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How high housing prices are encouraging residents to leave Hawaii
By Keli'i Akina PhD @ 3:57 AM :: 1920 Views :: Development, Land Use, Cost of Living

4-18-21 Keli‘i Akina interviewed by Johnny Miro of H. Hawaii Media radio network

How high housing prices are encouraging residents to leave Hawaii

From Grassroot Institute of Hawaii April 19, 2021

How to make housing affordable and help stop the exodus of Hawaii residents to the mainland was the focus of Keli’i Akina’s latest Sunday morning visit with Johnny Miro of the H. Hawaii Media radio network.

The interview, heard on Oahu stations 101.1 FM, 101.5 FM, 107.5 FM, 97.1 FM, 96.7 FM and 103.9 FM, came just days after the Maui County Council approved a measure to increase its inclusionary zoning percentage to 75% for “fast-track” affordable housing projects. Two days afterward, Maui Mayor Michael Victorino wisely vetoed the bill, but as of April 21, 2021, the Council is expected to overturn that veto and enable the bill to become law.

Besides the Maui issue, the 18-minute conversation covered housing policy in general throughout Hawaii, and how its many parts have resulted in the state having a severe housing shortage and, no surprise, among the highest home prices in the nation.

“No matter how you look at it,” Akina said, “we’re falling behind. There just aren’t enough homes to meet the demand, and the result is that we have shortages and higher prices. It’s simply basic economics, supply and demand, Johnny.”

Full interview transcript.

Johnny Miro: Good Sunday morning to you. It’s time for public access programming here in the H. Hawaii Media family radio stations on Oahu. 

I’m Johnny Miro, as we bring you this information at 101.1 FM, 101.5 FM, 107.5 FM, 97.1 FM, 96.7 FM and 103.9 FM, and also available around the world at hawaiistream.fm via your mobile devices.

Joining us once again, Keli’i Akina, the CEO and president of Grassroot Institute of Hawaii. Today we’re going to be talking about housing: The housing crisis and affordable housing, if we can ever have that here in Hawaii. Good morning to you, Keli’i.

Keli’i Akina: Good morning, Johnny, and to all your listeners. Great to be with you today.

Miro: Very important topic, and we want to keep as many local families here in housing. There’s a lot of talk about the housing crisis here in Hawaii, especially the lack of affordable housing. How bad is the situation, really?

Akina: Well, you can talk to anyone, and they’ll agree that there’s a housing shortage, and that’s a problem here in our state. Hawaii’s high housing costs are one of the main reasons that people leave the state. We have a negative population growth as a result. The problem has gotten so bad that since fiscal year 2016 — can you believe, Johnny, that 22,000 residents have moved away from the island, and that’s a net number. So actually, more have left, with the majority citing the high cost of housing in particular as being the major reason.

Miro: Have you talked to a lot of people who have actually left?

Akina: Oh, absolutely we’re tracking them. We have a project at Grassroot Institute called “Why We Left Hawaii.” It’s available on our website, grassrootinstitute.org. It collects the stories of people who’ve left Hawaii. For example, there was Tom and Ycrem Holloman. They moved away recently to Indiana, and they told us, “Our tiny Hawaiian home was more expensive than our four-bedroom home on one full acre here.”

People who leave Hawaii talk about better opportunities elsewhere and the high cost of living in Hawaii, especially housing. Do you know that Hawaii has the highest median home value in the nation? The median price for a single-family home in Oahu just hit $920,000. That’s a 20% increase over the last year. That’s extraordinary.

Miro: No kidding. Why is the housing so expensive here in Hawaii?

Akina: Well, in part, it’s a problem of supply. Existing housing on most islands isn’t sufficient to meet the population needs. What the state needs is tens of thousands of new housing units just to keep up with the current demand, but housing growth has also stagnated in Hawaii. Oahu’s lagging at least 5% behind comparable locales in the mainland when it comes to housing growth. 

No matter how you look at it, we’re falling behind. There just aren’t enough homes to meet the demand, and the result is that we have shortages and higher prices. It’s simply basic economics, supply and demand, Johnny.

Miro: Keli’i Akina, the President and CEO of Grassroot Institute of Hawaii, grassrootinstitute.org. The housing shortage — what’s behind this housing shortage?

Akina: One factor is that unfortunately, development of housing in Hawaii is a slow process. It can take more than a decade for the average project to get all the way through the permit and approval process. It could take even longer if there are some interveners or lawsuits involved. Then there are the many land-use regulations and zoning laws that restrict development and govern what kinds of housing can be built.

In addition to that, we’ve got the [Honolulu] Planning Commission, [and] the State Land Use Commission, [which] acts as an extra level of regulation that can further slow down development. The LUC has decision-making power over larger development projects and the power to act almost like a state zoning board. Put all these factors together, it takes an extremely long time for developers to be able to complete projects.

Miro: I want to get the web address correct. It’s grassrootinstitute.org, grassrootinstitute.org. Keli’i Akina joining us this Sunday morning. 

We’re an island state, obviously. Isn’t this the problem, caused by a shortage of land? Isn’t the problem caused by this land shortage?

Akina: Well, Johnny, that’s a common misconception. It may seem like, because we’re an island state, we’ve got to have a shortage of land.But the truth is, do you realize that Hawaii only builds housing on 5% of the land statewide, or we only develop on 5% of the land? What that means, believe it or not, is that 95% of all land is not developed whatsoever. Most of that is going to either preservation or to agriculture. Most of the agricultural land is not even being used for agriculture.

The bottom line is this: If we increase the 5% on which we developed to only 6%, that’s a small increase but it’s a big increase in the supply of land available for housing. That’s a 20% increase, just by going up one percentage point, that could help us to bring down the cost of housing.

Miro: Well, what actions has the state Legislature taken to address the housing crisis?

Akina: Well, this session of the Legislature, there’ve been several proposals that the Grassroot Institute has supported, specifically, efforts to reduce regulation and allow for innovative solutions to zoning issues. Currently, the counties only have decision-making power to amend district boundaries up to 15 acres. Anything larger has to go through the State Land Use Commission, which can delay the project for years. If that cap were increased from 15 acres to 25 acres, then more housing projects could get approved at the county level.

Grassroot testified in favor of SB137, which would have done that in certain projects. But unfortunately, that measure didn’t pass. We’re hoping that in future, there will be these kinds of remedies to our long delays.

Miro: How about — did the lawmakers try anything else to help housing?

Akina: Well, there were also a series of housing reforms proposed this year that would have cut through the red tape. Some of these measures would have done things like allow religious and educational institutions to build housing on their property, or allow construction of fourplex units in single-dwelling unit areas. Also, some would have allowed certain types of detached dwellings in residential zones — that would have been very helpful. Other possibilities would have been to allow homeowners to upzone their property on their block to allow for more housing. 

All of these would have reduced the bureaucratic burden that we see in building more housing, by reducing the number of approvals that are needed to move through the process. Those approvals can be stymieing and delay things for a long time. Unfortunately, as of today, we haven’t seen these pass. It’s not over until the Legislature closes its doors, but it’s not looking good for these improvements.

Miro: Keli’i Akina from Grassroot Institute of Hawaii, grassrootinstitute.org for more and, of course, for the great work they do. Were there any measures that you were concerned about?

Akina: Well, we did voice concerns about SB1, which has good intentions. It’s also known as the ALOHA Home bill, and it would have created a program to build state-owned long-term leasehold homes for residents who meet certain requirements. Here, our concerns were more about the prohibitive cost of the project, its feasibility and the fact that such projects tend to trap their tenants in a property with little equity, which doesn’t do much to help the people that the bill is actually aimed to assist.

Miro: A lot of talk about the lack of affordable housing. What exactly is affordable housing? How is building it different from other housing?

Akina: Well, that’s a very good question. As a rule, when people talk about affordable housing, they’re talking about homes that are sold below the market rate. These affordable homes can only be sold to people who make a certain income, have a certain limit on their income. For example, in Hawaii, that’s generally people who make $100,000 or less. In designated affordable housing projects, those people are able to purchase homes below the market prices.

Miro: Is there a way to speed up the housing development?

Akina: Yes, absolutely. The state Legislature created the 201H development process, which is known as a fast-track process, but a certain percentage of the units must be affordable and sold below market rates. Keep in mind, though, that this fast-track process can often take between three and five years. In Hawaii, that’s called fast-track, and the slow-track for not-affordable housing projects can take 10 years. Either way, it does take a long time to build housing.

Miro: That’s the subject of Maui’s newest affordable housing bill?

Akina: Well, I’m glad you asked that. I know you have a lot of listeners from Maui and the neighbor islands and stuff. The Maui County Council just passed a new inclusive zoning bill that raises the affordable housing requirement for 201H projects, which we were talking about earlier. Now, instead of having to meet a 50% affordable housing requirement, a 201H project on Maui will need to meet a 75% affordable housing requirement. In other words, 75% of the units will have to go to affordable housing.

To be clear, that means an extraordinary number of the projects, or the units, will have to be affordable housing projects. This gives Maui the second-highest inclusive zoning requirement in the country, behind cities like Aquinnah in Massachusetts and Santa Paula and Oxnard, California, all of which have 100% affordable housing requirements. Bottom line, this makes it extraordinarily expensive for developers to actually carry out the projects, and makes it totally unprofitable, taking away any incentive for them to really want to build affordable housing.

Miro: The bill would require more affordable housing. That sounds good, right?

Akina: Well, you’ve got it: It sounds good, but just remember that the road to hell is paved with good intentions.

Miro: What’s the problem with requiring more affordable housing?

Akina: Well, the problem is that it would actually result in less affordable housing. It’s a simple question of economics. Raising the percentage of required affordable housing for a project beyond 50% makes the project unprofitable unless it receives government subsidies. But this would make building projects less profitable for developers. When building projects aren’t profitable, developers simply don’t build. They don’t build that kind of project at all, and the end result is fewer affordable homes, not more. This is one of those measures in our City Council or County Council that sounded good but is going to result in actually reducing the availability of affordable housing.

Miro: People want to know information to back that up. Did you find data on that?

Akina: Oh, absolutely. As a matter of fact, we scoured the country for examples of how this works or doesn’t work. We used a national housing cost calculator and found that even under Maui’s previous requirement of 50% affordable housing, a low rise 30-unit apartment project costing $18 million would net a loss of $7 million to a developer. It just would not make sense for them to move forward. They just couldn’t afford to lose money.

Miro: Have any other states or areas, I should say, tried requiring such high affordable housing levels?

Akina: Yes, but the results have not been good. In the three U.S. municipalities with 100% affordable housing requirements, housing growth declined by more than 60% in the decade following the new rule. That’s staggering. In other words, the Maui ordinance is going to hurt people, the very people it’s intended to help by making it unprofitable to build affordable housing for them.

Miro: All right. What’s the quickest way to build this housing?

Akina: The quickest way to build housing is just to build a mansion. That process is much faster because it is just one house on one acre, and therefore, it can be built on agricultural land. That means it doesn’t need these zoning changes. Now, if you can do that, you can get your little compound up and running. 

When regulations make it unprofitable to build affordable housing, developers sometimes switch to building high-end housing instead, since it’s much quicker and easier, and more profitable to build. The kinds of rules that Maui has recently passed will incentivize developers to go after these homes for wealthy people, rather than build affordable housing.

Miro: Wouldn’t developers just always build these high-end housing, then? Isn’t it always more profitable to build mansions?

Akina: Well, surprisingly no. It can actually be more profitable to build affordable housing, but only if the regulations aren’t so obtrusive. Building affordable housing can be very attractive to developers if there’s a cost-benefit ratio that works for them. 

It really is a myth that developers won’t build affordable homes. The 201H fast-track process is attractive to developers who want to complete a project in less than a decade, but not if they won’t make a profit in doing so.

Miro: Would the Maui 75% affordable housing requirement hurt housing?

Akina: Yes. Strangely, it would probably incentivize developers to switch from building affordable housing, and instead, build — as I mentioned earlier — mansions for the wealthy. 

The funny thing is that most of the developers we’ve spoken to would rather build larger projects that include affordable homes because it’s more profitable than building mansions, but only so long as the affordable homes requirement for those projects is below 50%. So you actually hurt the situation for those who need affordable homes by raising the requirement for projects higher than 50%.

What that goes to show is that good intentions can lead to undesirable and unforeseen consequences. Instead of increasing the supply of affordable housing, the Maui ordinance is more likely to solidify Maui’s standing as a place for the wealthy.

Miro: Wow. What could the state and the counties do to help address Hawaii’s housing crisis?

Akina: Well, as we’ve discussed, regulations and barriers to development are what have slowed down Hawaii’s housing growth. More regulation will not solve the problem; instead, we should look for ways to streamline the bureaucracy, reduce the time it takes for housing projects to get through the permitting and approval process, and reform zoning and land-use laws to allow for more innovation and creative housing solutions. Those are things that’ll work.

Miro: All right. Do you have any reports or studies on how to build more housing?

Akina: Oh yes. The Grassroot Institute has released two separate publications on this topic. One focuses on reforming the Land Use Commission so that it functions less like a state zoning commission. 

Another Grassroot publication focuses on zoning reforms that could help create new housing solutions. The reforms that we look at include allowing smaller housing and allowing smaller lots, allowing taller buildings, allowing extra kitchens, allowing accessory apartments, allowing subdivision of existing structures, and so on. Just making several of these changes, you can make the costs go down and be relatively affordable for development and purchase.

Miro: All right. As we get set to wrap up our conversation with Keli’i Akina, CEO and president of Grassroot Institute of Hawaii, any more final thoughts on housing?

Akina: Johnny, I’m very concerned, and so is everyone at the Grassroot Institute, about the lack of affordable housing in the state. But the problem is, we cannot create more housing by making developers pay more and making the project of development of affordable housing unaffordable. 

If we can’t create the right incentives to encourage housing growth, the housing scarcity will continue and people will hurt. The people hurt worst will be the ones that policymakers are trying to help through their affordable housing proposals.

Policymakers, our legislators, and others in office can learn more by grabbing a copy of a report on our website, entitled “How to Build Affordable, Thriving Neighborhoods,” and our report called “Reform the Hawaii LUC to encourage more housing.” Those are available at grassrootinstitute.org, that’s grassrootinstitute.org.

Miro: A very important topic, well-researched, well-documented. Once again, at grassrootinstitute.org, grassrootinstitute.org. Keli’i Akina, CEO and president, it’s been a pleasure speaking with you once again. Have yourself a fantastic Sunday, hope to talk to you soon.

Akina: Much aloha. Take care.

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