Monday, May 20, 2024
Hawai'i Free Press

Current Articles | Archives

Wednesday, March 1, 2023
Hawaii’s Housing Shortage Explained
By Keli'i Akina PhD @ 1:08 PM :: 2578 Views :: Development, Land Use, Cost of Living

Housing expert says Hawaii fits pattern of areas losing residents

from Grassroot Institute of Hawaii, March 1, 2023

Honolulu fits the pattern of a handful of big cities on the mainland whose residents have been moving away due to lack of housing, according to nationally recognized housing expert Kevin Erdmann

“If you just looked at the migration statistics,” he told host Keli‘i Akina on this week’s “Hawaii Together” program, “you would think that those cities were going through a famine or an economic catastrophe.”

Instead, he told Akina, president and CEO of the Grassroot Institute of Hawaii, those cities — New York City, Boston, San Francisco and LA —are really suffering from a lack of housing.

Erdman is a senior affiliated scholar at the Mercatus Center at George Mason University in Arlington, Virginia, and author the books “Shut Out: How a Housing Shortage Caused the Great Recession and Crippled Our Economy” and “Building from the Ground Up: Reclaiming the American Housing Boom.

Hoted that since 2008, construction of entry-level single-family housing across the nation has gone from more than a half a million units a year to less than a hundred thousand. And due to such limited supply, he said, the result is like “fighting over the carcasses of the kill instead of having enough for everybody.” 

He said that instead of focusing on demand-side scapegoats such as “outsiders,” empty homes and short-term rentals, the solution is simply more housing.

“In a place like Honolulu,” he said, “a lot of it boils down to letting a city densify and evolve and become the city that it should be as it gets larger. That’s the way cities have always grown, but we’ve made that natural process illegal.”

Another answer is to get rid of the “veto points” caused by zoning. Zoning forces developers to ask for permission to develop housing, he said, “and every time they have to ask permission, it gives locals another opportunity to say no.”  

Erdmann also endorsed the idea of letting homebuilders focus on market-rate housing, to break the trend of wealthier buyers moving into neighborhoods “that would otherwise be serving families with lower incomes, of lower socioeconomic status.” 

The original residents of those neighborhoods similarly “compromise down and take a longer commute, a smaller unit, fewer amenities, whatever they have to do” to stay in the neighborhood, or else just move away. 

“And as you just march down the city,” Erdman said, “you can see this in the price trends: When a city doesn’t build enough housing, systematically, families are basically self-selecting based on how much pain they’re willing to withstand to stay in the city. And as their incomes get lower, that decision becomes harder and, effectively, as you get to the families with the lowest incomes, what you’re left with is a lot more of them have to move away. So you get migration of families with low incomes that are especially moving away.”

TRANSCRIPT

2-27-23 Keli‘i Akina hosts Kevin Erdmann on “Hawaii Together”

Keli’i Akina: Aloha and welcome to “Hawaii Together” on the ThinkTech Hawaii broadcast network. I’m Keli’i Akina, your host, and president of the Grassroot Institute of Hawaii. 

Hawaii needs housing reform, and we need it quickly. Our families, friends and neighbors are leaving Hawaii in droves because many simply can’t afford to pay rent or buy a home. 

State and county lawmakers have been trying to address this problem through a number of ways, most of which involve government spending money to bring about a variety of solutions. 

But is there a better way? What’s the best way to increase the supply of housing and solve our crisis here in Hawaii?

Joining me today is Kevin Erdmann. He’s a senior affiliated scholar at Mercatus Center at George Mason University in Arlington, Virginia. And he’s also the author of two books on U.S. housing, which I’m sure we’ll be able to discuss in the program later on. 

One of his books is “Shut Out: How a Housing Shortage Caused the Great Recession and Crippled Our Economy.” Another book that he wrote is “Building from the Ground Up: Reclaiming the American Housing Boom.” 

He’s a nationally recognized scholar, housing policy expert, and I’m just glad to have him on the show. Kevin, aloha, and welcome to Hawaii, at least, through long distance. Thanks for joining us.

Kevin Erdmann: Yeah, yeah, thanks for having me. Glad to be here.

Akina: Well, tell us a little bit about your background and how you got into the study of housing crisis across the country.

Erdmann: Really, it’s an accident of discovery. About six or seven years ago, I was studying the housing market just for personal reasons — investment decisions and that sort of thing — and came across just sort of core fundamental data that contradicted the conventional stories we hear about the financial crisis and the housing boom that predated that. And, you know, had the ability to sort of follow my nose down this path at that time. That was back in 2015.

Just every day, once I discovered a few things that were odd — that there really wasn’t a lot of, say, expansion of mortgage credit to unqualified borrowers in the aggregate, at least — and, you know, there are lots of anecdotes — but when you add up the national data, it doesn’t really add up to what the conventional stories would have you believe.

And as I followed my nose down that path, I eventually discovered the central issue of housing supply and the inability to build adequately in our major metropolitan areas over the last 20 or 30 years, and I sort of just happened upon the story that the preconceptions about what had happened were so sort of thick that nobody else has sort of treated it as a reality. 

And it was sort of there for me to pick up and take on, and so I ended up writing the two books and working with the Mercatus Center on follow-up research, and so six or seven years later here I am, sort of an accidental expert [laughs].

Akina: Well, one of the topics of your book, or titles, it’s kind of audacious, you attribute to the housing shortage a recent great recession. What’s the connection there?

Erdmann: Yeah, I think, the way I would retell the story of what happened is that we really have — and I think, you know, Honolulu fits a lot of these characteristics — but we really have some cities on the mainland — New York City, Boston, San Francisco and LA — that just for the last 20 or 30 years have just really clamped down on just enough housing supply, even to sort of just have regular organic growth that you would expect from any large successful city.

And so every year from those cities, there are Americans that have to move away, basically for lack of housing. 

You know, if you just looked at the migration statistics, you would think that those cities were going through a famine or something, or an economic catastrophe. 

And so, that’s sort of the central problem, and of course, it makes those cities expensive. And so when housing cycles and business cycles and everything, you know, happen, when things get expensive, we tend to focus on the cyclical.

And so as the cycle was revving up in those cities, instead of sort of recognizing this core problem — which is just cycle or no cycle, everything keeps getting more expensive — you know, it sort of got misinterpreted as a cyclical event, rather than just cycles sort of building higher and higher as this problem gets worse and worse. 

And what happened by 2004, [200]5 and [200]6 is that the mismatch of demand and supply in those cities got so bad that this wave of families that have to move away for affordability ends up overwhelming places like Las Vegas and Arizona and Florida.

Florida, interestingly, sort of tends to take a lot of that migration out of the Atlantic Northeast. From California, it’s a lot more obvious geographically. They sort of go into inland California, then Arizona and Nevada. 

And so, you sort of have two sides of the bubble. You have the first part that really is purely a supply issue. There’s not enough houses in those cities. The prices get higher because the rents got higher. 

And then you have this short-term thing that was more truly a bubble. It wasn’t sustainable. Prices got a bit away from the fundamentals in places like Phoenix. But at the end of the day, that bubble was caused by the shortage of housing in the big cities that created this migration event. And so you really have … oh, yeah, go.

Akina: Kevin, this is all fascinating. I know that along the way in your books, you like to ridicule scapegoats …

Erdmann: [laughs]

Akina: … or reasons that people attribute to the actual problem. In a blog post that you wrote recently, you mentioned that blaming high housing prices on Airbnb or outside investors isn’t quite accurate.

Erdmann: Correct. Yeah. Yeah.

Akina: Why don’t you explain what you meant by that?

Erdmann: Well, I like to compare Phoenix to, you know, a city like Honolulu, Los Angeles, because a good portion of our city are what we call snowbirds: people from Canada and the Midwest that come here for part of the year. And there are parts of town where there’s miles of empty houses around. 

Now, every city is sort of getting worse on the supply problem since all the things we’ve done since the Great Recession, which we’ll probably get to later.

But, you know, traditionally, at least up through 2008, none of that was a problem for Phoenix. We’d love having some Canadians in town for half a year. You know, it’s not a problem, because we just built houses for the people that would want to be here for the times of the year that they would want to be here. 

In cities where there’s a focus, you know, where we might feel like we might want to judge how people are using their houses, the reason we get those feelings is because of a supply shortage, because we’re not creating abundant supply for everyone to just be able to get the house that’s fitting for them.

And so once we sort of get into this, like fighting over the carcasses of the kill instead of just having enough for everybody, then, of course, you get into these battles of these sort of hierarchies of “Who deserves to have the house in our city?” and “What should we do to drive them away?” 

And, you know, so you hear that a lot. You probably hear that a lot in Honolulu. You hear it a lot in Los Angeles and San Francisco. 

In Phoenix, that would seem absurd. We would never want the Canadians to leave. They’re actually, you know, a nice part of our local economy, and they’re nice to have around when they’re here. 

So in a lot of ways, this is what happens, is when you have a supply problem, it invariably looks like some demand problem. Because if you’re playing musical chairs, and the chair gets taken away, whoever got that last chair, you know, you’re looking at them and going, “That guy’s my problem.”

Akina: Yes. That’s a great observation. We end up blaming the last person who sits in the chair. But you mentioned Honolulu. We have found exactly what you’re talking about: that a high number, or a high percentage, of outside buyers in any market may not be a causal factor in the cost of living or the cost of housing or its scarcity. 

And we just completed a study at the Grassroot Institute — you may be familiar with it — in which we looked at the data from every county across the entire country, and couldn’t find a positive correlation between outside buying and a housing shortage or crisis in a local market. 

Now, could you speak to that idea further? Is our observation something that resonates with you?

Erdmann: Absolutely. And in fact, I have a paper that we put out at Mercatus here in the last few months where I sort of go through the effect on prices of not having enough supply and how it really weighs on the working class and, you know, families with lower incomes sort of systematically. 

One of the things that I’ve found in this series of papers is that, for instance, of course, the number of houses you build in a metropolitan area, you know, is highly correlated with migration into and out of that city.

But really, what I found is, when you don’t build enough housing, you know, in a city like Atlanta, for instance — traditionally, they’ve built plenty of housing and what happens is people that want to move to Atlanta, move to Atlanta. So Atlanta has a high in-migration that doesn’t really affect the decisions people make to move away from Atlanta. Those are idiosyncratic decisions having to do with their own personal life and career.

But in a city that doesn’t build enough housing, that doesn’t have much of an effect on people moving in — effectively the people that are gonna move in are still going to move in — and what makes those cities different is actually they have more people moving out. So the LA’s and the San Francisco’s and New York City’s, when you compare the in-migration and out-migration rates, what makes them different from other cities is there’s a lot more Americans moving out of those cities and not moving in.

Price is really just the process of finding that equilibrium where somebody that’s an existing resident is, where it’s painful enough that they have to basically choose to be displaced through the marketplace. 

So yeah, so it’s not these outsiders coming in that really is much different in those cities, it’s just that they won’t accommodate them, and then it’s the locals that are at the low end of the totem pole that pay.

Akina: Since we’re talking about false causes, what about short-term rentals? Are they to blame for the high cost of housing?

Erdmann: Well, you know, as I said in that post, you can take anything as sort of a snapshot in time. And if you assume that supply is fixed, then any source of demand will change prices or will make a unit not available for somebody else. 

But again, it’s these cities where they’re not building supply that, systematically, something like Airbnb looks like a problem and can be treated like a problem.

And in cities that build amply, it actually doesn’t affect costs and prices that much. Because when you build enough housing, at the end of the day, the cost of a house is something close to the cost of drywall and lumber and concrete. 

When you don’t build enough housing, then what happens is it changes the local market, where now the cost of your house is how much income is somebody else willing to spend to get that house, to make staying in that house painful enough for you that you’d leave town, so that new supplies available through migration rather than construction.

Akina: Kevin, as you sift through the various causes, what have you concluded in your research is the major culprit for the housing shortage experienced across the country?

Erdmann: I think, first and foremost, that its base is definitely is, you know, zoning and all the attendant things that are related to that. 

And so at its base that’s certainly what’s made the New York’s and the LA’s and the San Francisco’s and the Boston’s unusual for quite some time for 20 or 30 years. 

And they are probably worse than other cities in general in that regard. And it shows up in their affordability statistics before the Great Recession that they’re worse. 

But the second part of this story is basically that we, again, treating it as a problem of excess demand, of too much lending, about trying to solve all those problems. As if they’re what’s making home prices too high.

They really have done a number on the rest of the country by making it hard for entry-level single-family homeowners to get mortgages. And since 2008, really entry-level single-family housing has gone from more than a half a million units a year across the country to negligible amounts — less than a hundred thousand a year.

Now, in a way, I think what was happening is most cities had some of the problems that the New York’s and LA’s and the San Francisco’s had, in terms of making it too hard to do infill, making it too hard for the city proper to evolve as the city grows. And they were sort of able to sort of cover that up and get by by building in the exurbs with entry-level single-family homes. 

And so in a way, when we took that away, we sort of exposed the wound that’s probably been, you know, underneath housing markets across the country all along. 

So really, both of those avenues, I think, could potentially lower costs in the long run, you know, both ironically loosening regulations on mortgage lending so that, you know, families that buy new homes in a way are facilitating new supply. 

And it’s a complicated issue there, so mortgage lending doesn’t necessarily just increase demand, it actually helps build new houses. 

But at the end of the day, especially in a place like Honolulu, a lot of it really does boil down to letting a city densify and evolve and, you know, become the city that it should be as it gets larger.

Phoenix is a great example of this with, obviously, just almost a very large suburb, and we’ve made some great advances in the last 10 or 20 years, putting in a light rail and sort of helping to sort of put in the backbone for more dense urban living near the city center in the Tempe area. 

And, you know, that’s the way cities have always grown, but we’ve made that natural process illegal in a lot of ways. And so that’s really a core issue.

Akina: Well, we know what the problem is, and yet, the solutions don’t really abound, practical solutions.

Erdmann: Yes.

Akina: We had Nolan Gray out here in Hawaii. You know him, he speaks about the problem of zoning and offers solutions to that. What can we do from a zoning perspective that could make a difference, that could loosen up the difficulty of being able to build adequate supply?

Erdmann: I mean, you know, the politics, I don’t know that I have insights on the politics of it. You know, that’s where the difficulty is. The solutions are pretty easy. You can just look at cities across the country, and there are large parts of the city where we’ve effectively made it illegal to build what would be the most appropriate housing for that part of the city. 

And in a way, you know, if you’ve got a headache, the easiest thing to do is to stop hitting your forehead with a mallet. You know, so in a way, it’s the easiest thing to solve, but it’s also the hardest, because we develop these sort of political expectations of people that live in the existing neighborhoods where, you know, to my estimation, we’ve sort of allowed there to be an overdeveloped sense of control over how your city can change around you. 

And, in a way, I think there almost has to be a cultural change. But I think we’re seeing it happen because especially the younger generations are seeing the downside of all this.

Akina: We talk about zoning reform, and perhaps one of the places to begin is by looking at the structure of our zoning laws. In Hawaii, they’re quite complex. 

Hawaii’s controlled mostly in its zoning by county rules, but we also have a state agency over all of that, that regulates land uses at a much broader level. We call it the state Land Use Commission

And to give you an example of the complexity, it breaks up all the land in the state, across all the islands, into four districts: urban, rural, agriculture and conservation. Now, is this a practice we see in other states to any large extent? And is there any research on how effective doing this is?

Erdmann: That’s not necessarily my area of expertise, but I would say I think it can be effective as long as you allow the urban areas to be urban. 

You know, I think where cities have run into trouble is drawing boundaries and, you know, creating conservation areas. But then, if you’re going to do that, you have to pair it with an urban area that doesn’t have single-family homes, you know, a half mile from downtown. However you want to manage the sort of exurban areas, there has to be a commitment to letting the city grow into a city as it gets larger and just as the world evolves.

Akina: In Hawaii, we have several layers of regulation, kind of like a multi-layered cake, starting with the Land Use Commission and working your way down to the lowest county level. And at a handful of points in this cake, there’s the opportunity for public hearings. 

Erdmann: Um-hm.

Akina: So a theory has been generated here in Hawaii called the NIMBY theory — Not In My Backyard — that speaks to the power of groups to obstruct development. 

Erdmann: Yeah.

Akina: What are your thoughts about this as a political tool, and how pervasive do you see this across the country?

Erdmann: Yeah, I mean, I think that is the core issue. And, you know, I think, in a way, we have to reconsider how much political opportunity there is for that sort of obstruction. 

You know, of course, there needs to be some back and forth, and that’s part of a city’s job is to just sort of manage its growth and account for everybody’s concerns. 

But definitely, you know, we see time and time again that the concerns of the locals get exaggerated. You know, the potential new residents just don’t have a voice really in the process at all. And so yeah, that really is the key, we need to get rid of veto points. 

And, you know, zoning sort of sits in the middle because it creates these opportunities where you have to force developers to ask permission. And every time they have to ask permission, you know, it gives locals another opportunity to say no. 

And we all hate change. We all hate progress really, because it’s easy to hate progress because progress brings the unknown. And it’s easier to imagine the things you’re going to lose than it is to imagine the things that you didn’t realize, you know, could be improvements. 

And so it’s just always a tough argument to argue for progress. And so, yeah, we have to find that balance. And I think one good way of looking at it is sort of getting rid of veto points.

Akina: In Hawaii, there’s a big push now for exclusively, or allowing only affordable housing, or what we call government-subsidized affordable housing, using state and county dollars and inclusionary zoning mandates to do that. 

On the other hand, there’s the argument that we need to provide market-rate housing in order to make available the actual benefits of the market in a way that the needs of all people at all price points of purchasing power are met. But what are your thoughts about this?

Erdmann: Yeah, this is really where my recent research, I think, taps into, I think, underappreciated aspect of how a metropolitan area’s housing market works. Because I think most of the time those sort of demands are really counterproductive. 

One way I would put it is that an ample supply of market-rate housing is a prerequisite for providing housing for the portion of the city that needs assistance. 

And one of the patterns I’ve seen in cities that aren’t amply supplied is effectively what happens — and we’ve talked about the migration issue a bit and we’ve talked about migration between metropolitan areas, that really is just an outgrowth of the migration that starts within the metropolitan area.

So in a city that is not allowing as much housing as they need for, you know, natural growth, what happens is you can start at the top of the metropolitan areas in terms of income or access to credit or wealth. And those families, you know, they’re not going to go without, they’ll make some compromises, you know, as prices get higher and as costs get higher. 

And one of the compromises they’ll make is to compromise to a neighborhood that would otherwise be serving families with lower incomes, of lower socioeconomic status.

A few of those families might choose to move out of the city because they’re tired of the high costs, but a lot of them will sort of poach housing from a lower tier of the marketplace, just because we’re a free society and we don’t put restrictions on how people can make personal decisions. 

And so now you’ve moved down to that next lower neighborhood, and the families in that neighborhood are facing higher costs, and they don’t quite have the wherewithal to make compromises as easily as the richest families. 

And so they compromise down and take a longer commute, a smaller unit, fewer amenities, whatever they have to do, there are units that would’ve otherwise been taken by people with lower incomes.

And as you just march down the city, you can systematically – and you see this in the price trends: When a city doesn’t build enough housing, systematically, families are basically self-selecting based on how much pain they’re willing to withstand to stay in the city. 

And as their incomes get lower, that decision becomes harder and, effectively, as you get to the families with the lowest incomes, what you’re left with is a lot more of them have to move away. So you get migration of families with low incomes that are especially moving away.

And the ones that remained are the ones that were willing to pay egregious amount of their income to stay in the city, because the city has some value to them that they can’t give up. 

And so it really systematically sort of, you know, puts pain on families with the lowest incomes.

And so what happens is you have this cantilever of, you know, the richest families, their costs don’t change that much, they just moved to a smaller unit. But as you go down, the costs go up and up and up, like it’s on a seesaw. And the only way to get that seesaw down is to build units across the whole city to stop that migration within the city from happening.

And once you have ample housing, now taking care of the people at the lowest end of the spectrum is easier. You can do it affordably. There are fewer people that need assistance. 

And to try to sort of pull down the low end with this targeted affordable housing, it just can’t fix the problem because the problem is just inherent through the entire market from top to bottom. 

Because for every affordable unit that gets built or doesn’t get built, there’s a hundred people making decisions within that city that end up distributing those costs to every family that stays or leaves.

Akina: Well, Kevin, that’s a fascinating description of how the market should work. I want to thank you so much for being with us today. Appreciate your wisdom.

Erdmann: Thanks. Thanks. It’s been a pleasure.

Akina: My guest today has been Kevin Erdmann. He’s a senior affiliated scholar at the Mercatus Center at George Mason University, and he’s the author of “Building from the Ground Up: Reclaiming the American Housing Boom.” 

I’m Keli’i Akina with Grassroot Institute, and you’re watching “Hawaii Together” on ThinkTech Hawaii. Until next week, aloha.

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

Aloha Pregnancy Care Center

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Ballotpedia Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii

FIRE

Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Habele.org

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii ConCon Info

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federation of Republican Women

Hawaii History Blog

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii Military History

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Together

HiFiCo

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

July 4 in Hawaii

Land and Power in Hawaii

Lessons in Firearm Education

Lingle Years

Managed Care Matters -- Hawaii

MentalIllnessPolicy.org

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

Natatorium.org

National Parents Org Hawaii

NFIB Hawaii News

NRA-ILA Hawaii

Obookiah

OHA Lies

Opt Out Today

Patients Rights Council Hawaii

Practical Policy Institute of Hawaii

Pritchett Cartoons

Pro-GMO Hawaii

RailRipoff.com

Rental by Owner Awareness Assn

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

School Choice in Hawaii

SenatorFong.com

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii