It’s a long-standing complaint among homebuilders in Hawaii: land-use regulations contribute enormously to building costs, they say, driving up the price of housing. Now, researchers at the University of Hawaii have attempted to measure that impact.

“There’s a lot of factors that contribute to high housing prices in Hawaii, but one of them very clearly is how we decide to regulate housing,” said Justin Tyndall, an assistant professor of economics at UH who co-authored the study released Thursday. “This definitely increases the cost of development, and this is going to be passed on to the cost of houses and rents.”

Titled “Measuring the Burden of Housing Regulation in Hawaii,” the report, published by the University of Hawaii Economic Research Organization, used a national index to compare Hawaii to the rest of the nation concerning the impact of regulation on the housing market.

The overall finding: Hawaii as a state has the highest median home prices and the highest level of regulation. The trend was similar on the county level, where onerous regulation and high home prices went hand in hand.

Honolulu Land Use Ordinance
University of Hawaii researchers have measured the impact of Hawaii’s development regulations on housing costs. Stewart Yerton/Civil Beat/2022

In an interview, Tyndall stressed the study shows only a correlation between high home prices and high regulation. It doesn’t show regulation alone causes high prices. For example, if home prices in an area are high to begin with, he said, residents might want tight regulation to keep out new homes that could depress the value of their existing homes.

To an extent, the study merely quantifies something that’s been obvious for a long time to land-use experts in Hawaii.

“We are probably the most overregulated market in the country, even including California,” said David Callies, author of a treatise on Hawaii’s land-use regulations and a professor at the William S. Richardson School of Law, who spoke generally and not about the UHERO study.

Callies said the increased costs are often a result of the time it takes to build homes.

“Time is money to a developer,” Callies said. “So the faster a project can go from inception to completion, the more it reduces the developer costs.”

 

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To measure the burden of regulation on housing costs in Hawaii, the authors employed the Wharton Residential Land Use Regulatory Index, which was created by economists at the University of Pennsylvania’s Wharton School as a standardized measure of local regulatory restrictiveness on building homes.

To create the national index, Wharton economists surveyed local planning officials covering 2,600 communities across the U.S. in 2006 and over 2,400 communities in 2018.

The first index included only Honolulu County and the 2018 study didn’t include any county in Hawaii at all. In 2021, the UHERO researchers conducted their own survey, sending the same questionnaire used by Wharton researchers to each of Hawaii’s county planning departments.

The survey asks about parties involved in the regulatory process, including government and the community; rules used to regulate the housing market, like density restrictions and affordable housing requirements, and outcomes of restrictions, such as the number of rezoning permits applied for by developers. These answers were used to create an index that can be used to compare regulation across various locations.

Compared to other places in the Wharton Index, UHERO found, all Hawaii counties rank high in terms of regulation. To compare Hawaii to similar areas across the U.S., for instance, UHERO looked at the nation’s top 30 counties with the highest median home prices and compared them to Hawaii counties.

“Even among the nation’s most expensive counties, Hawaii’s counties have some of the highest regulatory burdens as measured by the Wharton Index,” UHERO found.

UHERO Wharton Index
A study by University of Hawaii Researchers found Hawaii has the nation’s highest regulations on housing. UHERO

The UHERO report notes regulating new home construction can do things like ensure development supports ecological preservation, promotes energy efficient construction and doesn’t exceed infrastructure capacity.

This aspect of regulation is often necessary, said Tyler Dos Santos-Tam, the co-founder of HI Good Neighbor, an organization that has opposed the development of oversized, multifamily homes, known as “monster homes,” in residential neighborhoods. HI Good Neighbor has helped push regulations to restrict monster homes on Oahu.

“The question is, What purpose do these regulations serve?” he said. “If you look at the type of restrictions put on monster home development in the past several years, it’s actually been fairly minimal.”

Still, the UHERO report notes the tradeoffs that come with regulation. The permitting process can take a long time, and land-use laws generally prohibit multifamily home construction in residential areas. Tyndall said it’s not reasonable to assume the public generally likes the situation, even though it’s public policies that help create higher prices.

“I think there’s probably a lot of people who want lower prices generally, but not in their neighborhood,” he said. The problem, he said, is when everyone shares that view.

“It’s in no one’s interest if everyone is blocking development everywhere,” he said.

But he also acknowledged it can be difficult to implement changes to land-use ordinances that apply generally across counties, especially when it comes to laws allowing denser housing.

“Reducing barriers to housing development is sometimes viewed as a handout for housing developers,” says the report, which was co-authored by UHERO executive director, Carl Bonham, and graduate researcher Rachel Inafuku.

“It is important to recognize that large property development firms are able to extract profits because of onerous regulation, not in spite of it. Because navigating Hawaii’s regulatory bureaucracy requires teams of public liaisons, lawyers and lobbyists, only large, established firms can afford to attempt multifamily development,” it adds.

Struggling To Get By” is part of our series on “Hawaii’s Changing Economy” which is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.

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