Akina, Miro discuss Institute’s ‘shocking’ new housing report

Institute President Keli‘i Akina says report shifts the focus from a scapegoat to policies that can actually result in more housing

from Grassroot Institute of Hawaii August 29, 2022

A new policy brief from the Grassroot Institute of Hawaii on the impact of “outsiders” buying Hawaii homes was “shocking to many,” according to radio host Johnny Miro, of H. Hawaii Media.

Miro interviewed Keli‘i Akina, Institute president, this past Sunday, Aug. 28, 2022, about the report, “The ‘outsider’ theory of Hawaii’s housing crisis.”

Akina noted that it is the first of its kind to actually look at the data, rather than rely on “mythical reasons” for the crisis. And the data, he said, shows that outside buyers from the mainland or foreign countries are not the main reason for Hawaii’s high cost of housing.

Akina said the real culprits for Hawaii high home prices are:

>> State land-use laws, which restrict urban development in the state to just 5% of all available land.

>> County zoning laws, which regulate what can be built and where within the areas zoned urban.

>> Permitting delays, which add to the costs and uncertainty of homebuilding.

>> Unnecessary permits, such as for most home-improvement projects, which complicate matters and add to costs and delays.

>> Lack of “by right” zoning, which allows homebuilding projects that meet all the appropriate regulations to proceed without having to go through public hearings.

>> “Not in my backyard” (NIMBY) groups, which usually consist of established homeowners who do not want new housing in their neighborhoods.

Akina said the the “outsider” theory has been popular because, “It boils down to people looking for an easy scapegoat.” However, he said, “Laws that try to limit certain types of people from buying homes will never solve the problem. That’s why we wrote the report: to guide the conversation back to policy reforms that can actually make a difference.”

TRANSCRIPT

8-28-22 Keli‘i Akina and Johnny Miro on H. Hawaii Media 

Johnny Miro: Good Sunday morning to you. It’s Johnny Miro. It’s time for Sunday morning public-access programming on our six H. Hawaii Media family of radio stations here on the island of Oahu: 101.1 FM, 97.1 FM, 107.5 FM, 101.5 FM, 103.9 FM, and 96.7 FM. 

I have the pleasure once again [of] being joined by the president and CEO of Grassroot Institute of Hawaii, Keli’i Akina. It’s a very, very important topic to many, and it’s shocking to many. I was quite surprised to find out the results of their recent study. Good morning to you, Keli’i.

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

Miro: Yes. You just did a really in-depth study about the “outsider” theory of Hawaii’s housing crisis on top of all your other great studies at Grassroot Institute of Hawaii, which can be found at grassrootinstitute.org, all right? 

The results were shocking to many — me included. I was definitely one of those who said the “outsiders” are influencing things. You recently did that study on housing. What was the study about?

Akina: Well, you know, there are a lot of myths about who is actually buying homes in Hawaii and who is actually causing prices to go through the roof. So we wanted to take a look at actual data: where the buyers come from. We’ve been hearing a lot that “outside buyers,” such as from the mainland or foreign countries, are the main reason for Hawaii’s high cost of housing. So we decided to go to the data.

Miro: What did you folks find? Are outside buyers the main reason that Hawaii has high housing prices?

Akina: Well, a lot of people think that. But actually, no. The data shows that outside buyers are not the main reason. It’s true that they do affect the price of housing to some extent, but not as much as you’d think. 

It’s also true that local buyers affect the price of housing as well. Outside buyers are simply not the main reason for our high price of housing. In fact, outside buyers, such as from the mainland or foreign countries, have been buying a smaller and smaller share of Hawaii homes over the last 10 years.

Miro: Which is shocking to me. Can you explain what you mean by outside buyer? Where are they coming from?

Akina: Well, it’s a very simple definition. We look at their actual residence. We mean homebuyers from another country who reside there, or from another state in the United States. So we looked at the data that is out there about their own purchases.

Miro: All right. Are they buying a lot of homes?

Akina: Well, last year, about 22% of the homes that were purchased were from mainland buyers, and about 2% were actually from foreign countries. So the whopping amount of purchases — the majority, 76% — were actually by local buyers. So it’s local buyers who are really driving the market to the largest extent. That figure has been growing over the last decade.

Miro: I was surprised. Many were surprised. How about you folks at Grassroot Institute? Were you surprised at what you found?

Akina: Well, actually, we were very pleased to see that what we suspected was confirmed by the data. But a lot of people are surprised. The data is telling us a different story than what most people think. 

Some people have even questioned us about the data, but that comes directly from the Hawaii Department of Business, Economic Development and Tourism, and tax-assessment records, and national data that’s all public. So we are just citing the most accurate and reliable government data that is out there.

Miro: All right. Some might be saying that there might be some nuances to that data. And are you sure that all of the local buyers are really local residents?

Akina: Yes. In any dataset, there are some nuances. For example, imagine a Hawaii resident who moves to the mainland and then returns to Hawaii after a few years to buy a home. Are they an outside buyer or a local buyer? So yes, we recognize that there are some nuances, but we’re looking at the best data that is available and seeing the generalizations that are reliable to make from that data.

Miro: Keli’i Akina from the Grassroot Institute of Hawaii, president and CEO, joining us once again on this Sunday morning. The topic is the outsider theory of Hawaii’s housing crisis. You can delve into that deeper at grassrootinstitute.org. 

What about the trend over time? Have outside buyers been buying a bigger share of the market over time?

Akina: That’s a good question. And the data shows that the opposite is true. Between 2010 and 2020, the share of homes sold to outsiders steadily decreased, while the share of homes sold to Hawaii residents increased. So it’s important to see this over a 10-year period. And all the while, the average home price in Hawaii kept continuing to increase. The real story here is that local residents have been buying a lot more homes over time than outsiders.

Miro: But aren’t outside buyers, Keli’i, also buying a lot of homes?

Akina: Yes, that’s true, but it’s not the highest amount nationally. If you look across the nation, outside buyers are actually buying more homes in other states. 

Vermont and New Hampshire have higher percentages of outside buyers than Hawaii has, yet they’ve got much lower housing prices. And in some states, the opposite is true. For example, California has a very low percentage of outside buyers, at only 2%, but it has amongst the highest home prices in the nation.

Miro: All right. So is there any pattern between the outside buyers and home prices across the nation?

Akina: Well, I’m glad you asked that question. Now that we’ve looked at the data, we see that there is no clear pattern. We looked at all 50 states and over 2,300 counties, and there’s no statistical pattern that emerges. 

And that’s important because it means that outside buyers are not necessarily the main cause of the housing shortage in Hawaii. Certainly, they have an effect, but they’re not the cause.

Miro: Here in Hawaii, if an outside buyer purchases a home, doesn’t that take it off the market for a local buyer?

Akina: Well, not necessarily. It depends on which homes you’re talking about. Local residents and outside buyers buy different types of houses. Local buyers are looking for less expensive homes, while mainland and foreign buyers are interested more in the high-end real estate properties, homes around luxury resorts and golf courses, along the beaches, or in luxury high-rise buildings.

Let me give you some statistics from the report. Between 2008 and 2021, we found, first, that local residents paid $549,972 on average for a home. Mainlanders, however, paid $753,740, because they’re buying higher-end homes. And foreigners paid $974,975. So local residents and outsiders aren’t bidding on houses in the same market, necessarily.

Miro: All right. So these outside buyers aren’t the main cause of Hawaii’s high home prices. And the question is: What is?

Akina: Well, I’m so glad you’re asking because that was the purpose of our study. It wasn’t so much to defend outside buyers. The purpose of our study was to actually find what causes our prices to be so high, and our homes to be so scarce in Hawaii. 

And if you look away from the mythical reasons, such as the outsider buyer theory, the main cause of Hawaii’s home prices is our high regulatory barriers from the government that limit the building of new homes. And they cause the housing shortage.

In our report, we surveyed home sales across the entire country. And we did find one clear pattern: Higher land-use restrictions are positively correlated with higher housing prices. 

In other words, in states where you have more land-use restrictions, you end up having higher prices for houses. So states like Hawaii and California that have high housing regulations also have high housing prices, and states like Alabama and Iowa with few housing regulations have very low housing prices. So really, state zoning regulations are a major driver of Hawaii’s housing prices.

Miro: All right, Keli’i, can you elaborate on this? How do land-use laws affect housing prices?

Akina: Well, right now, the state Land Use Commission has a say on where certain kinds of development can happen. According to the Land Use Commission, there are four types of land in Hawaii. There’s agriculture, conservation, rural and urban. 

Now, urban land, where it is easiest for housing and businesses to build, makes up only 5% of the land in the state. With this limit on available land, the demand for what land is available drives the price of new development higher. That’s sort of an artificial scarcity. In other words, we’re only able to build on 5% of the land mass. We cannot build homes on 95% of the land mass in the state of Hawaii.

I’ll give you an example of this problem. Hawaii County has the most expensive housing prices of any county in the United States, but the Land Use Commission only designates 2% of the land on the island of Hawaii as urban. And that limits possible development. It creates an artificial scarcity. The fact is, if we built on a slightly higher percentage of land, it wouldn’t harm our agricultural industry, and it wouldn’t harm our environment whatsoever. But we don’t do it. We limit ourselves to 5%.

Miro: Hmmm. Solving Hawaii’s housing crisis: The “outsider” theory of Hawaii’s housing crisis. Grassroot Institute of Hawaii. And to find out more about this, it’s grassrootinstitute.org. Joined by Keli’i Akina, president and CEO of Grassroot Institute of Hawaii. So I guess the question is, how can we fix this?

Akina: Well, going back to what we mentioned earlier, since a big problem is the artificial scarcity caused by the fact that we could only build on 5% of the land, let’s do a thought experiment that’s going to require just a little bit of math. 

A simple change in that 5% — let’s say designate 6% of the land for urban development and housing, instead of 5% — we could increase the availability of land, by going from 5% to 6%, if we would increase the availability by 20%. So the Land Use Commission could also give counties a little more power to change the designation of a parcel of land. Counties can only do that.

Miro: All right. What about zoning laws? And how do they affect housing prices?

Akina: Well, zoning laws are similar to land-use regulations. They say you can build a new business here, a new home development here, but not over here. Unfortunately, many parcels of land are zoned in a way that limits their housing potential. 

A parcel zoned for a single-family home, for example, could be used to build a triplex, which would add significantly more to the available housing in the area. That’s an easy solution that could increase the capacity of a small amount of land to provide housing. But if zoning prohibits a triplex, for whatever reason, a developer will build a single-family home, which is really an inefficient use of that land and houses fewer people.

Miro: Keli’i, how do we improve the zoning laws here?

Akina: Well, as counties and cities update their zoning codes, they should emulate cities like Minneapolis, which recently allowed duplexes and triplexes wherever single-family homes could be built. And that ended minimum parking requirements and changed maximum occupancy standards as well. So this has really added to the supply of homes in Minneapolis. Now, all of these reforms were just designed to expand available housing.

Miro: The report builds on some previous research that shows Hawaii’s housing regulations are among the most restrictive in the country. You know that. Can you discuss some of that earlier research?

Akina: Sure. A study earlier this year from the University of Hawaii Economic Research Organization, which we call UHERO, reviewed Hawaii’s housing regulations. It found restrictive laws are a major reason Hawaii’s four counties are each among the nation’s top 15 most expensive counties to buy a house in. These restrictive laws can include land use, permitting delays and zoning restrictions, just as I mentioned earlier.

Miro: All right. So then other than land use and zoning, what are some of the other obstacles the new housing projects are facing?

Akina: Well, new home projects often face opposition from what we call “Not in my backyard” or NIMBY, organizations and groups. They’re usually residents who do not want to see additional housing in their neighborhood. 

When county and city officials hear from the public on proposed housing projects, they often hear from NIMBYs. But they do not hear from residents who are working two jobs, struggling to make ends meet, who do not have the time to show up at a Council meeting. These are people who are most in need of lower-cost housing, but they often don’t have input into the process.

Miro: So, Keli’i, so what’s the solution to the housing shortage then?

Akina: Instead of a “Not in my backyard” mentality, we need to have a “Yes in my backyard” mentality. And that would certainly help lower housing prices. 

One way to do this would be to use what we call by-right development. By-right development is when building regulators lay out some basic requirements any home project must meet. It’s a checklist. 

If a proposed project meets these requirements, it has the green light. In that case, it doesn’t need to go through a process where politicians can vote on the project and NIMBYs can stall it for years.

Miro: OK. Earlier you mentioned permitting delays. Can you describe the challenges developers are facing when applying for a building permit?

Akina: Yes. Developers and homeowners are facing huge delays when applying for a permit — sometimes for more than a year. And in Hawaii, you need a permit for almost any building improvement or new project. You need a permit if you want to put up a deck or a fence, or even if you want to put up a tent. But it can take months to get a permit. For example, on the Big Island, residential permits are taking an average of 143 days to issue this year.

Miro: So how can county and city governments, then, Keli’i, speed up this approval process?

Akina: The local governments could require permits for fewer projects. In Ontario, Canada, you don’t need a permit to re-roof your house, restore your house from a flood, put in flooring, air conditioning, fencing, pool heaters, landscaping, windows, decks and many other things. You can just do that as needed. 

Governments could also speed up the approval process by contracting with third-party reviewers. Honolulu County uses this system. The city basically says, “We trust you, reviewers, since we’ve already certified you. We will approve whatever you approve.” Then Honolulu randomly checks reviewers to make sure that they’re doing it right.

Miro: We’re joined by Keli’i Akina, president and CEO of Grassroot Institute of Hawaii, discussing the housing crisis here, how to solve it, and the outsider theory of Hawaii’s housing crisis. 

So I guess one of the questions would be: In light of all this evidence, why do you think this outside theory is so common then?

Akina: Well, I think it boils down to people looking for an easy solution or an easy scapegoat to blame. It’s very convenient, let’s say, or easy, to accuse mainlanders of buying all our houses and then moving for solutions such as taxing them and regulating them. 

Now, I do understand the frustration of not being able to afford homes, so I understand the motivation. We all want to find ways to cut housing prices, but we’re not going to solve this problem if we go after the wrong causes or things that are actually not causing the problem. We have to look at the data.

While it might be tempting to blame outsiders for our housing crisis, that’s just not accurate. That’s not what the data shows. And that’s the reason we published this report. Hawaii needs to look at our own restrictive laws that our own government puts up as the primary reason that we have skyrocketing costs of housing and scarcity.

Miro: Now that this report has been out, I think, for a few weeks now, how have politicians, the media and policymakers reacted to this report?

Akina: Well, Johnny, we’ve been very encouraged to see the report making waves in the media and amongst state leaders. It’s sparking discussion on the best solutions to our housing crisis. 

Of course, some people still believe that outside buyers are the main cause of Hawaii’s housing prices, because they’re not looking at the data. But this is the first time that an independent study has actually looked at the data and answered the question. 

So it may take some time before attitudes ultimately change, but they are moving in the right direction based upon the conversations that we’re hearing.

Miro: Why are so many people still believing the outside buyers are the main issue?

Akina: Well, as I mentioned before, it’s easy to have a convenient scapegoat. Lawmakers and politicians love to target outside buyers because it means they then don’t have to focus on the difficult reforms that are needed to really solve the problem. They dream up laws to try to limit certain types of people from buying homes, but that will never solve the problem. That’s why we wrote the report: to try to guide the conversation back to policy reforms that can actually make a difference.

Miro: Hopefully, that indeed is the case. All right, Keli’i. Any last words for our listeners on this topic?

Akina: Well, I’d like to give kudos to our lead researcher on the project, Jensen Ahokovi. He did a great job and has done wonderful work. And if you’d like to read the report yourself, anyone can go to our website and find it right there, grassrootinstitute.org.

Miro: Keli’i Akina, president and CEO of Grassroot Institute of Hawaii. Once again, thanks so much for dropping by and discussing a very important topic. One of the most important topics, matter of fact, here, I guess, people think about it on a daily basis. And a shocking report for many who believe that the outside influence was the major driver of the prices here locally. 

Thanks for stopping on by. We hope to be speaking to you very soon on another important topic that the Grassroot Institute of Hawaii will be covering. Have yourself a fantastic Sunday.

Akina: Johnny, much aloha to you and your listeners.