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Hawai‘i housing market ‘bleak,’ University of Hawai‘i report finds

HONOLULU — The state of Hawai‘i’s housing market was pretty bleak in terms of supply and affordability for most residents in 2023, according to a new report.

The assessment from the University of Hawai‘i Economic Research Organization released Monday said that 1 in 5 Hawai‘i households, or 20 percent, had enough income to afford a median-priced single-family house in 2023, down from 30 percent in 2022 and 44 percent in 2021.

“Over the past three years, the share of households who can afford the median single-family home has continuously declined,” said the report, which defined affordable as spending less than 30 percent of household income on mortgage payments. “This downward trajectory is the result of both high home prices and the surge in interest rates during this period.”

UHERO’s report, dubbed the Hawai‘i Housing Factbook 2024, said other influences on dire market conditions include anemic home construction in recent years, out-of-state buyers, vacation rental use and the loss of roughly 3,000 Maui homes from the Aug. 8, 2023, wildfires.

The median sale price statewide for single-family homes in 2023 was $875,000, unchanged from 2022, according to the report.

Condominiums in Hawai‘i sold for a median $600,000 in 2023, up 3 percent from a year earlier.

To afford a median-priced single- family home, which is a price at which half the homes are more expensive and half are less expensive, a household would need to earn 183 percent of the median income.

“So really, only a small minority of people in the state have the income necessary to purchase the typical house in the state,” Justin Tyndall, UHERO assistant professor and lead author of the report, said during a news briefing.

This affordability issue in part contributed to the sale volume for Hawai‘i single-family homes in 2023 falling to a 25-year low, according to the report.

There were 5,600 single-family home sales and 7,300 condo sales statewide in 2023, down 37 percent and 36 percent, respectively, from 2022 and about 50 percent of the level in 2021.

UHERO also found that home rental rates rose in 2023 more than sale prices. The report said that based on Craigslist ads, the median asking rent in 2023 for housing in Hawai‘i was $2,000, which was 7 percent higher than actual median rent of $1,868 in 2022 reported in the U.S. Census Bureau’s American Community Survey.

Households are considered rent-burdened if they spend more than 30 percent of their income on rent, or severely rent-burdened if the cost is over 50 percent. UHERO said in the report that statewide 56 percent of households were burdened, including 28 percent severely.

The UHERO report said interest rates, which peaked at 7.6 percent in October, had a multifaceted impact on the housing market. They not only reduce the purchasing power of buyers, they also dissuade homeowners from selling if they have an existing low- interest mortgage and make it more challenging for developers to finance new construction.

Yet, even in recent years when interest rates were low, relatively little new housing was developed around the state.

UHERO’s report said Hawai‘i’s housing stock grew by 25,000 units, or 1.8 percent, from 2018 to 2022. Almost all of this growth, or 23,000 homes, was on O‘ahu, while 2,600 units were added on Hawai‘i Island, according to the report, which also said that for Maui County and Kaua‘i there were net losses due to vacation rental conversions.

Maui’s loss was made much worse in 2023 with the destruction of about 3,000 homes in Lahaina in the disaster that killed 101 people.

There are major efforts to build temporary housing for fire survivors, including 450 modular units planned by the state, 169 planned by the Federal Emergency Management Agency, 88 developed by a Maui nonprofit and a state conversion of a former 175-unit hotel. Still, UHERO said in its report that this effort won’t come close to meeting demand.

Meanwhile, Maui housing rental rates have soared in part due to FEMA paying above-market rent for 1,300 existing homes on the island to house fire survivors, including about 500 that the UHERO report said remain empty.

The report said a typical three-bedroom home on Maui in 2023 commanded monthly rent of $3,800, while median monthly rent on a four-bedroom unit was $5,200, and that these rates have gone up more than 20 percent based on first-quarter data from Zillow.

“Even for a family that could afford these prices, there is almost no rental inventory available,” the report said. “Since the fires on Maui, the availability of rentals have plummeted and rents have surged higher.”

The report also noted that short-term vacation rental inventory on Maui is 2 percent higher now than a year ago despite many such units being destroyed by the Aug. 8 fire.

UHERO said vacation rental inventory fell by 380 units in or near Lahaina, most of which were lost to the fire, but that this drop has been more than offset by new listings in areas mostly from Ka‘anapali to Kapalua and Kihei to Wailea-Makena.

Maui County aims to ban short-term vacation rental use for 7,000 homes in West Maui under a recently enacted state law, but the county action is subject to regulatory proceedings and likely faces litigation that could affect whether or when the county succeeds with its goal.

Tyndall said converting 7,000 vacation units to residential use would be a huge benefit for Maui’s housing market, representing an 8 percent to 9 percent supply gain.

“If this did come to fruition, and we poured all these units back onto the market, this would be an enormous shock to supply, and I would be almost certain this would show up in lower prices and rents, at least in the neighborhoods that are affected by the new regulations,” he said.

Tyndall also said Maui should have more housing inventory after landowners rebuild what they lost in Lahaina, given that emergency housing units will remain.

Rebuilding could, however, take several years, and it’s hard to predict how other things that affect the market will unfold.

One such factor is demand from out-of-state buyers. UHERO’s report noted that more than half of all property owners in Lahaina appear to be nonresidents, based on property tax bill addresses.

Maui County had the highest share of nonresident property owners at 32 percent, followed by 29 percent on Kaua‘i, 23 percent on Hawai‘i Island and 13 percent on O‘ahu, the report said.

In terms of housing bought in 2023, nonresidents represented 21 percent of buyers for single-family homes and 27 percent for condos statewide, based on addresses for deed transfer documents, according to the report.

By county, the highest share of nonresident home-buying in 2023 was Kaua‘i at 37 percent for single-family homes and 60 percent for condos, followed by Hawai‘i Island at 30 percent and 52 percent, respectively. For Maui County, the respective figures were 25 percent and 53 percent, and on O‘ahu they were 10 percent and 17 percent.

Tyndall said there is a lot of interest to expand supply and improve Hawai‘i’s housing woes through policy, which includes a bill passed by the Legislature earlier this month to allow at least two dwelling units in addition to a main home on lots zoned primarily for single-family use. That bill awaits a decision by Gov. Josh Green, who supports the bill’s intent.

“I think there’s a huge amount of policy interest in correcting the problem, so I don’t think it’s hopeless,” Tyndall said. “We’re just in a bad place where we are right now. … Up to the point where we have data, which is really the end of 2023, I think the picture is very bleak.”
Source: The Garden Island

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