Priced out of Paradise: Hawaii's 'housing ladder' under strain, driving up prices for middle class
HONOLULU (HawaiiNewsNow) -
Just how critical is Hawaii's housing shortage? According to a recent state Department of Business, Economic Development and Tourism study, nearly 66,000 new homes are needed statewide by 2025 to avoid an even greater crisis than the market is currently experiencing.
While officials stress the need for homes at all price points, they say one of the biggest gaps right now is the lack of workforce housing. Without it, they say Hawaii's housing ladder is under too much strain and that's causing rising prices for the middle class.
A typical housing ladder allows people to move up a rung -- and into bigger homes at higher prices as their income increases. When that happens, experts say it opens up inventory on a lower rung -- of either affordable housing or moderately priced homes. This allows residents to build wealth.
"The problem with Hawaii's housing ladder is that typically developers have not been building for the middle segment of the ladder," said Jason Nishikawa, the real estate broker in charge for Marcus &Associates.
That middle segment equates to primarily workforce housing -- individuals making $60,000 to $85,000 a year or families of four with a combined income of $87,000 to $121,000.
"The need is tremendous, I think. Anybody that's currently looking for a home in town will tell you that it's very difficult. The inventory is very, very low," said Nishikawa.
Nishikawa says the challenge is developers who build on the low-end receive government subsidies and tax credits that make affordable housing possible and if they build on the high-end, their profit margins are much greater for luxury homes -- but real estate experts say there is little to no enticement for developers to build for workforce residents.
"Policy makers need to incentivize developers to build for this middle segment, which is exactly what 801 South Street did," Nishikawa said.
And that's reflected in the building's demographic: teachers, government workers, restaurant and hotel employees. Real estate experts marvel over the fact that three years after the property was bought, keys were already turned over to owners of the first 635 units. Nishikawa says that was only possible because officials incentivized the project by approving twice as many units as normal zoning rules allow.
"Because land prices are so high, especially in the urban core for developers. Subchapter 4 allowed the developer to be able to build something and make a profit on it by giving them double density and without that they would have never been able to do it, so that's what happened in order for 801 South Street to happen," Nishikawa said.
There is no pool, gym or movie theater on property -- but it has a prime downtown location, and prices for the area that can't be beat.
Jeremy Schorenstein spent $486,000 on his two-bedroom, one-bathroom complete with split A/C and a washer and dryer in his unit.
"Other condos that were two bedroom, were probably $700 -800,000. The price point was really good for what we were getting. The AOA fees are really low, so that's super valuable -- and it's brand new so nothing is breaking or anything like that," said Schorenstein.
Real estate experts say 100 percent of 801 South Street's buyers are Hawaii residents, and nearly two-thirds were first-time homebuyers.
This story is part of an ongoing series, "Priced out of Paradise," in which Hawaii News Now will explore Hawaii's high cost of living and why so many island families are struggling to make ends meet.