Keli‘i Akina presents to the Hawaii Island Housing Coalition

by Grassroot Institute of Hawaii, December 20, 2022

Hawaii has the most burdensome housing regulations in the country, and Hawaii County has more barriers to housing than any other county in the United States, according to a recent study by the University of Hawaii Economic Research Organization. 

Grassroot Institute of Hawaii President and CEO Keliʻi Akina discussed those findings in a presentation given to the Hawaii Island Housing Coalition back in October. He explained how housing regulation translates to increased costs and presented solutions to Hawaii’s housing affordability crisis he said has contributed to 22,000 people leaving the state since 2016 “because they simply can’t afford to live here.”

Since the state Land Use Commission was created in 1976, “there’s just been a massive falloff on development,” Akina said. Indeed, only 2% of Hawaii island’s land is committed to urban housing and development. Statewide, that percentage is 4% for Kauai and Maui and 26% for Oahu. 

“Developers who try to build affordable housing have to go through public hearings where the community comes together and says, most often, ‘Not in my backyard,’” Akina said. “Hawaii’s housing policies are set up to favor the fabulously wealthy … [because] it’s all that’s left for developers to develop.”

Hawaii’s burdensome permit requirements and permit delays, as well as corruption and staffing shortages in those departments, have also contributed to skyrocketing housing costs, he added. 

Akina listed several solutions to Hawaii’s housing crisis, including reducing the number of projects that require a permit as well as allowing more by-right development. 

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TRANSCRIPT

Keli‘i Akina presenting to the Hawaii Island Housing Coalition

Dr. Keliʻi Akina: Aloha mai kākou. I’m glad you’re all here today, and I’m so happy to be with you. It’s not usual that I come to so formal a setting and hear such beautiful mention of our culture and our heritage, but all of you have a deep heart for what you’re doing. 

Big Island is very special to me, and so when Joe Kent — whom you may know, our executive vice president — let us know about this opportunity, I was just delighted to be able to join you.

I’m a trustee-at-large at the Office of Hawaiian Affairs, but I’m not here in that capacity today. I’m here as president of the Grassroot Institute, a public policy research organization. At the Institute, we attempt to educate people about pono values of individual liberty, economic freedom and accountable government. 

One of the things we promote at the Grassroot Institute is practical change, in the spirit of the phrase that I call “E hana kākou.” We all know what “E pule kākou” means, and that’s so important for us to pule together.

It’s equally as important for us to hana — e hana — to work together. And literally, that refers to the ergonomic practice of putting our hands and feet and our whole being together to make things happen.

So at the Grassroot Institute, we remain independent. We’re not interested in partisan distinctions, left or right. We’re more interested in all people coming together. We’re also independent in the sense that by design, we do not take funding from the government or from political parties or any of the businesses that we comment upon. We need that independence for the people of Hawaii.

We’re talking today about easing Hawaii’s housing crisis. We are in a crisis. People can’t afford to buy homes, they can’t afford to rent homes. It’s led to an exodus of our population to the mainland. At the Grassroot Institute, we track these people as well. Our population has declined from 2016 to 2020, and it’s projected to decline further. 

Locals are leaving, like Nate Hara. He says, “I was born in Waimea, Kauai. Raised in Hilo. I lived in Hawaii until I was 26. The cost of living, continuous raising of taxes and fees, and the state’s need to control everything led to my family and me moving to Texas.” 

Now, Nate goes on and he says, “In order for my family and I to move back, we would need to see change that betters the hard-working local people.” How many of you know people like this? 

In addition, Michael Cheney puts it this way: “I was born in Kahuku and raised in Hauʻula — that’s on Oahu. I lived in Hawaii for about 26 years. It was a hard decision to move out of Hawaii because Hawaii was all I knew. If you don’t have a steady job and you are just starting out as a family, it will be a struggle far beyond what people can imagine.” 

That story is told over and over. Since 2016, 22,000 people — and that’s a net figure — have moved away from Hawaii, and we’re seeing more and more do that because they simply can’t afford to live here.

Here’s a recent survey that showed that 47% of people that cited the high cost of living as the No. 1 factor in moving away, and in particular, they cited housing. 

The Economic Research Organization of the University of Hawaii — UHERO — showed that Hawaii indeed has the highest regulatory barriers in housing in the nation, and that leads us to having the highest housing barriers overall. 

When you break that list down by county — this is something interesting to all of us here today — Hawaii County has the highest number of regulatory barriers in the nation for housing. And this is a survey that has gone through every county across the country.

In Hawaii, on average, it takes more than a year — and very much longer for many people — to get a permit approved, and Hawaii’s regulatory hurdles have led to the most severe housing shortage in the nation. The state is short nearly 200,000 units — 198,000-plus. 

Now, David Callies, whom I know from the University of Hawaii, he’s emeritus professor of law at the William S. Richardson School of Law. He just retired. He wrote a classic book. 

And many of you — by the way, I want to acknowledge this — are far more expert than I am on particular aspects of housing, but you’ll want to read “Regulating Paradise” by David Callies. He goes through our land use and zoning laws. It’s the most comprehensive study ever, and it’s made him a national expert on that.

According to Paul Brewbaker, who many of you know as an economist, Hawaii saw a significant drop in housing development after the creation of the state Land Use Commission. 

So if you see on the left side of this chart [is] our housing development prior to having a Land Use Commission. Then take a look at this period of time about 1975 when we started the Land Use Commission — there’s just been a massive falloff on development. 

Now, that’s not just anecdotal. That is an actual correlation with a cause. The regulations of the Land Use Commission are definitely part of slowing down the development of housing.

Hawaii housing developments have to go, as a result, through six layers of regulation at different government levels. It’s like a six-layer cake over here before you can actually get something built. And at every single stage, there’s the opportunity for the public to intervene in some way or another that takes us through a more difficult process. 

We start at the very top with the Land Use Commission, then the county plan, then the community plan, then the county zoning, then special management area, then the historic district. 

And there are others under consideration now. On the island of Maui, they have added one involving water as well. And there are some regional layers that developers have to go through.

But let’s take a look at some of these, because it gives us an idea as to the challenges we have in providing housing for our people. We can classify the Land Use Commission into four different categories: agriculture, conservation, rural and urban. 

So let’s take a look at Hawaii County for a moment. The green area on the map is our agricultural land here on the island. The blue is our conservation land. The little red areas that you see there, which make up only 2% of the county, is actual development. And yellow is rural, so that’s so tiny, you could probably hardly see it. 

As you see, despite what is said very often, virtually no land — almost no land on the island, 2% — is committed to urban housing and development.

Now, if we look at other counties, it’s not as tiny as the Big Island, but it’s also small. Kauai — 4%. Oahu — 26% with the highest density. Maui — 4%. Hawaii island, overall, as we mentioned, is 2%. In other words, statewide, we develop on just about 5% of the landmass, largely because of our Land Use Commission rules. 

If a developer wants to change a parcel’s land designation, it would need to request for a district boundary — let me go up just a little bit here, again — a district boundary amendment at the county level. 

And developers who try to build affordable housing have to go through public hearings where the community comes together and says, most often, “Not in my backyard,” and that’s what kills many projects.

This has killed so many projects that they’re coming up with a term for it all the time: NIMBY. And those who challenge it want instead to promote YIMBY — “Yes in my backyard.” 

So developers who try to build affordable housing often get their projects denied at these hearings, and that’s one reason why it’s even easier to build mansions instead of affordable housing in Hawaii. Developers who get their affordable housing projects denied often shrug it off and just build mansions instead, which don’t require district boundary amendments or hearings.

Let me give you a picture of a mansion. Can anybody recognize whose mansion this is? Is it yours? It’s Oprah Winfrey’s. It’s on Maui. It fits very neatly into the definition of agricultural zoning since it’s just one house on many acres. 

Hawaii’s housing policies are set up to favor the fabulously wealthy — not intentionally so, but unintentionally. It’s all that’s left for developers to develop, given the barriers they have given by the government.

That brings us to a concept that some of you are familiar with: by-right development. It’s gaining in popularity. By-right development is a system that is a rule-based approval process. It allows less discretion to political whims of politicians. So, for example, we can look at affordable housing. If there’s a low-rise affordable housing project, why not just make it automatically approved, quote, “by right”? 

Another thing that could be done is to publish pre-approved building plans, so developers could simply grab one of these plans and submit it, and it would automatically be approved.

Let’s go to another regulatory layer, and that’s the permitting process itself at the county level. As you know, Hawaii County announced back in August that it has hired an outside consulting firm to fix the bugs in the EPIC system, which is the county’s new electronic permitting system that it launched in July of 2021. How many of you have used — if you’d shout out to me — have used the EPIC system and found it to be a little more efficient?

Well, hopefully, it will be, but it’s got some bugs that have to be fixed. The system has run into several problems over the past year due to technology bugs — which is why the county hired the consultant — and there are many permits waiting for intake approval or rejection on the EPIC system right now. 

Between March and August of this year, residential permits have taken an average of 205 days to issue, while non-residential permits take 213 days. The residential ones 205, non-residential 213. Statewide, the permitting process is actually three times lower than the national average, according to UHERO.

Let’s take a look at some of the other counties and their processing system[s]. Honolulu County, and here’s the Honolulu Municipal Building. An audit in 2020 said that the department was understaffed, which created a backlog. Honolulu is now trying to hire 160 workers to process permits. The audit also showed that permits took 108 days for residential projects and 432 days for commercial projects over $1 million. 

There’s also been corruption in Honolulu’s permitting department — you see that in the news. A permitting worker took $63,000 in bribes over the course of a decade, and now she’s behind bars. And there’s several other permitting workers that are currently being investigated. That’s what’s going on in Oahu. 

How about on the island of Maui? A recent audit of Maui County Planning Department said that the department was understaffed, which is creating a backlog. The audit also said there was high turnover and low morale and communication within the department, and its management is severely damaged. 

So it raises the question: Why are permitting departments in Hawaii so slow? What are some of the reasons for that? 

Well, the first reason, and this is the one that’s most commonly cited, is the staffing shortage. And that was exacerbated by the lockdown years and the great resignation, which saw many private and government workers leave their jobs for other opportunities — or none at all. 

Hawaii County has a staffing shortage, too, but they’re actively filling those positions. According to testimony back in August, we heard that they have 28 out of the 36 inspector positions filled, and six of the 11 plan reviewer positions are filled now, so there’s some progress being made.

Inflation is another factor limiting staffing. Private sector companies are able to shift their pay scales quickly, while government bureaucracies take a long time to shift pay scales, and this can make private sector work much more attractive. 

Many hiring departments and human resource departments also have their own bureaucratic mazes to go through. For example, Honolulu is short 3,000 workers, and that’s because it takes five months to get through the city’s bureaucratic hiring process. 

Many permitting departments across the state have lost leadership and have low staff morale, and that contributes to the high turnover and the loss of institutional knowledge.

So that’s one factor. But secondly, too many things that need permitting are in place, too many regulations. We just require too many permits. That’s the bottom line. Our building codes are very stringent. We require permits if you want to build a shed, a rock wall, a fence, certain kinds of tents or certain air conditioning systems, and we’re used to that here in Hawaii — standing in line to do this. 

But do you really need so many permits for so many different things? Most counties in the U.S. have fewer local requirements for permits, and many counties have no permits or requirements or building codes at all.

For example, Tennessee, it has a law which allows local governments to opt out of state building codes for one and two-family dwellings. Local governments have the option to create their own codes as well, and some of them have no codes at all. 

Or 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. These costs really add up when you have to stand in line and go through delays in permitting.

A third reason that permitting departments are so slow: Hawaii makes it illegal for the government to outsource certain jobs. In general, Hawaii state law makes it illegal to hire a private sector worker to do a job that is typically done by union workers. 

This limits the ability of departments to outsource the work to private sector workers. For example, it may be a good idea to hire private sector engineers if there happens to be an influx of work for engineers, and then to reduce the staffing as needed. Private contracting could help the city respond to customer demands, but the state law doesn’t allow that.

Now, this could be fixed if legislators read a report that we’ve developed at the Grassroot Institute called “How to revive contracting as a policy option in Hawaii.” You can get that at our website: grassrootinstitute.org. A small but powerful change in state law is all that’s needed. Houston, Texas, for example, uses an outside vendor as a relief valve to expedite the permitting process. 

Well, with all of this said, let me go to a conclusion now and offer some policy options that Hawaii could implement, and then I’d like to take questions.

One of the things we can do, first and foremost, is to hire more staff. That’s essential, and this is a great time because people are looking for jobs and going back into the job market.

Secondly, as I mentioned before, we could try by-right development. In other words, shift the code to allow for more automatic approvals for simple things and reduce political approvals where a public hearing is required. 

On many islands, the public hearing process itself is the major standstill to going forward in a development, and that’s happening now with quite a bit of affordable housing.

We could — third — publish pre-approved plans. That way home builders can spend less time guessing and more time building. 

Fourth, we could reduce the number of things that require a permit. You know, Hawaii should have fewer requirements for permits. We should look at other jurisdictions and see how few things they require and use that as a starting point. There are other solutions to take care of safety and liabilities than prevention of permits at the beginning. 

Fifth, we could outsource permit approvals to the private sector. This can be done by privatizing the department, which has happened in other jurisdictions, or by hiring private inspectors as needed.

And, six, third-party review. We could have the city rubber-stamp any project that has been approved by a certified private inspector. In Honolulu, a private inspection company can get certified by the city to review projects, and that company works with the city to expedite permits. 

The city basically says, “We trust you, reviewers, so we’ll just approve your review since you’ve been certified by us.” Then Honolulu randomly checks reviews to make sure that they’re done right. The Honolulu DPP [Department of Planning and Permitting] doesn’t check any residential plans that have been third-party reviewed. That could be a very good solution — we should be watching to see the progress of this program.

Finally, we could just grandfather things in. For all permits that deal with things that have already been built, just approve them and move on — just legalize older buildings that no longer conform to the building code. This would help clear the backlog. 

Now, if you want to learn any more about some of these solutions and other housing reforms, there are a few reports that we have produced and put online for your use. 

Here’s one: the Land Use Commission. Our report on [the] Land Use Commission suggests that the LUC should allow rezoning of land at the county level, or the state could consider eliminating the LUC altogether and allow the counties to designate lands as urban, agriculture and so forth.

Another report we’ve done has been very popular: our report to “Build up or build out?” It discusses the easiest ways to allow more home building in Hawaii. In general, building out is the easiest way to allow for more housing, but there are more creative solutions as well to greater density. 

We also have a toolkit that we’ve put together from the National State Policy Network, which provides a list of more than 50 ideas for state and local lawmakers. There’s several that are being advocated by some of our legislative policy leaders and county policy leaders right now.

So, why do we do this research at the Grassroot Institute? It’s for the same reason you’ve joined the committee that you’re on now. You care about people, and you care about getting them into housing, and we have to find solutions to that. 

We want to see people back in Hawaii — like Michael Cheney, who left because he and his family couldn’t afford to live here. Michael’s stories and many others are on our website, grassrootinstitute.org.

Joe Kent: Aloha, everyone. I’m Joe Kent, and thanks for the question. So when it comes to inclusionary zoning, the Grassroot Institute is trying to play defense across the county. 

What we’ve seen is, especially when it comes to Maui County, there’s efforts to increase the inclusionary zoning requirements to over 50%. So just last year, they had a bill that would increase it to 75%. So that means any project that wanted to build, 75% of the project had to be sold below market rates.

Akina: Let me just chime in here for a moment. That sounds good, because the intention is to make housing far more affordable to those who need it, and that’s what comes across first. 

But when we actually look at how much it will cost the developers, it creates a disincentive. They eventually walk away from those projects. And as I pointed out earlier, they’d rather build a mansion for Oprah than lose money. 

And at the institute, we’re not working on behalf of developers. We’re not trying to defend their right to make more money. We’re not opposed to them doing a good job in making money, but we’re trying to be very pragmatic about this. 

If it costs them too much — and we’ve looked at the numbers, and we also talked to developers on all of the islands — we found that inclusionary zoning oftentimes costs them so much that they have no financial incentive to actually build, whether it’s commercial property, I mean, market rate property or property for affordable housing. 

Let me get it back to you, Joe.

Kent: Sure. So there’s a cool tool online, if you google “inclusionary zoning calculator,” and it allows you to create, pretend — it’s kind of like SimCity, you can make your own project. 

So what we did, we entered a low-rise apartment project with 30 units that would cost $18 million. If the inclusionary zoning is 50%, then that project would take a loss of $7 million in a hot market like Hawaii’s, anyways. And so that’s a problem. 

And something we try to point out: Only 7% of counties across the nation actually have inclusionary zoning requirements that are over 50%. So this is an idea that sounds good, but, you know, if you try to decrease the price of something by diktat, you always have to remember there ain’t no such thing as a free lunch. Someone’s going to pay for it.

Akina: You know, when it comes to providing greater housing, there’s no lack of ideas. Everything has been floated — from tiny homes to Singapore model homes to bringing the government in as a landowner/landlord/a long-term leasing agent and so forth. So there’s no lack of ideas. 

The problem is they really have to be tested against research. They have to be broken down into the nuts and bolts and not simply be promoted through political or inspirational means. 

And that’s why we need independent research institutes, and we need groups like your own that are actually looking at the practical solutions and evaluating accordingly.

Kent: And one more thing on inclusionary zoning. Again, that’s a policy that’s saying we want more low-cost housing, but the only … and so, if you force developers to do that, the only way they can do it is to have high-end housing to pay for it. 

So then we have projects with a lot of low end and a lot of high end, but there’s something missing in the middle. So Hawaii’s housing market actually has a missing middle to it, where we do see affordable units and we see mansions, but for the average working-class person, it’s really hard to find housing.

Akina: There are a lot of people in the middle class who are left stranded when it comes to being able to become homeowners here in the state. 

There are a great many efforts, as Joe alluded to, for the poor, for providing affordable housing. And, of course, the very wealthy have that market that they can afford. But the average wage earner in Hawaii, the middle class, is getting squeezed tighter and tighter, and that’s a problem we have to address.