About 550 feet up Hualalai with a view looking out toward Keahole, the neighborhood of Wainani Estates in North Kona is home to a mix of local families and retirees.
By the time Barrie Parker, principal broker at Asset Real Estate and Management closed on the last of the neighborhood’s 50 newest homes in February, properties there had been selling at a steady clip for nearly two years, mostly between $550,000 and $665,000.
Nowadays though, prices like that are nearly a thing of the past. In his semi-monthly Griggs Report, principal broker Michael Griggs said that at the end of August there were just 27 homes in North Kona for sale under $700,000, down from 44 this time last year.
And prices are going up. At the end of August, the median price of a home in the area rose to $701,000, more than $50,000 higher than the start of this year. By comparison, that figure increased by just $8,000 in the first eight months of last year.
Parker’s already seen the impact in Wainani Estates, where he said resales have sold upwards of $800,000. Not far away in Pualani Estates, where he was sales manager, homes that once sold in the $500,000 range now go for more than $700,000.
Altogether, it underscores the growing gap between what many local families can afford in North Kona — where the estimated median annual household income is $65,682 — and what it costs to bring new homes onto the local market.
There are some new variables at work. The average interest rate of a 30-year fixed mortgage, for example, hit a record low eight times between March and the first week of August. But there are also persistent factors like high costs of infrastructure and development. And ultimately, local professionals say, the issue boils down to supply and demand: North Kona doesn’t have enough homes for everyone who wants one.
The trend, especially now, shows how home prices are being driven by more than just local wages, said Kenna StormoGipson, policy and data analyst at the Hawaii Budget and Policy Center. With out-of-state buyers making up 41% of sales on Hawaii island in 2018, she said a state study shows prices are driven more by what someone somewhere else is willing to pay.
That demand hasn’t disappeared. Gretchen Osgood, principal broker and owner of Hawaiian Isle Real Estate, said Kona is seen as an attractive, remote place away from what ails the continental U.S., and potential buyers are flying in and quarantining before hitting the market. Meanwhile, those who already own property here have no motivation to sell, so new listings aren’t replacing what sells.
And post-pandemic, off-island demand isn’t certain to diminish. Osgood said Amazon Air’s recent expansion of operations to West Hawaii “speaks volumes as to what’s coming to Hawaii.”
“Why would a company the size of Amazon be investing that way in a remote location if they didn’t see the future as being bigger than what it is today?” she said.
An opportunity for the county, StormoGipson said, could be to increase property taxes on second homes, putting the revenue toward affordable housing. Back in June, the Hawaii County Council voted to increase taxes on second homes by $2.50 for every $1,000 in property value over $2 million.
Council Chairman Aaron Chung told Civil Beat that although he originally envisioned the plan as a way to fund affordable housing and address homelessness, the county administration had been working on a similar tax plan to address the budget crunch.
However, Osgood said out-of-state buyers should be applauded for what they contribute to the local economy as taxpayers and consumers. Not only do they pay 12 months of property taxes regardless of how much time they spend on the island, she said, they’re also hiring local workers to care for the property year-round and spending money locally when they are here. All the while, she added, they’re leaving a light footprint on resources like public safety.
“You couldn’t ask for a better upper base to your community,” Osgood said.
Zendo Kern, planning consultant at Kern and Associates, also expects there will always be some demand from people who want to live on the island, both from in- and out-of-state, even as supply becomes more limited.
“So that’s Economics 101, right? Supply and demand,” he said.
Increasing supply, like building more houses, isn’t easy though — let alone building affordable houses. Osgood said development costs these days can be roughly $400 a square foot, driven in part by what developers see as burdensome codes and regulations that restrict affordable developments.
“We talk about affordable housing and yet a lot of the building code and subdivision code and zoning code doesn’t necessarily link up with that,” Kern said. With construction costs constantly increasing, that’s going to restrict the final sale price.
In early August, West Hawaii Today reported the council approved a new construction code aimed at streamlining the permitting process by rolling separate permits into a single one.
Infrastructure costs also drive prices up to cover the costs of roads, sidewalks, curbs and the like.
For a developer, Parker said, getting the necessary infrastructure in is “almost impossible” and, for the county, “a long-term venture.”
County Housing Administrator Duane Hosaka with the Office of Housing and Community Development also said the lack of infrastructure and suitable land for building both pose obstacles to building more affordable housing.
StormoGipson said infrastructure like roads and septic systems should be a public investment, though, not rolled into the cost of a house. By making those investments wisely, like in places close to mass transit and jobs, it can support development that leads to more homes.
And as the gap between local incomes and home prices grows, it calls for a robust housing policy that supports making more affordable homes available to local workers.
Since the 1970s, StormoGipson said, American public housing policy has focused primarily on rentals, which remain critical for those whose incomes are too low to qualify for a mortgage. But she said there are also those who, with a manageable down payment and purchase price close to at-cost, could move out of rentals to become homeowners and reap benefits like opportunities to build equity and have a home they can either stay in or pass on.
In other countries that have effectively tackled their housing problems, StormoGipson said, the private market where homes are bought and sold at market rates exists alongside a separate market: one more publicly supported and more publicly controlled.
The key, she said, is ensuring homes the public puts time and money into making affordable stay that way. It’s great if someone can get a home at an affordable price. It’s less so if they resell it at market rate and there’s one fewer affordable home for the next person.
That means restricting the resale price for the life of the project, which in some places can be 30-60 years. San Francisco’s Limited Equity Program, for example, gives low-to-moderate income earners a path to buying their first home below market rate, and when a homeowner wants to sell, the city sets the price and assigns a buyer via a lottery.
A program of that scale isn’t the only option. Griggs cited a past public-private partnership between the county and a developer that led to “very affordable” houses being sold in Waikoloa. Whatever the way forward may be, he said, affordable housing “all really rests in the county’s lap.”
With the pandemic’s direct impacts now seizing the spotlight, Parker said he’s worried affordable housing “will go in a bin with a bunch of other priorities.”
“It wasn’t handled before, and, I hate to say, I don’t see it improving,” he said.
County leadership has indicated affordable housing remains a priority. The Hawaii Tribune-Herald reported the county is looking at ways to ease the process for building ohana units, subsidies for water infrastructure and “pocket neighborhoods.”
Hosaka said there’s still a big need to both build more units and restore/expand existing rental projects. Currently, he added, the county’s working with developers on projects either in-development or expected to break ground within the next year that would add more than 500 units to inventory.
Asked about what role the county can have in helping people become homeowners, Hosaka said the county will continue facilitating development and providing technical help to developers to speed up the process.
One North Kona project in the works would build 450 multi-family rental and for-sale units aimed at the part of the population that earns too much to qualify for affordable housing but not enough to rent or buy close to their jobs, according to a draft environmental assessment for the project.
The units would be clustered in two- and three-story buildings over about 70 acres between Kona Vistas and Pualani Estates. The approximately 274 “for-sale” units, for example, would be within 10 two-story, four-unit buildings and 39 three-story, six-unit buildings.
Kern, the lead planner on the Royal Vistas project, said the multi-family approach lets them take advantage of economies of scale to lower infrastructure and development costs. They anticipate the multi-family units, he said, could be close to half the cost of the homes at the neighboring Kona Vistas, potentially giving families an alternative to renting and the opportunity to own a home.
“And I think that does a lot for the way the families feel and the way that the kids see it. When you see that your folks own the house, I think that’s a very positive thing for young folks to see,” Kern said. “It gives them hope that they can do the same.”
Kern said he hopes to have permitting complete by the end of 2021 and start building in 2022.
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