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More homebuilding needed to solve Hawaii housing crisis
By Grassroot Institute @ 8:10 PM :: 757 Views :: Development, Land Use, Cost of Living

Hill, Ahokovi urge more homebuilding to solve Hawaii’s housing crisis

from Grassroot Institute of Hawaii, September 20, 2022

Hawaii has a housing crisis, but to solve it, we need to know the causes — and, in some cases, what are not the causes.

That was the upshot of the in-depth conversation between Jay Fidell, Tom Yamachika, Malia Hill and Jensen Ahokovi on the Sept. 10, 2022, episode of “Talking Tax,” which is broadcast on ThinkTech Hawaii.

Fidell, ThinkTech Hawaii founder, and Yamachika, Tax Foundation of Hawaii president, are co-hosts of the program. Hill and Ahokovi are with Grassroot Institute of Hawaii — as policy director and research associate, respectively — and the topic was “Addressing High Housing Prices.”

Yamachika cited the Institute’s newest policy brief, “The ‘outsider’ theory of Hawaii’s housing crisis,” characterizing it as “basically throwing a lot of cold water” on the prevailing belief that buyers from outside the state are the main reason for Hawaii’s high home prices.

Ahokovi said the report — based on a statistical analysis of data from all 50 states, the District of Columbia and more than 2,300 counties nationwide — does not say outside buyers have no impact, but that to focus on them as a factor is to miss the primary cause, which is extensive land-use, zoning and other homebuilding-related regulations.

Hill emphasized the importance of abandoning the fixation on outside buyers.

“If outsiders are not responsible for the high prices, like, do you really care? Is your point to keep out outside buyers, or is the point to keep the price affordable? … I think most people will say the problem is affordability. And if the problem is affordability, then we have to look at all the layers and layers of regulation that have contributed to the slow growth of housing in Hawaii. 

Basically, she said, “We have a supply-and-demand problem  — not remotely enough supply to meet demand — so we need to find policies that increase the growth of housing, and that’s where we come to Jensen’s point about the regulations that have contributed to the cost.”

Said Jensen: “There is really a bevy of empirical research that goes into this question of housing costs and regulation. You can see from that list [in the policy brief and in this article] that it ranges from decades ago to just last month.”

To relieve some of the regulatory burdens and re-incentivize homebuilding, Hill proposed cutting back permit requirements for both new projects and improvements to existing lots; allowing more duplexes, triplexes or even fourplexes; and in general, lowering Hawaii’s high tax burden and cost of living. 

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TRANSCRIPT

9-11-22 Malia Hill and Jensen Ahokovi on “Talking Tax”

Jay Fidell: Mmm, addressing housing prices in Hawaii, woo — just thinking about it makes me want to have breakfast. 

And so here we are on “Talking Tax” with Tom, and we’re going to talk about housing in Hawaii with Malia Hill, who is a 50,000-foot philosophical cerebral policy analyst with the Grassroot Institute [of Hawaii], and Jensen Ahokovi, who is a researcher with Grassroot Institute, and those guys have been invited to the show by Tom Yamachika, the president of the Tax Foundation of Hawaii

And Tom, why don’t you, you know, give more on their backgrounds and also talk about the scope of our discussion.

Tom Yamachika: Sure, thank you, Jay. 

We’re talking today about housing costs. It’s no secret that they’re astronomical here in Hawaii, and it’s been a, really, a tougher problem to determine why it’s so. And then, you know, that’s, you know, you need to figure out why it’s so before you try to find solutions because you don’t want to fix the wrong problem. 

A lot of lawmakers have often latched on to the theory that out-of-state buyers have bid the price up. And I quote, “Many in Hawaii cannot compete with outside investors to purchase homes and condos beyond their economic reach.” This was from a Civil Beat opinion piece in 2020 written by an entire gallery of our lawmaker leaders, namely Brian Schatz, Ron Kouchi, Scott Saiki, Donovan Dela Cruz, Sylvia Luke and Derek Kawakami. 

Now, to fight this perceived abuse by outsiders, our lawmakers introduced a number of punitive measures, one of which is the vacant home’s tax, which we’re going to talk about a little bit later. 

And some of the measures that did make it are increases, you know, big ones, in the Hawaii conveyance tax, which is paid whenever a house is bought or sold; and also, property taxes have been retooled to really put the bite on housing pieces that are not homes. In Honolulu — of course, we have the residential aid tax classification, and we have, you know, similar devices that are either in place or being considered on the other islands. 

So, where do we — where does the Grassroot Institute fit in? They have put out a research report basically throwing a lot of cold water on the “outside buyer” theory. 

We, we’re lucky to have with us today the author of the research report, and that would be Jensen. And Malia Hill is the director of policy, so I guess she’s Jensen’s boss. Malia, however, is in Washington, D.C., and has, I guess, a tougher time bossing people around from there. But, so, they’re going to talk to us about their research findings. So, Jensen and Malia, take it away.

Jensen Ahokovi: As you mentioned, Tom, the quote-unquote “outside buyer myth” is a fairly prevalent one — a lot of people talk about it in the policy realm, as well as among activists. But if we could just go through the slides that I have, I think they’re a pretty concise presentation of the report that you mentioned. 

Right there is a graph of the shares of purchases that have gone to buyers, home purchases that have gone to buyers categorized by their origin or their residency. Your blue line is going to be your locals; your orange line is going to be your mainlanders; and the gray line that you can see at the bottom will be your foreigners.

And as you can see, it’s been fairly volatile among each type of buyer since 2008, and it’s hard to actually parse up what the trend is given the volatility. And just for clarification, that graph is every quarter between 2008 and 2021. 

If we go to the next slide, the next slide isolates what the general trend from the raw data tells us. And as you can see, there is a general increase in the share of purchases going to local buyers and a general decrease in the share of purchases going to both mainlanders and foreigners. 

And this trend alone, even without looking at the other data that we have in the report, should call into question this idea that outside buyers are the primary culprit behind the exorbitant increase in housing costs over the years. And if we can go into the slide after…

Yamachika: Well, if… 

Ahokovi: Sure.

Yamachika: Can I, can I interrupt you at that point? 

You know, you are familiar, of course, with the, you know, the conveyance tax increase and the, you know, the property tax hearing that’s taken place, you know, during that time period, and it’s, you know, meant to put a damper on outside buying. 

And doesn’t this just mean that it’s, you know, these punitive measures have worked?

Ahokovi: Not necessarily. It could be the case. We don’t — I haven’t seen any analysis as to the effect of, at least local tax measures, on this incentivizing home price appreciation or at least disincentivizing outside buyers coming into the market. 

We also consider this possibility — it’s not exactly what you were saying — but it could also be the case that because of the fact that home prices are appreciating pretty fast, that that actually dissuades offshore purchasing, right? That the growth of home prices here is actually something that is dissuading a lot of offshore, a lot of offshore purchases. And we can imagine that intuitively.

And that would actually go into the next slide that I have, which is — and the title is meant to be captivating [More ‘outsiders’ = cheaper homes?]; it’s not necessarily meant to make any sort of assertion that outsiders are causing cheaper homes. 

But the data that you’re seeing outlined on the chart, every blue dot there represents one of the 56 quarters between 2008 and 2021. And it’s those quarters that are correlated with the average home price paid by specifically local residents during that time period, correlated with the percentage of outside buyers during that same period. So that would include both mainland and foreign purchases.

And what you actually see here, surprisingly — and this actually initially surprised me — is that there is a pretty clear negative correlation between outside purchases and the average home prices that are paid by locals. 

What that means is that in quarters when the average home price that a local resident has paid has been relatively more expensive, have also been quarters when the share of offshore purchases during that period has been relatively lowest. 

And so from the graph you see that on the left end of the chart, you see that quarters when, when home prices have been relatively more expensive for locals, have also been quarters when home prices, or when the share of offshore purchases have been relatively lower. And that right there could also be due in part to the fact that higher home prices dissuade more offshore purchases. 

The next chart after that one looks nearly identical. The previous chart that I looked at used home price data from the state Department of Business, Economic Development & Tourism. This data uses very similar data, except from the FHFA, which is the Federal Housing Financing Agency. This data is the same [sound cut] using data from the All-Transactions Home Price Index

That index measures the average price fluctuations in single-family homes. In this case, though, it uses the same sample of homes over time, so we’re looking at the same homes here between 2008 and 2021. And yet, you still observe that clear negative correlation between offshore purchases and the average price changes in these single-family homes. 

And if we go into the next slide, this once again begs the question: What is it that really should we be blaming for these rising home prices that we see? Not only in Hawaii, but all these home prices that we’re seeing rising in San Francisco and New York, really predominantly located on the coasts as well.

This, right here, is a graph of regulatory restrictiveness and a state’s median home prices. And there, contrary to what the previous graph showed you, there is a very clear positive relationship between a state’s regulatory restrictiveness in terms of land use and their median home prices. 

And it might be hard to see from the graph, but if you look at that little blue dot right at the upper right-hand corner, that is us. We are the most restricted housing market in the country in terms of land use regulation, and we are also the most expensive.

Yamachika: So, how is the restrictiveness of land-use regulation measured?

Ahokovi: So that, right — the bottom is using an index that is calculated by the Cato Institute, but that index is actually an extension of what is known as the Wharton Index

The Wharton Index, if you’re familiar, the University of Hawaii Economic Research Organization, UHERO, released a report a few months ago that tried to quantify the effect of housing regulation, and it also used the Wharton Index.

And the Wharton Index is basically a survey that is distributed to local planning officials. And the responses — they answer questions like, you know, “How in-depth is political involvement in the regulatory process?” “How in-depth is community involvement in the regulatory process?” 

And they take all those answers and they standardize them, and you get an index. And using that index, they can rank counties and states in accordance with how restrictive their regulations are. So it goes into permitting, it goes into political pressure. There are a lot of sub-indices that they use to calculate. 

So, that is how land-use restrictiveness is measured. But there are other measures that are used as well, but the Wharton Index is the primary measure that economists tend to use to measure regulatory restrictiveness. 

And then the last slide after that is just, goes into, goes into the weeds a little bit. There is really a bevy of empirical research that goes into this question of housing costs and regulation, and I won’t name them specifically. But you can see from that list there that it ranges from decades ago to just last month [when] a couple of economists came out with a very interesting study that found, you know, housing shortages are very tightly correlated with land-use regulations in states. 

And really, the majority of the research that we find in the literature blames stringent regulatory environments for the growth in housing costs, especially on the east and west coasts and in strict regulatory environments like Hawaii.

Yamachika: OK, so, I guess what you’re saying then is that although, you know, certainly there are outside buyers and they do, you know, buy homes and other properties that locals can’t, that you don’t think that this has an influence, or maybe it does, but does it have an influence on the housing prices and the housing crisis we face in our state?

Ahokovi: Right. So, I don’t — and this was evident in a lot of the criticism that we got on the report. That was, you know, a lot of people seem to believe that we think that outside buyers do not have any impact at all on prices. 

But in reality, we say in the report and, you know, make it known that any buyer on a scarce good — in this case, housing — any buyer on a scarce good will have an upward pressure on prices, without a doubt. The question is: How does that factor in with other factors that determine home prices? 

And it just happens to be the case that, really, most of the research out there identifies regulation as this culprit that takes up a significant amount of the explanation as to why prices are the way they are in the most expensive areas of the country.

Yamachika: And these other research studies dealt with areas in the mainland also like New York, San Francisco, and so forth?

Ahokovi: Yes, yes. And, you know, there’s a bevy of research. I would recommend the work of Joseph Gyourko, an economist at UPenn [University of Pennsylvania], or Edward Glaeser, economist at Harvard. Those two are really, really stalwarts in terms of the housing economics literature when we examined the relationship between regulation and housing prices. 

And Gyourko himself actually commented on the report and also offered his insight and also agreed with the fact that regulation is really at the base of Hawaii’s problem.

Yamachika: OK because he…

Fidell: Whoah.

Yamachika: Go ahead, Jay.

Fidell: So, Malia, do you agree with this? Are you a co-writer of this report, Malia?

Malia Hill: No, I am not a co-writer of the report, but it’s my job to try to figure out what we do with this. You know, the research is half of the job and then the solutions are the other half. 

As soon as this report came out, the No. 1 question we got was, “So, so what do we do?” [chuckles] And that’s where, you know, the rubber really hits the road. Because, you know, the question is, you know, we’ve got it all mixed together: outsiders and high prices. 

If outsiders are not responsible for the high prices, like do you really care? Is your point to keep out outside buyers, or is the point to keep the price affordable? And I think most people will say the problem is affordability; and if the problem is affordability, then we have to look at all the layers and layers of regulation that have contributed to the slow growth of housing in Hawaii. 

We have a supply-and-demand problem — not remotely enough supply to meet demand — so we need to find policies that increase the growth of housing, and that’s where we come to Jensen’s point about the regulations that have contributed to the cost.

Fidell: Yeah, I would agree that both factors are in play. It’s hard to say which one, you know, is the one that we need to worry about. Or, or, as you say, and it is really an important question: What are we going to do about it? Because at the end of the day, we do not have affordable housing for the middle class in Hawaii, and they are leaving town. Watch out. Jensen, do not leave town, OK. It’s really important.

[collective laughter]

Fidell: So, what I’m, what I’m — I want to tell you a story. I think it’s important. It’s a story all by itself. It’s not data, but it’s a story. 

So, Carol Mon Lee is our vice president, executive vice president and chief operating officer, and she says to me one day, “We have to go down to Howard Hughes Corp. They have a thing in the old IBM building there in Kakaako, and they’ve got a, they’ve got a set-up where they’ll show you all of their projects, and we’re going to take a look, you know. It was in the newspaper; let’s go take a look.” 

So, we go through their, you know, their sample unit and everything and we walk around. It’s really beautiful, [a] beautiful showroom. And there’s one unit that is very attractive, and the sales lady who was there, she said, you know, “If you like that unit…” — she thinks that we’re going to buy it together; she doesn’t know that there’s no way we’re going to buy anything together [laughs] — [she says], “There’s one unit there that might interest you, and I can tell you, just privately, you know, what the price of this unit is going to be. It’s $110 million dollars, and it’s in the high-end building that we’re building.” 

A couple months later, I had lunch with a bunch of guys who included a general counsel for one of the big title companies in town, and I mentioned this $110 million thing, you know, because that’s enough to blow your mind, and the guy says, “Yes, I know that unit. It sold at $95 million.” [I thought] “Oh, $95 million.” 

Let me assure you guys that if, that if I put all my coins together and I bought that unit, my entire estate would allow me to live there for about 20 minutes. Then, I’d be out of gas. And I would say that’s so for most people in Hawaii. These luxury apartments are killing us.

This is, you know, in Kakaako. That land could be used for middle-class housing, affordable housing. Instead, it’s used for $110 million apartments, OK, owned by somebody offshore — I assure you that — who doesn’t go there, who doesn’t spend any time there, who wouldn’t ever rent it out. It’s a corporate retreat sort of thing. 

And nobody in the state, nobody — maybe Larry Ellison; maybe, you know, the guy from eBay — could afford it. Maybe Steve Case could afford it. But nobody else could afford that, you know, and that sucks up the land, the aina. That sucks up the, you know, the area, which was given to us as the great hope for, you know, downtown, for residential community downtown.

So what I’m telling you is that, by that story, and there may be other stories that go the other way, but by that story, what you have is a living unit that is completely unaffordable, that is not being used by anybody here, that nobody here could afford. 

And, oh, I forgot to mention that when it sold at $95 million, that — ready, ready, sitting down? — that was a “comparable,” right? And that boosted, you know, the value of all, you know, the apartments in that building and a block away. That comparable tended to raise the rates for everybody. 

And so, I mean, I know of a lot of people who have rented smaller, tiny little units in Kakaʻako, but they couldn’t afford it either. They couldn’t afford the rent. 

On the other hand, I want to also say that I believe that DPP [the Department of Planning and Permitting] has really done us a great disservice, first, by approving these projects in the first place, and secondly, by taking too damn long to approve these projects, you know. 

Castle & Cooke [way] back when had a project, which they said took 40 years. It was a big housing project, middle-class housing out, you know, [in] West Oahu. Forty years to get. And, you know, if you want to know how that affects the price, you can imagine, you know, staying on it for 40 years. You can imagine what that does to the price.

So, I agree with both factors, OK. But I don’t think we are to diminish the incredible effect of these empty high-end luxury apartments where the view, if you look straight down, is a bunch of [homeless] blue tents right under you, you know, 30 stories down. That’s, that’s not helping our society at all. 

And the question I think we need to address — and Tom, I’m going to let you ask this question; it’s the one that Malia, you know, expressed earlier, and that is: What do we do about this? 

Punishing people may not, punishing developers may not be the solution. But surely, the government has a responsibility to make this a living society, a quality-of-life society. And it hasn’t done that, and it’s got to do that. 

And if you could just ask Malia about this, I’m sure she’s had time to think about an answer.

Yamachika: Sure, let me, let me ask you…

Fidell: What can we do? [chuckles]

Yamachika: I mean, are measures like incredible enhancement of the conveyance tax or enacting a vacant-homes tax going to solve this problem? Are — is it going to make a dent in the problem?

Hill: It really isn’t. I think that, you know, there’s a sort of [sigh] — it’s a little fun to blame the rich, and it’s easy, and — but it’s, you know, like the whole point of our study was that you can get distracted by… 

Yamachika: And they don’t vote.

Hill: These issues that don’t have a major — exactly — the best scapegoat is the one that isn’t voting. [chuckles] 

But you get distracted by them, and you can do stuff about it; but since it’s not the source of the problem, you’re never really going to get at the, you know, the real solution. 

So, you know, you have your story about your million, $95 million apartment. How about, we have a story about Oprah’s house out in Maui, where it is cheaper, or easier, I should say — easier to build a house for a millionaire than a development of affordable homes; because of the delays, because of the inclusive zoning requirements, because you can go through all of that and still get turned down. 

And so, as someone who’s building homes, you pour an immense amount of time and money into the process of navigating the many, many, many layers of regulation. It can take up to 10 years to get through all of the approvals. And as, you know, Jay noted, there are stories where you’ve got a development that takes literal decades. And that’s money and time and opportunity all lost.

Meanwhile, you can take a rural lot that doesn’t require the same level of permissions, and you can build a mansion on it. And you can sell that to Oprah. And it’s easy. The thing that is easy and has the fewest levels of regulation to get through is the thing you do. Developers and homebuilders…

Fidell: And don’t forget that Oprah house is going to be like my $100 million house. It’s going to be very expensive. It’s going to skew the value…

Hill: Yeah, but we don’t actually incentivize…

Fidell: You know, the valuation. And it’s not going to help the local people, whatever the cost of regulation. 

Hill: We incentivize building for millionaires.

Fidell: Well, let me go to one thing you said, Malia.

Fidell: Right, and it’s nice to have millionaires, but we have to take care of local people who are going to leave. And you guys have published a lot of material on this about the brain drain, about the middle-class kids leaving town because housing is too expensive. That’s a huge, big factor. So, what do we do? 

Hill: So, simple things…

Fidell: Maybe we have to punish DPP.

[laughter]

Hill: It’s really, I mean, I can’t say that it isn’t really tempting to just make a list of people that should be punished. But I think that, you know, the thing that would really help is kind of stripping away. 

You know, we talk about the delay in permitting — up to two years in Honolulu, some 8,000 permits kind of just stuck in permit limbo. Does everything need a permit, or are we overregulating it? Shouldn’t there be certain things that can proceed without all of these permits?

You know, one of the solutions we offer, we call the Tokyo Model or low-density zoning, where so long as something conforms with, you know, basic land-use requirements, you don’t have to go through this whole permitting process. You can proceed “by right” on your property. 

Another thing that we like to talk about is minimum lot sizes and subdivision because a lot of the very sparse land that’s available for residential building in, on all islands, is zoned for single-family only, and we can’t, you can’t do that — you can’t move that into duplexes or triplexes at the current, right now. That’s one of the things that, one of the policy changes we’ve been recommending, is basically allowing to build duplexes and triplexes, even fourplexes on these single family lots.

Yamachika: Yeah, but what about monster homes? We’ve had, you know, some controversy on this island recently about what we call monster homes. Those are like really, really large homes on a lot, and you know there’s lots of people living in there.

Hill: Yeah, I mean, I think the monster homes are sort of an example of the failure of the system because…

Fidell: I agree. 

Hill: We have this…

Fidell: I agree totally.

Hill: You know…

Fidell: So, you know, that’s, again, it’s the DPP question, isn’t it? You know, if they would, if they just enforced the law, and if the City Council made the law, what do you want to call it, rational, we wouldn’t have the monster homes. They’re not good for you. 

But what do you guys think about — have you done a study on vacation rentals? This is a very profitable area for investors, and query: Does that help our society?

Hill: I’ll toss this to Jensen. He’s more familiar with the research in general on these kinds of things. We have talked about studies on vacation rentals, but again, you know, it’s — it’s about getting, sort of, distracted by that question when the fundamental barriers to housing growth are still there.

Ahokovi: There’s, there’s some research out there on the effect of short-term vacation rentals or short-term rentals, and the research I’ve looked at is pretty mixed. 

There is some research out there that says that they do have a positive effect, meaning that they put upward pressure on prices and rents. There’s other research out there that finds that, you know, there’s little correlation between home price growth and rent growth, and a city’s openness to short-term rentals. 

And, you know, the reality is it all boils down to basic economics. We can, you know, we can fiddle with the demand side; we can fiddle with all of these outsiders; we can fiddle with who’s the type of buyer and, you know, what they’re buying; but at the end of the day, even if you had some magical solution, even if you were able to subvert the Constitution and make the local market 99% locals and 1% outsider …

Fidell: I’m for that. I’m all for that, yeah. 

[laughter]

Ahokovi: Well, even if that, even if that would…

Fidell: Nobody else is listening to the Constitution lately, why should I?

[laughter]

Ahokovi: Well, even if that was the case where you got that nearly complete composition of the local market being locals, if you don’t fix supply, that would have a negligible effect on prices. And that’s the reality. 

You know, Hawaii, just by factor of being in the middle of the ocean, Hawaii is not exempt [from] the laws of supply and demand. And the fact of the matter is, the policy prescriptions that need to flow to be able to deal with this issue of supply and demand need not only focus on the demand side, you know, principally outside buyers. 

The most practical and effective solution, as nearly all the research shows, is that we just need to build more homes. Now, that is putting it very simplistically. What does it mean to build more homes? How do we build more homes? But the solution…

Fidell: Yeah, well, we could build some of those luxury apartments in Kakaako and displace all the, all the middle class.

Ahokovi: Well… 

Fidell: That’s what we’ve done.

Ahokovi: Well, that — that goes into what Malia was saying, though. It’s just that the countless barriers to development that we’ve placed on homebuilding just make those kinds of luxury homes and buildings more attractive to developers. 

The reality is, is that absent and all these regulations, developers have actually said that they would actually prefer to build very dense residential developments that would be affordable, at least, you know, to the median of — at least to the area’s median income. 

Now, we can debate whether or not our meaning of affordable [gestures air quotes] is actually affordable.

Fidell: We actually are debating that, aren’t we?

Ahokovi: We are, we are. But, once again, the reality is, is that Hawaii is not exempt [from] the laws of supply and demand. If you build more homes relative to demand, you would not experience such huge surges of home prices than if you were to not build any more homes at all.

Fidell: Well, I guess you guys would agree that it needs government intervention of one kind or the other. But let me, let me ask a question to Tom, who is going to hate my question. Are you sitting down, Tom? Are you ready?

Yamachika: Of course.

Fidell: OK, all right. So, you know, it’s bad to have a high price, OK?, on a given residence in order to, you know, and with the effect of local people, [the] middle class cannot buy ever, ever, ever. But it’s worse yet if you have, if you have spinning, OK? 

When these people come in — and a lot of people offshore — they, not only do they want to make a return on their investment; they want to make a huge return on their investment. And somebody, maybe a broker, tells them, “Hey, we have an appreciating market. Look at these numbers: It’s all appreciating. And if you hang on, you know, you’re going to double your money in two years. You’re going to be in great shape.” 

OK? And that’s the spinning I’m talking about. [It] happens every day. It’s been happening for as long as I’ve been here, the spinning. 

Suppose I say, “Look, if you’re going to, if you’re going to sell a unit, I am going to charge you a huge capital gain state tax, on that unit, and that will limit the spinning. You can, you know, you can get into the weeds and decide what units apply, what units don’t apply, the use of the unit — whether it’s owned, whether it’s occupied or not occupied.

Yamachika: Yeah, and there have been, there have been legislative proposals to do just that.

Fidell: Yeah. Well, why not?

Hill: Well, you don’t want to trap people. You know, this is the same problem that exists with government housing and certain similar proposals that we’ve seen, which is that you don’t want to trap people in a home that they could leave and open up at a lower rate for someone else, you know? 

That, that’s one of the things where you have to watch out or a good idea can have an unintended consequence. So, you know, like Aloha Homes — it seems like a good deal, but you’ve structured it in a way where people are trapped. That the people you want to move out of those homes so that rents stay low are now trapped in that home because you’ve disincentivized leaving that home.

Fidell: Well, they can always do an exchange, you know. What is it, Tom? A 1034 exchange, residence to resident? You know how to do that.

Hill: Well, I’ll leave the, I’ll leave the tax shenanigans to Tom…

[laughter]

Fidell: Shenanigans — all of taxes, all the shenanigans. You know, you’re hurting us, you’re hurting us, Malia. 

So, but, my, you know, my thing is to, if you stop the spinning, you stop astronomical increases, appreciation of units that even, to begin with, are too expensive, and may have some kind of effect on this, but Tom says it’s been tried. Has it not worked?

Yamachika: Well, it hasn’t passed. And I don’t think it, you know, gets at the root of the problem because, you know, the root of the problem is: if you have a scarce good, you know, people are going to be in competition for it. They’re going to pay more money. You know, one person trying to outbid the other one, right? That’s in-elasticity of supply.

Fidell: Well, well, what’s the solution on that? You know, if we keep going the way we’re going, we’re going to lose the middle class, and we’re going to have a lot of people who can afford expensive condos, but nobody else. That’s what’s happening. I see that in the decisions made by the friends, the children of my friends. They can’t, they can’t tolerate …

Yamachika: So, what is your solution to that, Jay? You want to text people astronomically and make them move away? You want to stop the flow of tourism and, you know, tell people to go home like the governor did during the middle of the pandemic? I mean, is that what you want?

Fidell: I do not want a, I do not want a free market where the free market would take it beyond the middle class.

Hill: But we don’t have a free market. We have regulation and regulation and regulation.

Ahokovi: Well…

Fidell: That’s a different story. That, that, no, that’s a different story in the sense that that costs a lot, just as Jensen has found. It costs a lot. We could fix that. It’s regulation. It’s people. It’s funding, government operations, all that. We could fix that. It’s an easy solution, in my opinion.

Ahokovi: Well, in a competitive market, I mean, ironically, just to what you were saying, in a competitive market, actually, high prices would be a signal to production to supply more of a good, which would in turn apply downward pressure on prices. 

Any undergraduate economic student, such as myself, will be able to tell you that. The reality, though…

Fidell: That has never worked, never worked in Hawaii, never for a moment.

Ahokovi: Right. The reason why is because our housing supply and our housing shortage is the worst in the country, particularly because we have the most regulated housing market in the country, right? And, you know…

Fidell: Can I offer you the thought, Jensen, that the reason that Hawaii is so scewed about this is we’re an island state, and we have limited land, and a lot of that land is cut out for conservation and not for housing? So, you know…

Ahokovi: That’s true, correct. And…

Fidell: To go to Malia’s point, if we could let some of that land go, we would be better off. I mean, there are people who feel, and in some way, it’s in the Constitution — there are people who feel that state land should never be released, that state land is held in trust for a return to sovereignty or something like that back, you know, back in the 19th century, and we can’t let it go. 

But we have to let it go. We have to put it on the market. And then, the process you’re describing might have a chance.

Hill: I mean, only 5% of land…

Ahokovi: Oh, we completely agree.

Hill: Only 5% of land is available land as zoned urban for housing.

Ahokovi: Right, and funny enough, Jay, you brought up, you brought up one of — another pretty common criticism to our work, and that is, “Oh, you know, your solutions won’t work because we’re an island in the middle of the Pacific,” as if that would make us exempt [from] the laws of supply and demand, right? 

It doesn’t matter where we are located in the world. We have a housing market here, and markets work in accordance with supply and demand, right? And what you brought up, Jay, is a very, is a very tenable solution that we actually support as well, right? How do we expand the supply of land? And talking about conservation land or agricultural land is definitely a step in the right direction, if we want to expand the supply of housing.

Fidell: Well, it has to work for the investor. It has to work for the capital. And, you know, we have to bring all of these disparate elements together and make it work for the state. 

And while you said — you used the magic word, actually, Jensen: agriculture. Agriculture. You don’t have any idea how much land is off the market. You know, I’m not sure why, but the, you know, the Big Five agricultural organizations are just holding it for a better day. 

We’re talking about thousands and thousands of acres. It’s not used for agriculture, and it’s not used for housing. We’ve got to fix that, don’t you think?

Ahokovi: Yeah, I can agree. But, you know, these really go into the weeds of policies, but they do tackle the root of the issue that Tom mentioned. And that is, the root of the issue is really supply. If you have a shortage of something, the nature of that problem is the supply, right? And so, how do we talk about, how do we talk about that in solutions?

Fidell: OK, well that — I think that’s a perfect question for Malia to answer.

Ahokovi: Exactly.

[laughter]

Hill: Well, you know, our solutions are by-right zoning, where we really reduce the numbers of permits and approvals that are required, allow people to proceed with development by right, which will address both building on land that is already existing, you know, subdividing — duplexes, accessory dwelling units, that kind of thing — and also addresses the building of new homes. 

That’s a model that has worked elsewhere, most notably in Tokyo, which also has a certain limited island-kind of problem. So, it’s not necessarily, as Jensen points out, you know, you can’t use, “Oh, we’re Hawaii, we’re different,” as the reason it won’t work. 

What we really need to do is basically stop disincentivizing the construction and renovation and building of housing growth at the, like, non-millionaire level. And that’s what we’ve done by making, by creating layers and layers of approvals. 

So, we need to streamline the approval process by creating zoning ordinances that both really delay and then restrict what can be built and what can be built on specific space; by really doing away with this, kind of, going into inclusive zoning where you can build residential pretty much anywhere, where you can subdivide where needed. 

It massively increases the amount of housing that you can build, and it’s a way to solve [the problem]. That’s what we really need to do — we want to solve the supply problem. And we need to stop our concern with where we may have a problem.

Fidell: We also have to change our attitude at DPP because DPP is largely responsible for what we have today. 

When Kakaako was, you know, first conceived as a residential community, I said to myself, “Oh, boy, wait, wait till DPP rolls up their sleeves on this one. We’re going to have 37-, you know, story towers with luxury penthouses.” 

And there were all these renderings of middle-class housing. It didn’t happen. That, so, I’m not saying there should be more regulation. I’m saying that these organizations have to have more guidance on what’s important and state policy, you know. 

Malia, you like policy, right?

Hill: I do, I do. And we do need to change our attitude to be, you know, a little more open to, you know, these changes in how, in how we look at zoning and how we look at building and how we look at housing growth; because one of the big problems is a sort of NIMBY [not in my backyard] attitude. You know, “We need affordable housing, but not right there. Not near me.”

Fidell: Oh yeah. Absolutely. Terrible, terrible, thing.

Hill: That’s another, that’s another …

Fidell: I don’t know how we change the way that people think about that.

Yamachika: Yeah, and there’s also very punitive measures for developers. I mean, there are, you know, takeaways like, “You have to put up these parks; you have to put this amount of open space; you have to do this; you have to do that,” you know, that are not imposed on, you know, single-family residential people. But once you meet …

Fidell: We have to depoliticize development. You know, if Jensen says to himself, “I want to do a development. I’m going to go build some housing.” Maybe you will. Maybe you will. Maybe you should, Jensen. OK? He can be a developer. We want people like Jensen to be developers. We want to have a lot of developers who will raise money wherever it comes from, who will build projects that will sell, that will, you know, that will be useful for the state, and we don’t have that. 

We only have a handful of developers. I’m sorry to all the developers who are listening, but we should have young, you know, and vital, excited developers who believe not only in making the bottom line but in improving, you know, the lot for all of us.

Ahokovi: We don’t, we don’t only need young developers. We also need young community support in favor of more housing. 

You know, there’s been a lot of research out there across the country, you know, that looks at, for example, county council meetings, when communities come together to voice their concerns to their local, to their local policymakers. And really, all the research finds that 99% of the time, the people who show up to these meetings are people who already live in the communities that would be affected by development who are very much in the NIMBY group, the “not in my backyard” group. 

And so, when you think about this, when county councils hear nearly 99% of the time only opposition, only opposition against housing, that will skew their behavior. 

The fact of the matter is, there is not enough vocal support from young people like me who want to live in prospective communities, and they just don’t show up to these community events. So, you know, these are solutions that aren’t necessarily addressed by policy.

Fidell: Oh, you’re absolutely right. You go to those meetings, it’s one hand clapping. It’s everybody is doing manku-manku. And what you have to have is the other side. 

Somebody has to stand up, say from the government, from the administration, and say, “Wait a minute. We have a policy to build housing. Don’t you want housing here so your kids can stay?” I mean, but there’s nobody that stands up and says that, and we have to have somebody designated to represent the state policy. Policy, Malia. You have to come back to Hawaii. You have to be at that meeting, Malia.

Hill: I’m working on it. That’s why we’re trying to make it more affordable.

[laughter]

Fidell: So, Tom, I’ve got to ask you one more question here. You know, we’ve been talking about broad strokes of policy, broad problems, problems that are, you know, insoluble without, you know, getting into the weeds of state legislation because that’s what it’s going to take. 

Query: What tax changes would you recommend to deal with these, you know, fundamental underlying problems here?

Yamachika: Well, one of the problems that I think has been talked about over several years is that we’re overtaxed. If you, you — we take away so much money from people that they…

Fidell: What changes to what tax?

Yamachika: Income tax, for example. GE [general excise] tax. Everything that people normally pay on a, you know, regular basis. We, we take away so many, you know…

Fidell: Malia, can you connect that up for me? How would a reduction in tax help deal with this problem?

Hill: Well, we’re looking at, you know, a general cost-of-living issue, and housing’s a big piece of that pie. 

And so things like the excise tax affects the cost of building. So that — there’s that. But there’s also just, you know, how much do people have? What is the cost of living in Hawaii, and how can we bring that down across the board? What is the cost of doing business in Hawaii, and how can we bring that down across the board? 

And so I think that Tom is basically, you know, pointing out, you know, all these things increase the cost of building, increase the cost of a home, No. 1. 

No. 2, you know, a general high cost of living is not a, is not a thing that is going to help bring down, you know, the cost of housing…

Fidell: Could you do it across the board — just bring down the cost of living? That’s not so easy.

Hill: Well, no one said it would be easy, but that still makes it good.

[laughter]

Fidell: OK, all right, I’m going to make you queen for a day, Malia. 

Hill: Just one day. 

Fidell: You’ve always wanted to be queen.

Hill: It’ll be a very busy day.

[laughter]

Fidell: That’s a great way to go into it. 

What do you do, OK? And try to stay constitutional, if you don’t mind. What do you do in terms of making it better?

Hill: Well I, actually, am fully on board with Tom’s plan to make it more affordable by reducing the tax burden in general. I think that’s, you know, really looking even beyond just the housing problem and to the problem of the high cost of living and the, you know, bettering Hawaii’s economy. And so, I think that’s fantastic. 

More narrowly, what do we do? We reduce the number of permissions required to grow new housing, both to, you know, create new housing where there’s existing development and to make new development, build new houses.

We increase the level that — we basically put the state Land Use Commission out of the sort of position it is in now where it’s a zoning commission. We reduce the number of things that have to be referred to the state level. We reduce the number of zoning prohibitions at the county level. We reduce the number of approvals required at the county level. We take that time it takes to get development approvals down from 10 years to like one year; from two years for a permit to just a few months or weeks even. 

All of that will help reduce the cost associated with development and re-incentivize it. So, that’s just, that’s just a start. And we embrace …

Fidell: That’ll take you until 10 in the morning.

Hill: I was going to say, if we’re going to go past, we’re going to work through lunch. Let’s start looking at inclusive zoning and by-right zoning.

[laughter]

Fidell: OK. Jensen, you heard what Malia wants to do. What further research, what further reports would you want to do to clarify and, you know, pave the way for those things?

Ahokovi: Yeah, I mean, there’s — and, and I’ll be honest there’s really not much to be done in terms of research. The research is out there. There’s been research for decades that have pointed to strict regulation on land use and housing as to the primary contributor to expensive housing. 

At the local level, right now, I’m currently looking into with my colleagues this issue of military housing. How do military vouchers contribute to local rents? 

You know, there’s also a lot of talk from policymakers and others that, you know, the military gives these families money that is often above the market rent or the market price for housing, and this allows them to outbid locals; or, you know, there are some renters who only rent to military people. This is a pretty, this is a pretty popular issue as well, and, you know, we’re looking into that issue. 

We’re also going to look into this issue of empty homes. You know, how do home vacancies contribute to this issue of growing housing costs, especially here at the local level?

So the issue…

Fidell: It can be pretty hot for somebody who doesn’t want his home wrecked, and all that.

Ahokovi: Yeah. Well, the issue really with the research is not that, you know, is not that there is no research out there. There’s lots of it. The challenge is trying to extrapolate that research to here. 

And that’s really the challenge for me and what I’m excited [about] is trying to extrapolate the abundance of research that we have in the literature and seeing how it applies here at the local level in Hawaii.

Fidell: Yeah, well don’t stop, don’t stop. And stay in touch with Malia, OK, yeah?

Ahokovi: Absolutely. Absolutely. 

Fidell: Tom, you get one minute to summarize. I don’t envy you this — to summarize this discussion and give us a takeaway from everything that has been, has been said.

Yamachika: Well, we’ve, we’ve talked in this, I guess, a little more than 30 minutes about the costs of, of housing, why the housing crisis is what it is, and we’ve really focused on a couple of things like supply-side — the amount of housing we have and how it gets to, gets to the market — as well as a little bit of the demand side, and whether we should really be punishing developers or out-of-state buyers. 

And the Grassroot Institute is telling us that the research points to supply-side rather than demand-side as, you know, the way to tackle this problem first. And so, it’s now up to the policymakers to figure what they’re going to do about it. 

I mean, not only do we have existing entrenched problems like, you know, the 8,000 permits in the queue at the Department of Planning and Permitting [and] the fact that it takes commercial developers well over a year to get permits, sometimes, you know, four years, maybe sometimes 40 years. We’ve got to do something about that. 

And we also have to take a look at the interlaced regulations — there are state restrictions, city restrictions, and everything in between — and maybe, you know, chopping a few arms off of that beast to get it more simplified. 

So, those are kinds of, some of the things that we should be looking at, you know, in terms of policy changes that might actually help us deal with this housing crisis.

Fidell: It’s an ongoing discussion. There’s much more. We do have to get into the weeds. 

And Malia, I hope you don’t take this, the queen thing too seriously because your day as queen for the day has just ended. And Jensen, I…

Hill: Aww. 

[laughter]

Fidell: And Jensen, you know, think about developing. We need developers. They don’t have to be young. I could be a developer. I would have the right mindset, I’m telling you now. So could Tom, actually. Anyway, thank you both. Thank you all. And I hope we can do this again because we’re not finished.

Ahokovi: Absolutely. Thanks for having us.

Fidell: Thank you, Malia, Jensen, Tom.

Yamachika: Thank you, everybody.

Hill: Thank you.

Ahokovi: Thank you.

 

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