by Edwin Quinabo
When people think of NYC – they think of Wall Street, Broadway and the shockingly high cost of rent. For San Francisco, people associate it with the Golden Gate Bridge, cable cars and whopping-priced real estate.
As another one of the United States’ world-class cities, Honolulu is also easily identifiable. Paradise. A tourism mecca. And the exceptionally high cost of living are what comes to mind of Hawaii.
For a handful of highly desirable cities – through recession or economic boon, no matter – living there comes at a hefty price. Hawaii’s natural beauty, white sandy beaches, verdant green mountains and kind, aloha-spirited people will always be a special place people from all around the world would want to visit, make as home temporarily or permanently. This ultimately means, given our state’s limited land and limited inventory of properties for sale or rent, housing prices will consistently be higher than most places on the mainland and world.
This is not to say that there aren’t steps our government can take to provide affordable housing, or stimulate economic activity and job growth with higher-paying, quality employment and industries that would enable our local residents to afford market value properties for sale and rent.
Improving education and supporting small businesses indirectly make Hawaii’s housing more affordable
Take education as an example. We may not think it could directly relate to our high real estate market.
But a better-educated citizenry would make us more competitive with other highly skilled and professional workers moving to Hawaii and able to pay for high real estate.
Doing all we can to support education is being proactive in improving access for more locals to our pricey real estate.
The same goes with supporting small businesses and entrepreneurship. Same concept. It’s not directly related to real estate.
But having more successful business entrepreneurs means more of our locals having the means to buy real estate and stay home, should they desire.
Hawaii does not have rent control. But briefly during the pandemic during Gov. David Ige’s Emergency Proclamation, there was a temporary order that restricted landlords from raising rent prices. But that was an extraordinary situation in extraordinary times.
What seems to benefit access to homeownership and alleviate rent actually have some built-in deficiencies
There are actual both pros and cons to policies that on the surface appear to improve access to homeownership and rent.
For example, let’s look at when government mandates affordable housing on a small percentage of units in a new real estate development. The pro is that those who qualify for the few affordable housing units, often by lottery, they will in fact get a better deal than market price.
But the con (which most people are unaware of) is that developers simply pass on the cost (reduced difference) of the affordable units onto other residents. That means those paying market value are paying higher than market value (the difference of those affordable units, plus the actual market value). So what’s happening in the big picture is this drives up housing sale prices and rent altogether.
In another example, let’s look at Section 8 and whatever federal assistance extended to low-income earners. The obvious pros are that Section 8 helps to keep those on the margins, at the cusp of homelessness from becoming homeless. Great. Section 8 is also beneficial in allowing those who qualify to seek a rental property of their choosing, anywhere.
What this does is it works well to integrate low-income earners to live with other brackets of income earners. It helps with community diversity and avoids the pitfalls of the 1970s and 1980s when projects for low-income earners were built in what essentially became the government building blocks of ghettos.
Now the con of Section 8 or other rent assistance project is that they could take up a huge percentage of the overall housing stock. In other words, if Section 8 is not minimized to an extent (which it actually is) it could cut too deeply into a real estate market’s supply and thus, raise the price for everyone else, similar in the way mandated affordable housing does in a more micro-scale.
We must work to find solutions
We see there are both pros and cons to many policies already out there. Finding a correct balance (like the current limitations of Section 8) is perhaps the ideal situation.
But make no mistake, we must strive harder to find solutions to the complexities of balancing free-market investment, providing access and affordability. Why?
Because essential to community diversity is having diversity. If we do not have certain segments of society unable to afford to live in communities strictly accessible to the wealthy, that would do away with a whole gamut of industries, services and benefits we all enjoy as a mixed society. Because lower-paid workers would simply move away.
Creative thinking is important to this process of finding solutions. Above the examples of education and entrepreneurship are fresh ways to look at improving housing affordability and access.
Both are investments in people. Another example, and another form of investing in people which will go a long way in helping diverse income earners have access to homeownership and high rent is paying workers livable wages.
Again, this is the opposite of forcing control over a real estate market. It’s raising ability for people to partake in access to the real estate market. This is creative thinking.
One last point of existing policy that on surface appears to be entirely beneficial but is also detrimental. On Honolulu’s property taxes. It’s the lowest in the nation. A pro is Honolulu property owners are spared from additional thousands of dollars that other mainland property owners (whose actual value of property is on average lower) with higher rates must pay.
The con is lower property taxes is the primary mechanism that allows for mainland and international investors to come in and buy up loads of Hawaii property at high prices and essentially leave some of those properties vacant. If the property tax rate in Honolulu was anywhere near some other cities on the mainland, investment as it is right now would likely drop because returns on those investments would take too long to turn a healthy profit.
Wealthy investors buying (by bulk for some) keeps raising real estate market value higher and out of reach to a growing segment of the local population. Most people do not see this link between low property taxes and investment, and ultimately the overall real estate market. Again, perhaps, finding balance in policy could be better suited going forward.
by Edwin Quinabo