Kaua’i’s old homes have increased in value by 345% since 1984. That needs to end.
It’s impossible to measure the true cost of our affordable housing crisis. What does it cost a child to grow up in a van parked in a dark corner of a Kaua’i beach park? How do you measure the pain of a family that’s been separated from their ancestral homeland because there’s nowhere for them to live? What does it do to the quality of our school system when rent is higher than teacher pay?
Just like the reading on a thermometer can’t communicate the pain of touching a hot stove, the cold precision of our housing statistics are meaningless until you’ve been affected by the crisis. But, understanding the numbers behind the tragedy can help us understand how we got here and how to dig our way out.
In other words, bear with me as I wonk out over some housing statistics in the next few paragraphs — as they tell a vital story about how to solve our island’s current housing crisis.
According to The Federal Reserve Bank, the cost of housing on Kaua’i has increased by 345% since 1984. A house that cost $150,000 in 1984 costs well over $500,000 today. That’s the same house — just 33 years more rotten, rusty, and termite-eaten. Yes, there’s been lots of inflation since 1984, so direct comparisons like that can be misleading, but the cost of housing has still increased by more than 90% relative to the price of other goods.
That is an astronomical increase.
These aren’t new luxury homes driving up the cost of housing (as brand new home sales aren’t included in the Fed data), these are old homes which were once affordable and no longer are.
That part is important so I’m going to repeat it (with big italicized letters):
our housing crisis isn’t due to only luxury homes being built, it’s due to the rapid appreciation in value of our island’s existing homes.
This annual increase isn’t some law of the housing market or due to higher rates of population growth (according to the Census Bureau, more people left Kaua’i for the outer islands and mainland than came to Kaua’i over the last two years and the overall rate of population growth has been steadily falling since the 1970s). It’s a failure of public policy. Housing is a marketplace controlled almost entirely by government. By determining the density, use, form, location, and tax rates on both existing and new housing developments — the State of Hawai’i and the County of Kaua’i largely determine how much housing gets built, what that housing is used for, and, by extension, how much that housing is sold or rented for.
According to the County of Kaua’i’s Land Use Buildout Analysis, 87 percent of the residential zoned land in Lihu’e has already been developed. Because of the scarcity of buildable residential land within and around our towns and how difficult it is to build higher density units or add a new rental unit to an existing home — 70 percent of Kaua’i’s homes since 1995 have been built on either agricultural land or low-density residential land in outlying areas. As our towns fill up, the large majority of our growth is pushing into our outlying areas.
This isn’t only a major driver of our traffic problems (as we are all driving further and further to get to work), it’s also leading to higher prices on new homes (as a home on a one acre lot is a lot more than one half of a duplex on a 7,000 square foot lot), it’s a major driver of our ongoing fiscal crisis (which I’ve written about before here in a good companion post to this one), and, most relevant to the point of this piece, it’s leading to less new resident-occupied homes to be built and so is leading to higher prices across the board.
In much of the United States older homes are an affordable entryway into the housing market — a process known as filtering. A 2013 study showed that “filtering is a viable long run market-based source of lower-income housing.” Citing numerous other studies (here and here), the author claimed that the evidence that old homes filter into the affordable housing market is so strong that “ there should no longer be debate on this point.” The same study showed that in the United States this process occurs even faster for rental housing.
But, to have old homes fall into an affordable price range as they age — you need to ensure that the housing market as a whole isn’t continually appreciating in value (which offsets the filtering rate). And to do that, the rate of housing growth must match the rate of population growth.
Here on Kaua’i, the two figures aren’t even in the same ballpark.
Kaua’i’s population grew by nearly 5,000 people between 2010 and 2016 (according to the Census Bureau there were 5,505 babies born on Kaua’i during that time period), yet we only added around 600 additional occupied homes in those six years (not including TVRs or vacant/seasonal homes). For comparison, we built nearly 600 new resident-occupied homes every single year in the four decades before that.
This vast discrepancy has driven the cost of our older housing units up by 24 percent in just six years.
That’s because the price of housing is driven by the supply of housing. A widely cited 2016 study by Albouy, Erlich, and Liu estimates that if you increase supply by 2%, you decrease prices by 3% — and vice versa. Here on Kaua’i, supply relative to the population is decreasing every year. So, with more people relying on less housing— prices on all homes continue to rapidly rise on Kaua’i.
So, government subsidies and Habitat for Humanity (both of which are noble and necessary causes) are the only two methods we currently have of producing affordable housing. But, as important as those services are for providing housing for the needy — they aren’t scalable to the point where they will solve our affordable housing crisis. We simply don’t have anywhere near enough money or volunteer hours to subsidize our way out of this hole.
In no other marketplace do we expect new products to be the most affordable. And that’s not how it has to be for housing.
The wicked problem (as I’ve written about before) facing us is that we need to increase the supply of homes to allow old homes to filter into the affordable housing market, but we need to do it in a way that both reduces traffic and preserves our agricultural land.
It’s important to be clear that increased supply on Kaua’i doesn’t need to come only from new development. With 7,900 homes (25% of our housing stock) sitting vacant or being used for vacation rentals, a significant portion of our housing needs can be met by using tax policy (such as our current residential investor tax class which is only levied against vacant homes valued over $2 million) to encourage conversion of those back into the long-term rental or owner-occupied market.
Another significant portion of our additional homes can come from reducing the regulatory burden for homeowners to build an addition to their home in their yard or convert their spare bedrooms or garages into rental units. These ADUs and ARUs come with the added benefit of being built in places where infrastructure already exists so they don’t exacerbate our fiscal difficulties, they can reduce traffic if they’re built by job centers, and, by their very nature as add-ons to existing homes, they almost exclusively help local families.
Making it easier to add on to add on to your existing home also ensures that our growth is incremental everywhere and NOT too sudden or transformational anywhere (for a great primer on the importance of incremental development, check out this piece from Strong Towns).
It’s also important to be clear that the solutions for every community are going to be unique. For example, because much of Hanalei and Ha’ena will be underwater with sea level rise and will become increasingly prone to flooding disasters (as we saw last April) their additional housing supply will need to come not from additional construction but from the conversion of TVRs and vacant homes into long-term rentals and owner-occupied homes. While Lihu’e, with the infrastructure necessary for infill development and the majority of the island’s jobs, needs to focus on additional housing supply through higher density new construction such as multifamily homes, condos, and apartments as well as add-ons to existing homes. While Kapa’a can utilize a mixture of all policies.
For the island as a whole, we need an all-of-the-above approach. Yes, let’s continue to subsidize housing for those who are most in need. Yes, let’s continue to support the good work of Habitat for Humanity which is the only organization that can reduce the actual cost of building a home. Yes, let’s make it as easy and cheap as possible for homeowners to add rental units on to their homes. Yes, let’s increase the density and walkability of Lihu’e town. Yes, let’s expand the crackdown on illegal visitor accommodation units and discourage speculation in our housing market by increasing taxes on vacant investment class properties.
Yes, let’s work together to reduce the cost of housing on Kaua’i.
As a closing note — what is noticeably missing from this piece is any in-depth exploration into specific policies that I plan to propose over the next two years as a councilmember. That’s because as an elected official for just nine days — I am very wary of putting out policy proposals before they have been fully developed and vetted. But, I want you to know that I am committed to spending the next two years (and, if the voters grant me the privilege — the next eight years) working with my fellow councilmembers on the solutions outlined above and the solutions outlined by your specific community.