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For homes to be more affordable, build more homes across price range

Friday, September 05, 2014   (0 Comments)
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Article by Karen T. Nakamura, CEO

Courtesy of Honolulu Star-Advertiser, August 31, 2014

 

In March, the University of Hawaii Economic Research Organization forecast Oahu single-family home prices at near $700,000.

In June, the median price of an Oahu single-family home reached $700,000 for the first time, according to a July report by the Honolulu Board of Realtors.

Furthermore, economist Paul Brewbaker predicted that median would eventually reach $1 million due to inflation and the lack of housing supply.

What causes the continual increase in housing prices? One major factor is the lack of supply of new housing at allprice points.

A basic economic foundation is the law of supply and demand: If supply is constricted or reduced on a commodity that is in high demand, its price increases. The $700,000 median price is the result of too few new homes and too many families wanting to buy.

Hawaii's entitlement process contributes to limiting new housing supply and higher costs because it is subjected to:

  • A Byzantine state and county land-use process, which elevates the debate on sound and proper land uses that result in unnecessary delays and challenges in areas planned for housing.
  • Political intervention.
  • Interventions by community and special-interest groups who view all growth as bad.
  • State and county conditions to mitigate impacts.
  • Price of building materials and labor.
  • Market cycles.
Another factor is government's reduced ability to provide infrastructure to address and encourage growth and to stimulate development and the economy.

The H-1 corridor that spans our south shore is an example. Without it, whole communities and regions would not be developed, and the cost of development would be exorbitant.

Our current system requires home builders to have very deep pockets to survive the lengthy, expensive land-use entitlement process. While the counties plan for future growth, they wait for landowners to request reclassification or zoning to support the planned growth or even provide regional infrastructure. This process takes decades and cost millions to a builder trying to plan for future housing.

Hawaii's land-use entitlement process has all but eliminated the small- and medium-size home builders from the market. It also ensures that costs of homes will continue to rise and fewer families will have the opportunity to own.

Furthermore, proposed developments are painstakingly probed and scrutinized until, ultimately, exactions are imposed to "mitigate" impacts from the project. While everyone would agree that government's role is to ensure that projects are done in a manner that protect public health and safety, many of the exactions, which add to the cost of the development (i.e. housing price), appear to be for aesthetic reasons -- or worse, to pay for regional infrastructure or services that should be funded by the general public, such as infrastructure improvements or maintenance of landscaping.

If public policy-makers truly want to address the exponential growth in the median price of housing, all price points must be included. A healthy housing market not only addresses the needs of first-time buyers, but also allows for families to "step up" in the quality of their housing based on increased income over time. A more dynamic market would be a wide range of housing options in various regions for various levels of consumers, allow developments to bring product lines to market, to compete for and entice buyers, and encourage buyer mobility. This would balance the supply-and-demand equation, resulting in price stability.

Without addressing the supply of housing at all price points, a dysfunctional market continues where sellers have an advantage over buyers who must bid up the price of a house in order to have a chance at purchasing from the existing supply.

An adequate housing supply impacts affordability, which impacts our quality of life.

We need to take serious steps to address this problem so that young families can stay in Hawaii and have the opportunity to invest in the community.



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