Economic freedom needed to increase affordable housing

Dr. Keli’i Akina gave the following speech on June 30th, 2017, at the 2017 Maui County Affordable Housing Summit, hosted by the Maui Chamber of Commerce and Maui County Department of Housing & Human Concerns.

At the outset, I want to thank each and every one of our organizers and distinguished speakers today. You are doing good work in the community. Thank you for your commitment, creativity and courage.

As a trustee-at-large in the Office of Hawaiian Affairs, my heart breaks over the struggle of Native Hawaiians to obtain affordable housing. They comprise a large percentage of those unable to obtain such housing. But as president of the Grassroot Institute, Hawaii’s leading independent economic freedom think tank, my compassion extends to the growing number of all people who lack basic housing needs.

For the sake of Hawaii’s future, it is essential that we come up with housing solutions today.   

There are two strategies that are necessary in order to meet Hawaii’s affordable housing needs.

The first strategy is to address our immediate crisis, which is essentially a critical shortage of affordable housing. That’s why I’m excited about the many models and approaches that have been demonstrated today.

But there is a second approach that is frequently neglected or absent from Hawaii’s public-policy discussions, and that is the long-term solution of creating the economic conditions that result in an abundant livelihood for all. This is what global researchers call economic freedom.

Economic freedom principles are those that allow the market to work in the most free or natural way, harnessing the forces of supply and demand with the least amount of government interference. Economic freedom allows individuals and companies to exchange freely with each other in relatively free markets, with healthy competition, providing consumers with the greatest amount of choice and value.

When free markets operate well, government has a limited and accountable role, most significantly upholding the rule of law, which protects individual property rights and ensures that contracts are upheld.

Economic freedom is rigorously measured. Grassroot Institute of Hawaii, in fact, is among co-publishers of the annual publication Economic Freedom of North America, the leading index of economic freedom sponsored by the Fraser Institute, based in Canada. Our research is peer reviewed, cited in over 200 academic journal articles and policy reports, and based on more than 33 years of time-series analysis at the national and subnational levels of Canadian, U.S. and Mexican states. This is correlated with our companion project, the Economic Freedom of the World Index, covering all nations for which there is rigorous data.

The research shows that wherever in the world economic freedom principles are implemented, the economy flourishes and all segments of society, the wealthy and the poor, are better off in terms of economic and human rights.

Thus, our index shows how Singapore, Hong Kong and New Zealand  have virtually all the affordable housing they need as a result of their high levels of economic freedom. Similarly our index shows how New Hampshire, Texas, South Dakota, and Florida also are solving their affordable housing needs through high levels of economic freedom.

Sadly, in the economic freedom ranking of our 50 United States, Hawaii is near the bottom, tied for 46th place.

There are more than 50 variables factored into economic freedom.  Let me give you just three examples of how economic freedom principles could be applied in Hawaii to satisfy our affordable housing needs.

  1.  Eliminate the artificial scarcity of land.

Look around on all major islands in Hawaii. There is more than enough land to provide for the population’s housing needs, if we would let the market work with less government interference. But currently, urban development in Hawaii takes place on approximately only 4 percent of our land mass, leaving 96 percent undeveloped, with much of that underutilized agricultural land.

Why is this the case? A maze of land use and zoning rules, along with political factors, is responsible for an artificial scarcity of land.

In his classic work, “Regulating Paradise,” University of Hawaii law professor David Calles documented the byzantine government rules that perpetuate this artificial scarcity. He showed that Hawaii is (literally) a textbook case of government interference with the free market. By keeping the supply of land artificially low, with growing demand for land, the price of land goes through the roof and remains high.

Now, of course we understand that there is a legitimate purpose in restricting land use to some extent, and that is for the necessary protection of the environment and our vital artesian wells, the source of water. So what’s the free market solution that still protects the environment? Simple: Open up a small percentage of more land for development of housing. A mere 1 percentage point increase to take us from developing on 4 percent to 5 percent of Hawaii’s land mass still would leave 95 percent undeveloped, but would open up effectively 25 percent more land for housing.

The economics is simple: Increase the supply of land, given the existing demand for land, and the price of land will be reduced dramatically. Of course, we have to make sure that we protect much of that land for affordable housing and not just high-end investment.

  1. Strengthen private property rights.

Across the world, one of the most significant measures of economic freedom, the kind that leads to prosperity in society, is the strength of private property rights. Currently, property rights on Maui are being eroded. Bureaucracy over land use is a leading factor in the erosion of property rights. Not only does Hawaii have the strictest land-use laws in the nation, here on Maui there are six levels of bureaucracy a developer or home builder must go through just to build a house.

Additionally, the expansion of eminent domain, the right of government to seize property, is reaching an alarming level. And, despite some recent progress for which we’re grateful, getting affordable housing projects approved by the state Land Use Commission, and then actually built, has been a Herculean task.

A key component to ensuring affordable housing is upholding private property rights. To start, we should work toward giving the counties more local control over zoning, instead of having all of the power at the state Land Use Commission; allowing individuals greater leeway to build on their own properties; revising the counterproductive “show me the water bill,” which has created a bottleneck in housing development; cutting red tape for private sector development projects; and streamlining the affordable housing development rules.

  1. Decrease the cost of construction by updating the Jones Act.

The vast majority of products consumed and raw materials for construction in Hawaii are imported. A set of federal protectionist shipping laws from the 1920s, known as the Jones Act, ensures that Puerto Rico, Hawaii and Guam, all surrounded by water, have high costs of building construction. Even a few exemptions from these laws, as Alaska has achieved, could dramatically lower the costs of building homes in Hawaii.

So there you have it. These are just a few possibilities as to how to apply economic freedom principles. You may not agree with each of these policy proposals, and that’s fine, for even at the Grassroot Institute we will continue to debate and update our work.   

But the point I want to underscore today is that we need more than solutions to the immediate crisis of affordable housing. We need long-term and visionary thinking about the entire economy.

We need an economy that generates prosperity for individuals, businesses — and the government. And that’s what the principles of economic freedom can generate.

You can obtain the latest version of our Economic Freedom of North America Index at our website: grassrootinstitute.org.

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