Hawaii’s housing crisis deemed ’eminently solvable’

from Grassroot Institute of Hawaii, November 21, 2023

Tackling Hawaii’s housing crisis might seem daunting, but Andrew Justus, housing policy analyst at the Niskanen Center, believes it’s “eminently solvable” — if we let ourselves solve it. 

Speaking to host Jonathan Helton on the latest episode of “Hawaii Together” on ThinkTech Hawaii, Justus said building enough homes was once a “technical problem,” but the current housing shortage is primarily a “legal and regulatory problem.” 

For example, he said transit projects are often built in low-density areas, where zoning rules lag behind in accommodating housing and business development. 

An illustrative case is the construction of the Honolulu rail, which began in the less densely populated west side of Oahu without necessary zoning updates, resulting in both low ridership and minimal housing development near stations. 

Fortunately, Justus said, some lawmakers are recognizing the problem, including Hawaii’s own U.S. Sen. Brian Schatz, who introduced the Build More Housing Near Transit Act, which would incentivize local governments to eliminate regulatory barriers to housing construction around transit corridors. 

“Honolulu can still let people build homes near that transit system and solve two problems more or less at once, in boosting housing supply for the region, but also allowing more people to ride the system,” Justus said.  

Helton, a policy researcher at the Grassroot Institute of Hawaii, also questioned Justus about prefabricated housing and “pre-approved” or open-source building plans. 

Regarding the latter, Justus said that since “soft costs” such as architecture fees and zoning approvals account for around 30% of project costs, offering a catalog of pre-approved plans could encourage homebuilding by reducing expenses and saving valuable time, especially for smaller, less well-capitalized homebuilders.

Helton noted that the idea was explored by the Maui County Council in 2016 but has yet to materialize. 

TRANSCRIPT

11-21-23 Andrew Justus with host Jonathan Helton on “Hawaii Together”

Jonathan Helton: Aloha, and welcome to “Hawaii Together” on the ThinkTech broadcast network. My name is Jonathan Helton and I’m a policy researcher at the Grassroot Institute of Hawaii. And today, I’m going to be filling in for our regular host, which is Grassroot Institute President and CEO, Dr. Keli’i Akina. 

So today, we’re going to be talking about solutions to Hawaii’s housing crisis. And normally, when we think about housing policy, we think about state and local laws and regulations. But that doesn’t mean that the federal government doesn’t have a role to play in fixing the housing crisis. 

And in fact, Hawaii’s very own U.S. Sen. Brian Schatz recently introduced a bill in Congress that could help increase the housing supply at the state and local levels, and especially near transit projects like Honolulu Skyline. 

So here to discuss this topic with me today is Andrew Justus. Andrew is a housing policy analyst at the Niskanen Center based in Washington, D.C. He’s also a licensed attorney and holds a master’s degree in urban and regional planning from the University of Michigan.  

Good afternoon, Andrew, and thank you for joining me on the show. 

Andrew Justus: Thanks, Jonathan. Thanks for inviting me on the show.  

Helton: Of course. So, just before we get into specifics, would you introduce yourself to viewers, a little bit about how you came to work on housing policy?  

Justus: Of course. My name is Andrew Justus, and like you said, I’m a housing policy analyst at the Niskanen Center. Along with my colleague, Alex Armlovich, we launched the Niskanen housing policy effort in May of 2022. 

Our focus is generally on growing housing supply nationally, and recognizing that most of what limits American housing supply are not technical barriers, but regulatory and procedural hurdles around things like land use rules, building codes and other areas. 

Helton: That’s exactly what we’ve been looking at at the Grassroot Institute as well, trying to streamline state and local approvals for housing projects to hopefully bring down the cost. 

So, just before we get into the meat of the discussion, just a quick question about the Niskanen Center. So, how was the organization founded? What is the mission of the organization? 

Justus: So, the Niskanen Center is a nonpartisan think tank that tries to blend the best ideas from — or the best ideas, as we see them — from the left and the right into solutions for America’s more vexing challenges. 

We call this approach “transpartisan” rather than bipartisan because we don’t merely seek to calculate the average between both sides’ positions on an issue. We try to come up with the best solution without being overly tied to either the red team or the blue team.  

Helton: Yes, and I certainly appreciate this approach. At the Grassroot Institute, we are also nonpartisan and try to work with both sides of the aisle. Whatever the issue is, we try to find the best solution.

So, let’s talk a little bit about housing. So, as you know, Sen. Brian Schatz recently joined a bipartisan group of lawmakers from the House and the Senate and proposed the Build More Housing Near Transit Act. 

So, you’ve looked into this. Can you tell the viewers a little bit about what the legislation is trying to achieve? 

Justus: Sure. The Build More Housing Near Transit Act is an elegant solution to this phenomenon of transit projects that are built away from where most people live, or they end up where stations get built in lower-density neighborhoods. And then once the stations are built, land-use rules don’t change to let people and businesses locate themselves near the new transit system or expansion.

This trend isn’t good, or we don’t think it’s good for the taxpayer who pays to build trans infrastructure through state, local, and federal taxes, because it’s not allowed to be as useful as it could be. 

It’s not good for the prospective rider who can’t get where they want to go. 

And it’s not good for the environment because even though we spend more to build more transit, people still end up driving. 

But back to the bill. The latest version, as you might have seen, is a bit different than last term’s version of the bill. But the latest version modifies grant scoring for new transit proposals or expansion of existing systems to favor those with land-use rules and permitting procedures near stations that will allow the new transit and infrastructure to be more useful. 

These are basic — and we think non-controversial — things, such as not requiring a bunch of surface parking near homes and businesses, not having big minimum lot sizes for homes near transit stations, and allowing multi-family housing “by right” without needing discretionary approval from politicians or bureaucrats that almost always add cost and delay to construction. 

In the end, I think this policy will help fix some of our recent, you know, in the last decade or so, transit-building issues that encourage bad projects and instead have planners prioritize ridership, taxpayers and the environment when they think about how to build and expand transit infrastructure that maximizes its usefulness to people. 

Helton: Of course. And so, that’s what I was actually going to just ask you is, I know there had been a previous version. And, you know, what were the changes? 

So, it is my impression that the previous version of the bill did not focus so much on, “Here’s a list of policies that we would like to see cities and states take in order to fulfill the strings attached to this grant.” It focused more on, “We would like to see some plans to pass policies.” 

Is that a fair categorization?  

Justus: Right, it had a couple of elements. One was plans to pass policies. The other one was establishing like a local funding stream for TOD [transit-oriented development]. And then there was a third kind of catch-all for anything that the secretary of transportation identified. 

The new bill also requires the DOT [Department of Transportation] secretary and the HUD [Department of Housing and Urban Development] secretary to come together and kind of break down silos between the two agencies when it comes to deciding what policies help build more housing near transit, to quote the bill title.  

And that’s kind of a core issue with public transit in the United States, really since the founding of the DOT. And the moving of the federal mass transit program from HUD to DOT is that it’s siloed away from the people with expertise on home building. 

Helton: Yes. And so, I mean, you’ve broken the people who funded the transit project from people who might be considered about, you know, what types of housing should be built around it. I do understand how the miscommunication would result in what Hawaii has today with the Skyline. 

Skyline was built, started on the west side of Oahu and is being built toward downtown Honolulu. But on the west side, it’s a lot of loaded city housing. And, you know, people do live there, but nowhere near as many people or businesses as downtown. 

So we, I mean, we’re certainly experiencing what happens when you build it, and then you don’t zone the land so that people can build dense housing around it. And as a result, ridership has been low, and there hasn’t been as much housing being produced around the Skyline. 

But I do want to talk about the New Starts program; that’s the program that is a part of the bill. And it says, you know, if a state or a locality wants to receive transit money under this New Starts program, they have to take these deregulatory actions regarding zoning. 

So, Honolulu’s Skyline did receive funding under this program. They haven’t received all of the funding that they were kind of allotted. Is there any chance that this bill is retroactive so that Hawaii would have to pass some of these zoning reforms to get the rest of that money?  

Justus: You know, I’m not really sure. And I don’t think I could speculate on that.

Helton: Yeah. No, that’s fair. It would probably be good to encourage the state and the city council here to try to invest in greater TOD zoning and density, maybe to get part of that money that they’re still looking for on the rail. But let’s move on. 

So, this isn’t the only federal bill or federal program related to increasing housing supply at the state and city level. So, I want to talk about the grant program that Sen. Schatz helped get into law this past year. And the technical name is the Pathways to Removing Obstacles to Housing program. It’s administered by HUD. 

So, can you tell me about some of the background of this and maybe what it’s hoping to achieve? 

Justus: Actually, if there’s, if we could go back to the Honolulu Skyline just for a moment. 

Helton: Yeah. Let’s go back to that. Yeah.  

Justus: I think, like, one thing, if Sen. Schatz’s bill was law when this project was being planned, maybe 20 years ago, you would probably see the proponents of the system build it in kind of the opposite order that it’s currently being built, where phase three would probably have scored better relative to phase one and two. And so, they would have probably tried to start with that. 

And then phase one would have been probably less competitive. Especially if you look at systems that were built around, or started around the same time, like Denver or Charlotte, where their light-rail systems go right through the center of their downtown and are quite useful. 

But that’s not to say that vision one — or not vision one — phase one of the Skyline has to be a “white elephant” in perpetuity.

If you look at photos of the elevated subway in New York City and Queens from, like, 1915 or 1916 when it was first being built, you’ll see a heavy-rail subway system being built out into what looks for all purposes a rural area. But we all know that they, the city, you know, let people build lots of homes and businesses very quickly in that area, which made that new transit system very, very useful very fast. 

And, like you were talking about a few moments ago, Honolulu can still let people build homes near that transit system and solve two problems more or less at once, in boosting housing supply for the region, but also allowing more people to ride the system. 

Helton: Yes. So, in other words, if this Build More Housing Near Transit Act had been law back in 2005, 2006, then Honolulu might have realized that the incentive was to start downtown and build west, as opposed to starting out in the west side, building east.

Justus: Yes. 

Helton: So, I mean, that probably would have increased ridership. I know the ridership numbers, they were hoping for maybe 10,000 people a day by the end of the year. Right now, it’s looking like maybe 3,500 a day on average. It has not been what they’ve hoped for. 

And so, part of it is because not a lot of people live where the rail’s at. And where the rail ends, I mean, it’s an abandoned stadium. It’s not the most ideal ending.  

So, if you’re good, we can — let’s go on to the YIMBY [Yes In My Backyard] grant, I guess, as people have called it before. 

Justus: Yeah, it’s had some colloquial names, but yes. 

Helton: Yes, so, what does it work and what’s its goal?  

Justus: So HUD’s, as we call it, the YIMBY grant program — although it’s officially called the Community Development Block Grant “PRO Housing” grants. Excellent, excellent naming. But it will reimburse communities on a competitive grant basis that are modifying local regulations and procedures to allow more housing production generally.

The program is more of a pilot program in its scale. The total budget for the whole country is $85 million, and as you can imagine, that would be spreading it quite thin. So, the amount won’t reimburse every community that wants to rewrite their zoning code or encourage exclusionary places to change their ways all at once. 

But the good news is the applications that do get funded in this fiscal year should be impactful, and get homes built where they’re badly needed. So, directionally, it’s probably a good thing. And if it goes well, you know, we might see it get repeated.  

Helton: Yes. So, I know there’s been some criticism that this was more aimed at helping fund plans than helping fund direct policy change. But with — I think they’ve already started accepting applications. Do you know if the applications that we’ve seen so far have been for, “Hey, here’s concrete policy change to reduce parking minimums, reduce minimum lot sizes,” things like that?

Justus: I think it’s been a pretty mixed bag, and I saw recently that the deadline for applications was extended. But because there’s so little money to go around, I’m pretty confident that the proposals that do get funded will be worthwhile and have more concrete, production-based results, rather than just mere planning. 

Helton: OK. And so, I guess that’s a PSA for any Hawaii state or local officials who are listening or watching that the deadline has been extended. So, you know, it’s possible that one of Hawaii’s counties, if they haven’t already applied, could apply and get some of this additional money.

But let’s, before we move on to some of the other topics, are there any other federal bills that are being considered or existing federal programs that create these sort of grant-like incentives for states and cities to boost housing stock? 

Justus: Not grants per se. You know, one thing we’re looking at and working with Sen. Mike Lee’s team on is proposals to transfer some federally managed land under the Bureau of Land Management, particularly in Western states, to communities that have a lot of housing pressure and are abutting and kind of hemmed in by federal land in their area.

We think it’s a pretty thoughtful bill in that they go to great lengths to describe all the types of federal land that are off-limits — things like national parks, national monuments, environmentally sensitive areas, of course, like DOD land as well. 

But, working with them on this bill has been really illustrative not just in how thoughtful they are, but in just how much of the West is under federal ownership and how hemmed in a lot of these cities are. 

So, I’m hopeful that, you know, in the months and year ahead, we might be able to make some progress on that to help provide some relief for these cities. And in exchange, have them commit to building more housing in this land. 

Helton: I mean, that does sound like a, as you said, a thoughtful bill. And of course, we’ve worked with Sen. Lee in the past on Jones Act and maritime-related stuff, which I know you’re familiar with. 

But I do want to talk about pre-approved plans. So, you’ve written about this recently. So can you describe to someone who might not be familiar with how pre-approved plans work? Just kind of how a city would go about creating one and what the advantages are.  

Justus: Sure. As, you know, we’re all kind of painfully aware of, housing costs are influenced by a variety of factors. The cost of land itself and zoning regulations are among the biggest pieces of the overall pie. But things we’ll call “soft costs,” like building design, architectural design and zoning approvals, are an underappreciated source of costs and delays.

Soft costs generally account for about 30% of project costs. And of course, they’re going to be a higher share for smaller or kind of one-off infill projects like you see in a lot of cities. 

Some communities, though, are taking what we think is an entrepreneurial approach to reducing these costs within their jurisdiction by drafting on their own what they’re calling “pre-approved” and “open-source” — so you don’t, they’re not like, copyrighted or anything — building plans that property owners and developers can use for either minimal cost — in a place like Milwaukee I think they charge, like, $50 — or no cost, in a place like South Bend. 

The developer can take these plans, know in advance that they’re going to be approved in certain residential districts, and take them to a contractor and have them get built. 

We would say this approach not only saves on architectural engineering costs, just in absolute, but the time savings gets homes built and on the market faster than they would be otherwise with a kind of one-off, you know, bespoke design and approval process for each project.  

Helton: So, the way I see it, it seems like the pre-approved plans would make it a lot easier for people who didn’t have — for people who are just maybe small-scale developers or maybe they have the money to put an ADU on their property. Like, it would have a bigger benefit for those people maybe than some of the large development firms who have the time and money to sort of wait out the permitting process. You think that’s accurate? 

Justus: Definitely. And following that trend of anytime you’ve got small or singular developments, the soft costs are going to be a bigger share than if you’re building, you know, a 100-unit apartment building at all at once or something. 

But I think we’ve seen in not only South Bend, Milwaukee, different cities, like, what is it —  Los Angeles and Seattle, I think, have ADU-oriented pre-approved plans specifically for ADUs rather than, like, primary residences like in South Bend. 

In South Bend, which we wrote about recently, their pre-approved infill program is about 1-year-old; probably one and a few months year-old now.

But at the time of writing, I think they had maybe one home under construction, and like 10 more in the pipeline. And then, you know, since then, but in the last, I think, week or so, a nonprofit developer from, I think, Evansville, Indiana, committed to building 50 homes using those plans out of the city’s catalog. 

And you can pretty plainly see it’s a win-win because the city gets scores of homes built on vacant land. But also that those homes are a known quality since they would have, you know, designed them themselves and they match their aesthetic preferences, which is, I guess, good. 

And meanwhile, the nonprofit developer saves money that they would have otherwise spent on architects, architectural and design services, and can deploy the savings towards their core mission of building homes for people. 

Helton: Yes, for sure. I just will add to that, I was looking earlier today, I found a report from 2016 from the Maui County Council, and they were discussing this topic. And at least in 2016, they predicted that pre-approved plans would have saved three to six months on design and permitting. And I don’t think that that report precipitated, created any action, which is unfortunate. And none of the other counties have any other pre-approved plans either. 

So, it’s definitely something to look at, considering that in Hawaii, if you want to get a building permit, in most counties you may have to wait for five months to even get your building permit. 

And so, compared to the mainland, Hawaii’s permitting process is usually even slower. So, I think this proposal is probably something that would be very helpful to people.  

So, I do want to move on to talk about manufactured homes just for a minute. There’s been a discussion about bringing manufactured homes to Maui to provide temporary shelter for people who’ve been displaced by the wildfires. 

You and I talked about this last week, and you talked about how there’s different building codes and different building standards in place for different kinds of manufactured housing. So, could you break that out for viewers? 

Justus: Sure. So, within what we would call, it’s like a genre — factory-built or off-site home construction, as distinct from on-site home construction, which is you’re literally building the house in the place where it’s going to be used.

But, so off-site or factory-built, includes three main types. 

One is HUD Code manufactured homes. Colloquially, these are referred to as mobile homes, but they all will adhere to the national HUD Code, meaning they’re built to this code, they can be put in any of the 50 states with, you know, kind of minimal changes.

And then from there, you’ve got modular homes. Those are going to be built either as, you know, wall modules, a series of wall modules, or room-based modules, and then assembled onsite, kind of Lego-style. 

And then the third version is panelized construction where it’s just the walls are pre-made in a factory and then they’re all shipped in to the site and assembled onsite.

The distinction between modular and panelized from HUD Code is modular and panelized have to adhere to the, whatever the local building code is. And so you lose some of the efficiency that comes with a national, you know, HUD Code, but you do get a little more customization for local conditions. 

Helton; So, for the HUD Code specifically, is that, does that just apply to what we would traditionally maybe call mobile homes? Or is that, is it broader than that?  

Justus: Well, HUD Code is like a defined term and “mobile home” is just kind of a slang for it. But if we’re going to get really into the weeds … 

So, you’ve got like a factory that’s making HUD Code homes. On the same production line, they could make what are called “park models,” which are, if you’ve ever seen like a tiny house, those are often non HUD Code, but still a semi-permanent home on a trailer chassis. 

But, as far as, like, primary residents, full-time, anything that we would identify as a mobile home is going to be a HUD Code home.  

Helton: Yeah. So, that’s what I was trying to get at is whether or not there was any, maybe any of the kind of panelized, as you call them, like, Lego-style homes that might fall under HUD Code.  

Justus: Oh, no. Those are going to be under the — whatever the local code is. 

Helton: I gotcha. So then, talking about building code, have you found any states or localities that have a building code that is particularly friendly to offsite-built housing?

Justus: Not that I’m aware of. Most of our efforts are around, you know, trying to make HUD Code homes able to compete on a fair playing field with site-built. 

Site-built construction historically, you know, groups like the National Association of Home Builders were opposed to normalization of competition between HUD Code and site-built homes. But today, there are HUD Code builders as members of the NAHB, and they’re generally seen as being onsite [builders]. 

And recognizing that America has a shortage, particularly of starter homes for people. And that, as the Harvard Joint Center for Housing Studies has found recently, that HUD Code homes for the same spec are generally 25% to 70% less expensive to build than the equivalent site-built house. And at that end of the market, it’s just the better tool for the job. 

Helton: Yes. And I imagine with the dramatic increase in input, like lumber prices recently, that difference may have grown. I don’t know when that study was issued that you’re referencing.  

Justus: Yeah. Anytime that, you know, material prices are higher, factory-built homes — which, not only HUD Code, but modular and panelized as well — are going to have an advantage just because they’re in a controlled environment, they’re wasting less material. 

Helton: Yes. And historically, I think what you’re saying holds true for Hawaii, where a lot of the opposition to any of these pre-fab homes comes from the Home Building Associations and some of your contractors.

So, it was, I mean, it made news headlines after the wildfires when, I think that some of the governor’s staff probably met with some of the contractors and they agreed, “Hey, we’re going to be trying to bring in a lot of pre-fabricated homes because we need housing and we need it fast.” Maui was already in a housing shortage before the wildfire; it’s much worse now.

But I’ll, you know, I’ll throw in one more nugget for viewers. In Hawaii, there’s not a lot of, there’s not a ton of zoning barriers to pre-fabricated homes. Although, according to the state Land Use Commission, if you want to build a home on agriculture land, that is designated as agriculture land by the state LUC, you cannot put a mobile home there.

So, because so much of the land in Hawaii is designated as agriculture, that does limit the ability of someone to come in and say, “Hey, I’d like to use this vacant land and maybe put in some sewer and electric hookups, and maybe create a new mobile home park.” 

Under Land Use Commission rules, that would be a no-go, if that’s ag land. So, that’s something that I know we’ve been in discussion with lawmakers about: “Why do we have this particular requirement when you can put a mobile home on other types of land?”

So, Andrew, I think that we’ve pretty much run out of time. So, I’m just going to ask you, anything else you’d like to add to wrap up this conversation? 

Justus: Yeah. I think just to close, I want to say that in the past, you know, when humans, we didn’t have elevators, we didn’t have tall buildings or sanitary sewer systems, cars or electric trains, building enough homes so people could lead healthy and prosperous lives was a technical problem that was, at the time, beyond our collective ability to solve it. 

But today, we not only have all those inventions, but they’re mature technologies that can be deployed almost anywhere and used to unlock more housing supply to meet demand. 

Rather than an unsolvable technical problem, today’s housing shortage is an eminently solvable, mainly legal and regulatory problem. But we just have to let ourselves solve it.  

Helton: Yeah. Well, I couldn’t agree more. 

So, I appreciate you joining me for this discussion today. Thank you to our viewers for watching. I hope that you found this informative and I hope you’ll join us again for the next episode of “Hawaii Together.” Aloha.  

Justus: Thanks, Jonathan.