Housing is the greatest crisis to face Hawaii in the 21st century.

Without the ability to own a house or have a place that one can uniquely call “home,” our entire system of democracy is rendered meaningless. After all, what is the point of being free if you can’t own property?

Every winning candidate that runs for local office seems to promise to do something about housing. So why haven’t we fixed the housing crisis already? Why is affordable housing so difficult to attain in Hawaii?

 With no one to explain it to us, we often find ourselves like Sigourney Weaver in the movie “Alien,” sitting in front of a computer, anxiously searching for answers online as to why our elected officials are unable to lower the cost of housing.

Kaimuki homes neighborhood real estate honolulu

Homes cost more than they should in Hawaii because of the almost unlimited buying power of outsiders.

Cory Lum/Civil Beat

Prices Shouldn’t All Rise At The Same Time

Consider for a moment a hypothetical house in Hawaii Kai that costs $1.3 million. There are two supply forces that exert price pressure on that property. First, and most obviously, the supply of houses in Hawaii Kai relative to home buyer demand.

Second, and less understood, is the supply of money. If $1.3 million – on a geographically isolated island, no less – is chasing after a single house, the amount of money for houses should create a scarcity of money for other goods or services.

As the price of houses in Hawaii goes up, the price of food, clothing, and yes, even public education should go down. In reverse, if any of those other goods or services go up, the price of housing should go down. But in Hawaii, as we all know, the price of everything somehow keeps going up.

Try this thought experiment on your lunch break with three of your coworkers. Distribute four food items and four $1 bills, and allow each person to determine the price for exchanging those goods. In this case, the money supply is $4, which means that the highest price this artificial market can sustain for anything is exactly that.

As the price of one item goes up, purchasing it takes money away from the ability to buy another item. No one sets the price of an item above the total money supply, because without expanding the money supply, it is impossible to purchase that item.

Now let’s modify this experiment and bring in a fifth person – we’ll call him “Mr. Big” – and allow him to write on a sheet of paper any monetary value he so chooses. With Mr. Big’s money injected into circulation, there is now no limit to how much any of you can price your items.

In Hawaii, “Mr. Big” is the offshore megabanks, large corporations, investor class, wealthy foreign buyers, and of worst of all, those in government authority who possess control of financial resources or preferential regulatory power. Mr. Big is a charmer who seduces us with big bucks and what seems like easy money, but in the end, he is a harsh master who wrecks the economy to line his own pockets.

Hawaii is a palace economy. The 21st century version of the plantation system is rent-seeking, where those who control the supply of money hijack our market to control the labor, production, property and profits of hard-working locals.

The Moral Hazard See-Saw

We all say we want “affordable” housing, but there’s a catch. We also want to store our wealth and find a way to make more money doing as little as possible. For most of American history, savings has fueled the economy and allowed the middle class to build houses, buy cars, go on vacations, have Christmas parties, send children to college, and so on.

In recent decades, interest rates have been so low that depositing your money in a bank or credit union savings account is basically pointless. The dollar bills in your savings account are claim checks on future goods and services; when interest rates are low, lending makes it easier to purchase things now at the expense of those saving to purchase tomorrow because it artificially increases the money supply.

Whenever policymakers try to lower the cost of housing for the sake of those wishing to buy a house, those who already own a home — not to mention Realtors and developers — will push back, because now the government is taking away their perceived store of value or future profits.

Legislatures, as we all know, typically side predominantly with those who have money and property, not those who have debt and dreams. So what does government do in the end? Artificially hike the price of real estate by subsidizing developers, fast-tracking (or even exempting) building permits, and best of all, raising property taxes.

A study conducted by Ken Meter and Megan Phillips Goldenberg in July 2017 showed that the decline of Hawaii’s agricultural industry coincided with a radical increase in government subsidies to local real estate from 1963 to 2014.

I suspect the prices of housing in Hawaii will, if only briefly, go down because the Federal Reserve after years of quantitative easing is shrinking its balance sheet to prevent hyperinflation and interest rates have been rising. The latest Federal Open Market Committee minutes reflect another round of rate hikes coming soon.

Increasing the cost of lending will be great for savers and even better for homebuyers, but everyone who sees the value of their existing house go down will scream bloody murder.

Congress and the Legislature will have no choice but to treat a drop in prices as a “crisis” and we’ll be right back to wondering why homes are so unaffordable.

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