UHERO: Hawaii’s housing regulations among toughest | News, Sports, Jobs

A housing development is shown under construction in Wailuku in 2019. A recent survey by the University of Hawaii Economic Research Organization shows Hawaii has some of the strictest housing regulations in the country, which may be driving up the state’s record-high home prices. The Maui News / MATTHEW THAYER photo

One of the factors pushing Hawaii’s record-high home prices may come down to the regulations — among the strictest in the country — that limit new construction necessary to meet housing supply demands, according to a report by the University of Hawaii Economic Research Organization.

Employing a survey used nationally to gauge the burden of housing regulations, UHERO provided some insight to the state’s housing costs and market trends, including the affordable housing requirements for new construction, which appears to be nearly seven times higher than the national average.

“Some of these regulations are well meaning,” UHERO Executive Director Carl Bonham told The Maui News on Thursday when the results were released. “They’re intended to make sure the homes are safe, make sure they’re protecting the environment, they’re not building too many houses where the water capacity isn’t there, a big issue on Maui. But really we should be looking at every single one of these regulations and asking, what is it doing to the cost of housing?”

Bonham, along with graduate research assistant Rachel Inafuku and an assistant professor of economics, Justin Tyndall, published their preliminary findings to spark discussion over Hawaii’s stricter regulations and its possible impacts to the housing market.

They point out that developers face long and complicated permitting processes — wait times in Hawaii are roughly triple the national average — as well as other financial obstacles that disincentivize them from building new homes.

“By raising the cost of housing production, regulation reduces the supply of new homes, and leads to higher prices,” the report said. “Regulation can be counterproductive if it places a large burden on developers. While we might prefer developers to provide large units with generous amenities at low prices, requiring developers to meet overly rigid guidelines will result in many projects failing to go forward at all.”

The impacts of these regulations on the housing market are difficult to measure, leaving researchers to rely on the Wharton Residential Land Use Regulatory Index, also called the Wharton Index, which surveys planning officials nationwide to better understand local restrictions regarding the construction of new homes.

However, the Wharton Index excludes Hawaii — when the index was first released in 2006, Honolulu was the only county in the state included, but when it was updated in 2018, Hawaii was omitted entirely.

To fill this gap, UHERO administered the Wharton Index survey across Hawaii’s county planning departments in 2021.

The survey weighed who and to what extent various parties, like the local government, state government and the community, are involved; what rules are used to regulate the housing market, such as density restrictions, lot size requirements, affordable housing requirements, fees and more; and what the outcomes are from restrictions, such as changes in the costs of lot development and the number of rezoning permits applied for by developers.

Specifically, Maui County ranks in the top 5 percent of the sample, with an index value of 1.52, following behind Hawaii County, which has the highest index value of 2.78 to be placed among the top 1 percent of the sample.

Honolulu and Kauai counties are ranked within the top 10 percent of the sample with index values ​​of 1.17 and 1.35, respectively.

“It’s probably best to really focus on the big picture and not get too bogged down in the differences across counties,” Bonham said. “For example, the fact that Hawaii County came out on top and Maui County in second, I wouldn’t read too much into those differences, but rather just focus on the fact that the survey tells a consistent story that across the state, we come out as in the top 10 percent of all counties in terms of regulatory burden.”

When compared with the top 30 most expensive counties in the US, Hawaii County has the highest index value, followed by San Luis Obispo, Sonoma, Santa Barbara and Napa counties, all in California.

Maui County ranked sixth, Kauai County was ninth and Honolulu County was 11th.

Because each county response relies on the results of a single respondent (local planning departments), UHERO is cautious in its interpretations between individual counties; however, as a state, Hawaii appears to have stricter regulations compared to the rest of the nation.

“It’s not going to be perfect,” Bonham said of the survey. “You should always take it with a grain of salt. But frankly it’s the best source of information on trying to quantify regulation nationally and do something that is comparable across regions.”

Court involvement, state political involvement and local political pressure are also some of the top challenges for housing, the report said. Local political pressures and community influence are particularly high in Hawaii, ranking in the top 5 percent of the national survey sample. Court and state political involvement rank in the top 25 percent and 50 percent, respectively.

Another major burden is the average length of delay in getting permits—in Hawaii, it takes more than three times the sample mean. Approval delays across the counties in the state range from about 14 months in Hawaii County to 18 months in Kauai County.

UHERO said that allowing some construction to go forward without rezoning applications and other procedures could reduce some of the obstacles for new housing and potentially lower home prices.

It also added that alleviating barriers could increase competitiveness, too, allowing smaller firms to step in and provide more housing through “as-of-right” development, similar to what is outlined in Maui County’s Comprehensive Affordable Housing Plan.

Building regulations are necessary in many ways, though, like preventing overdevelopment and supporting ecological and environmental preservation.

Some rules in Maui County also promote energy efficient construction by having developers build green infrastructure while also pushing to have a mix of housing types based on demand.

“I sincerely hope that the takeaway from this report is not to deregulate everything so we build our way out of this crisis,” Maui County Council Member Gabe Johnson, who chairs the council’s Affordable Housing Committee, said Thursday. “Our islands’ resources are finite, so we must have layers of environmental and cultural protections. Plus, Hawaii’s market is investor driven, so the unregulated market builds for investors, not our workforce.

“In an investor driven market, regulations are what keeps development responsible,” Johnson said.

He pointed out that even affordable housing programs that are exempt from regulations “are missing the mark” because the federal government’s definition of affordable is out of reach for Maui residents.

“If we remove all regulations right now and allow folks to just build, build, build affordable units, as defined now, then we end up with a bunch of $700,000 ‘affordable units’ that our workforce can’t qualify for, which then end up flipping out of their deed restrictions and being bought by an off-island buyer,” he said. “That doesn’t just not solve our housing crisis, it makes it worse because our limited land and resources have just been taken up by one more unaffordable home.”

Johnson said that once the council’s budget review session is over, he plans to dive into the questions of what the local workforce can actually afford and how the community can invest in infrastructure and subsidies to make it possible to build homes for that cost.

“Once we redefine ‘affordable’ only then should we talk about removing barriers or regulations, where appropriate, to facilitate more development,” he said.

* Dakota Grossman can be reached at dgrossman@mauinews.com.

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