children 14 years ago, he planned to reside here for the rest of his days.
Now the 57-year-old businessman is packing up his belongings and business, selling his home in Kaneohe and moving his family to Florida. The main reason: the high cost of living which, he is convinced, is undermining the quality of life on Oahu.
Lejeune’s looming departure has been brewing for a long time. Over the years, he has watched his friends — many of whom were born and raised here — leave Hawaii for more affordable places like Nevada and Indiana, frustrated by the high cost of housing. For many of them, it was the only way they could afford to move out of their parents’ houses.
By selling his modest but comfortable mid-sized house, Lejeune says he will be in a position to buy three similar houses in Florida — all with better amenities — if he wanted to.
He’ll miss admiring the Pacific Ocean and the Koolau mountain range — driving around Florida is “awfully dull” without the views, he says.
“I kind of thought I would live here for the rest of my life,” he said. “But the financial realities imposed themselves and eventually you realize you either have to move into a really cheap condo somewhere in Kalihi or go the mainland because this is not working.”
Higher Prices on the Horizon
Lejeune is hardly alone. People from around the world have been seduced by a certain Hawaii, a healthy and soothing island with a great quality of life, only to be driven away by the costs of getting by.
Many things in Hawaii are expensive — milk, beer, electricity, gas and a lot more — but the single greatest cost for residents is their home.
This didn’t happen overnight. Back in 1992, University of Hawaii Professor Randall Roth edited “The Price of Paradise,” a book about the high cost of living in the Aloha State.
At the time, the median price of a single-family home was considered pretty hefty at $349,000. Today, that buys you a fairly .
In December, the median price of a single-family home in Honolulu reached an all-time high of $685,000. That’s compared to in November and .
And prices on Oahu and most of the neighbor islands are only projected to increase in the coming years.
According to the University of Hawaii Economic Research Organization (UHERO), the median price of a home on Oahu is expected to rise to $715,000 this year and then jump to $875,000 by 2016.
With the and with many other working people earning similarly low salaries, it is little surprise that some longtime Hawaii residents are forced to either leave the islands or squeeze into the homes of relatives.
Another from June last year shows that families earning the median income can’t afford the median price of a home on Oahu.
In fact, a state employee who earns a median income would have to save every penny that he or she earned for nearly 20 years — which means not paying a cent in taxes or to cover any living costs — in order to pay for a house.
Location, Location, Location
It is no surprise that many visitors decide they want to move to the islands, given that seven million come as tourists each year to sample the privilege of living in tropical weather between sumptuous beaches and verdant mountains.
To longtime Hawaii economist Paul Brewbaker, there’s no doubt: “If the cost of housing weren’t higher here, then everyone would move here.”
Plenty of people already are. In the last 20 years, Hawaii’s population has grown by more than 40 percent, which helps to drive the price of land upward.
In 1990, Hawaii had a population of fewer than one million. By 2012, the population had grown to 1,392,313, according to the U.S. Census, and it has likely exceeded 1.4 million since then despite the state’s .
Beyond the pressures from a growing population, Hawaii’s real estate prices are often detached from local incomes and savings and inflated by money brought in by comfortable retirees from the mainland and foreign investors, including wealthy Korean, Chinese, Japanese and Canadian citizens in search of vacation homes — not to mention corporate investors and individual land speculators.
These outside influences place enormous pressure on Hawaii’s home prices. A by economic specialists, who are members of the San Francisco Federal Reserve Bank, found that home prices in Honolulu from 1975 until 2008 were almost entirely determined by demand from Japan and the U.S. mainland, rather than by residents of Hawaii.
According to the , as many as 50,000 homes may need to be built between 2012 and 2016 to meet the burgeoning demand, which the state calculated based on in-migration, population growth and other factors.
Not Enough Land to Satisfy Demand
While the demand for housing in Hawaii is high, economists like Brewbaker say that the limited supply is mostly to blame.
As the only U.S. state made up entirely of islands, Hawaii has just 10,931 square miles of land, making it the 43rd biggest state, by area, in the nation, just ahead of Massachusetts. And unlike that small state — where people can commute to work from neighboring Rhode Island, New Hampshire, Connecticut, New York and Vermont — if you work full time in Hawaii, you need to live here.
The islands’ unique topography and environmental preservation measures also play into the housing market because they leave very little space for houses.
Nearly half of the state’s 4.1 million acres is zoned for conservation, which generally prohibits development. Most of the rest, 1.9 million acres, is zoned for agriculture. The result is that just 5 percent of land in the state is considered urban or rural, designations that allow homes to be built there.
While about 4,000 acres have been rezoned from agricultural to urban between 2008 and 2012 allowing more homes to be built, the percentage of land available for development remains very small.
Excess pressure for more housing tends to get directed toward additional land that has been zoned for agriculture. The only thing blooming on some of that farmland in recent years has been luxury subdivisions, which undermines Hawaii’s efforts to become more self-sustaining on the food front.
There’s little that can be done about the high demand for homes, short of limiting migration to the state.
But some economists, developers and free market advocates say that Hawaii could ease pressure on real estate’s supply side by having officials loosen some of Hawaii’s strict environmental regulations and speed up slow administrative processes to get more new developments approved.
Developers in Hawaii have to go through the state Land Use Commission in addition to the counties and the councils before they can move forward with building projects. The various layers of permitting take time, which slows approvals and, ultimately, development, while also adding to the cost of building.
The late Lowell Kalapa, who was president of the Hawaii Tax Foundation, explained in one of his last interviews that lengthy bureaucratic processes make projects drag out unnecessarily. “I’ve had a projects where we go seven or eight years trying to secure the permitting,” he said. “That seems ridiculous.”
People who build homes, whether families or companies, also face high labor costs because Hawaii is heavily unionized, it is costly to ship building materials such as steel to the islands, and building necessary infrastructure like sewers and roads to facilitate housing development also add to the bottom line.
But Brewbaker contends that the cost of moving materials to the islands is the least influential factor in driving up the cost of homes, with the regulatory environment for construction being the primary cost-driver. It is also something that, he says, could be changed.
He points to Hawaii’s inclusive housing policies that require developers to sell a certain percentage of homes below the market price to make them affordable. While this might be good for the individuals who buy those houses, it can boost costs for developers, who tend to pass them on to buyers or cancel projects that don’t pencil out.
A concluded that such policies are counterproductive as they ultimately increase the market price of housing and lower the number of available homes.
But Bob Bruhl, the president of the developer D.R. Horton’s Hawaii operations, cautions against blaming the regulatory environment for driving up the cost of a home.
“Certainly if the codes or land use law was more lax there would be more production,” he said. “However, if the land-use laws were more lax, I wonder at what risk that would come?”
The point of the regulations is to “make sure that we develop what we should, while we’re not developing in the areas we shouldn’t,” he said.
He added that developers can anticipate costs of regulations like inclusive housing policies early on, noting that homes ultimately sell at the price the market will bear, rather than the price of the cost of production.
A Missing Piece?
Hawaii’s housing prices have often been debated. But longtime developer James Wong argues that most discussions miss a key element: the role of leasehold agreements in driving up rents.
Much of Hawaii’s land is still owned by a relatively small number of landowners, which leads to people entering into long-term leases with landlords, rather than buying land outright.
Many of the leases signed in the late 1980s and early 1990s included clauses that prohibited the lessees from renegotiating their lease payments downward from the previous monthly payment price, Wong said.
In many cases, that artificially inflates the value of property and prevents people with leases from benefiting when there is a dip in the market, he said.
A 2003 study on the issue by the Legislative Reference Bureau that while some lessees are frustrated with the clause, there isn’t a “broad-based compelling need” for legislation to address it.
But State Sen. Suzanne Chun Oakland, chairwoman of the Senate Committee on Human Services, agreed with Wong. “It’s an underlying problem that no one is willing to touch,” she said.
What Can Be Done About Prices?
In 1978, then-Gov. George Ariyoshi actually suggested to the islands as a way to manage development. That suggestion was harshly criticized as unconstitutional.
Today the state uses agencies like the Hawaii Community Development Authority to try to streamline the building process and help to satisfy housing demand. Such attempts have spurred pushback from community members who have little confidence in the state’s capacity to manage increasing population density.
But such efforts are good news for developers who are grabbing opportunities to build new condos.
As for making sure the new homes will be affordable to the average Hawaii resident, city and state lawmakers are working to create additional affordable housing.
Chun Oakland said that she’s requesting more money this session to help build affordable housing that can be put on sale. And the City Council’s Committee on Zoning and Planning has promised to take a look at the effectiveness of Honolulu’s affordable housing policy.
But those efforts will be too little and too late for Honolulu residents like Lejeune, who has already purchased a home in Florida.
And Lejeune suggested that there is already too much development or perhaps just the wrong kind in Hawaii. The increasingly cluttered hills on Oahu have begun to remind the well-traveled Lejeune of the hillside favelas of Rio de Janiero where homes are so tightly stacked together that residents can “hear your neighbor burp next door.”
And he worries that having so many people try to fit onto a small island is changing the character of the place. Fourteen years ago, people were more welcoming, he said. Now, there’s more aggressiveness, it is becoming cramped in a way that it wasn’t before, and that is affecting everyday life. And the main cause, is economic pressure, he notes.
Still, in other circumstances, he wouldn’t leave.
“I wish I could stay,” he said. “I really like Hawaii.”
