Photo by Charley Myers
“Light-touch density” policies of the sort used in Tokyo and various U.S. cities could be the key to solving Hawaii’s housing shortage, according to two leading housing researchers hosted by Sen. Stanley Chang’s on his “Our Homes” webinar series on March 3, 2022.
Edward Pinto and Tobias Peter, both with the American Enterprise Institute’s Housing Center, based in Washington, D.C., presented the evidence to Chang that “light touch” zoning policies could spark a boom in local housing development and perhaps add 20% more homes to the state’s housing inventory over the next 10 years — without government subsidies.
Pinto explained: “These policies [are] appealing because they work. One example of them working is Tokyo. Tokyo has demonstrated the efficiency of using high-density housing that makes new construction easy, leads to lots of new construction and creates affordability.”
Light-touch density, said Pinto, “is by-right zoning and associated land-use requirements that legalize small, fast, economical, adaptable and simple additions to supply — emphasis on the words ‘small’ and ‘fast.’”
By contrast, he said, what Hawaii’s zoning and land-use requirements have done over the last 50 years “is really slowed down the process, favored larger structures and larger developments and less economical ones, and made it very expensive.”
Pinto said light-touch density includes “small lots, single-family houses, townhouses, duplexes, triplexes, fourplexes, accessory dwelling units or ADUs, cottage courts, courtyard apartments and other light-density structure types.”
In addition, he said, “Since Hawaii’s affordability problem … is so immense. … light-touch density likely will need to be combined with some high-density development in core walkable commercial/residential areas. … This overall solution restores property rights taken away by zoning restrictions to most property owners, and then relies on private markets.”
Peter said Hawaii also could open up modest amounts of land for housing development. He noted that Hawaii has about only 5% of its land devoted to urban and rural use, and “if that 5% were to go to 7%, you would actually free up 40% more developable land for development.” However, he added, light-touch density policies would be the quicker, easier way to supply more housing, as much of the infrastructure needed is already in place.
Chang, who in recent years has supported a heavy form of government involvement in housing development known as the“Singapore model,” expressed interest in the what the Grassroot Institute has been calling the “Tokyo model,” but said he would like to ensure that any use of “light-touch density” zoning benefits local families.
To view the entire, incredibly informative one-hour conversation, click on the video below. A complete transcript is provided.
3-3-22 Edward Pinto and Tobias Peter with Hawaii Sen. Stanley Chang on “Our Homes” webinar series
Sen. Stanley Chang: Good afternoon and welcome, everyone, to “Our Homes,” our webinar series where we discuss housing policy solutions with experts around the world.
Today, we have our special guests Edward J. Pinto and Tobias Peter from the American Enterprise Institute. Edward Pinto is a senior fellow and director of the AEI Housing Center. Before joining AEI, he was an executive vice president and chief credit officer at Fannie Mae until the late 1980s. Tobias Peter is a research fellow and assistant director of the AEI Housing Center. Today, they’ll have a presentation on light-touch density as a solution to the housing shortage.
We will have time for a Q&A afterwards. Please insert questions into the Q&A function of the Zoom. Welcome, Edward and Tobias, please take it away.
Edward Pinto: Thank you, Senator, and thank you for the opportunity to participate in this webinar.
First, we’d like to say that we’ve been very impressed — we’ve spoken to you before, we’ve been reviewing a lot of the work that you’ve been doing and others have been doing in Hawaii — and we’re very impressed with your commitment to finding solutions to Hawaii’s housing shortage. Please be assured that we stand ready to help in any way that we can. We’ll be going through some of our research today.
We also want to thank Keli’i Akina from the Grassroot Institute and his colleagues there for their help and collaboration in helping prepare some of these materials.
With that, we will turn to the first slide, please.
Hawaii has one of the highest housing costs, both in the country and in the world. Residents of Hawaii are painfully aware of this. Hawaii has the highest median home price in the country, has the second-highest median rents and the second-highest rate of homelessness per capita.
On a national basis, if you look at it from a median-price-to-median-income ratio, Hawaii is way up there. You can see it in this chart. Honolulu is just below Santa Cruz and Santa Barbara and San Jose.
When you look at it on an international basis, out of 92 international markets surveyed, Honolulu’s affordability was 84th, just behind San Francisco and San Jose, and just ahead of London and San Diego. The Hawaii Association of Realtors predicts that Hawaii faces a shortage of 65,000 housing units by 2025.
Next slide, please.
How did Hawaii get here? We think the main culprit is a plunging [housing] supply that dates from the early 1970s. That’s shown on the graphic that’s on the screen. This is very similar to what happened in coastal California. However, in coastal California, it occurred starting in the mid-1950s.
That plunge in Hawaii followed the passage of Hawaii’s state Environmental Policy Act — California had a similar circumstance — and the establishment of its Land Use Commission in the 1960s. According to the Wharton Residential Land Use Index, from the University of Pennsylvania, Honolulu is one of the most intensely regulated metros in terms of land use in the United States.
So how to address Hawaii’s affordability problem, which is [of] a long-standing nature? And I think it’s important to realize that this problem has developed literally over 50 years, as that first chart indicated, so it’s going to take a fair amount of time to solve. It’s not going to happen overnight, unfortunately, because the problem has been created over many decades.
There are a number of competing policy options.
The first is to continue with the policies that have been undertaken in the past, which, in our view, simultaneously create scarcity and raise costs. These include inclusionary zoning, rent control and other policies that distort the market. We’ll talk aboutevidence of why these haven’t worked in a few minutes, but right now I’m just laying out the competing policy options.
The second would be a broad classification of market-oriented policies based on light touch and high density.
The third is opening up modest amounts of land for development. And the fourth is the ALOHA homes and Singapore social-housing model that, Sen. Chang, you have been proposing and discussing for some time.
Next slide, please.
Option 1 looks at the policies that have created scarcity and raised costs. They include the items that I mentioned in the appendix. We go through a fair amount of detail about why those have failed.
We also point out that there’s been a lot of recent research in just the last two or three years, both by market-oriented groups but in particular by progressive and some foundations and other institutes that have not been particularly associated with [being] on the market side, that have come to the conclusion that subsidized housing, inclusionary housing, rent control and land-use policies that constrain supply end up creating scarcity and raising costs. There’s a lot of research that has come out in the last few years in that regard.
The reason that these policies have failed is that they don’t tackle the root cause, but rather the symptom.
We have a footnote here about a recent effort to ban foreign ownership in Hawaii. That doesn’t tackle the cause; that’s tackling the symptom of lack of supply.
According to data from the Title Guaranty company, less than 3% of the homes sold in Hawaii last year were purchased by foreign buyers, and it ended up being 539 homes, down from the 929 in 2018. Nearly 80% of the roughly 16,000 homes sold in 2019 were purchased by local buyers, and the biggest group of non-local buyers were coming from California. That was roughly three times the size of the foreign buyers in 2019.
That’s just the kind of information that it’s important to have in evaluating some of these policy proposals.
These policies have distorted the market. created a few winners, but mainly made housing construction more expensive and then few homes get built.
What is the consensus? As I said, some think tanks with progressive leanings, including [the] City Observatory, Sightline Institute [and the] Upjohn Institute, have come around to the view that we’ll be talking about in a moment.
What will happen if policymakers continue with this option? Affordability will further worsen, More McMansions will be built. I know there’s also a problem with what are called monster housings in the mainland. Those tend to be called McMansions. They’re not exactly the same, but they tend to result in the same situation: that lower-income residents will be permanently unable to buy a home, and some additional will fall into homelessness.
Next slide, please.
What are we proposing? We’re proposing market-oriented policies based on light-touch density and high density. What is light-touch density?
Light-touch density is by-right zoning and associated land-use requirements that legalize small, fast, economical, adaptable and simple additions to supply. Emphasis on the words “small” and “fast.”
What zoning and land-use requirements have done over the last 50 years is really slowed down the process, favored larger structures and larger developments and less economical ones, and made it very expensive.
So light-touch density includes small lots, single-family houses, townhouses, duplexes, triplexes, fourplexes, accessory dwelling units or ADUs, cottage courts, courtyard apartments and other light-density structure types. Light-touch density can be the sweet spot that is subjected to some regulations similar to single-family detached units.
We’re not suggesting to get rid of all regulations — you still want safety regulations and other types of fire codes and other things, building codes that are required — but it allows private owners to convert their property to a higher and better use. Older one-unit homes might be torn down, replaced with duplexes, triplexes and other higher-unit-count structures.
The conversion of higher density, however, can only occur under by-right zoning laws, and only when localities make infill construction legal, easy, economical and feasible.
By-right means that the government of the zoning officials, the zoning boards, don’t have discretion in what their approval’s involve. It’s called a ministerial task, and I’ll come back to that when we talk about what California is doing. But it’s a ministerial process, meaning there’s five or six requirements that are laid out in the ordinance or the statute. You meet those five or six requirements, you have a right to proceed, and that makes it much less expensive and much more rapid.
Since Hawaii’s affordability problem, however, is so immense, as we’ve already described, and land prices are so high, light-touch density likely will need to be combined with some high-density development in core walkable commercial/residential areas.
The high-density walkable-oriented development should follow the same by-right zoning approach, but should be focused on these core commercial/residential areas that could handle the high-rise density. This overall solution restores property rights taken away by zoning restrictions to most property owners, and then relies on private markets.
Next slide, please.
To continue on these policies, they’re appealing because they work. One example of them working is Tokyo. Tokyo has demonstrated the efficiency of using high-density housing that makes new construction easy, leads to lots of new construction and creates affordability.
This chart here shows that Tokyo compares extraordinarily favorably to other major cities, such as London or San Francisco. The blue column shows house-price change over a 20-year period. The orange shows population change. You can see London barely grew in terms of population but had a massive increase in house-price appreciation.
Over on the right, San Francisco had a not quite as massive, but still very substantial increase in home prices; again, [population] barely grew. Tokyo, the large Tokyo metropolitan area, barely grew, but it also had house prices that also did not grow, and when you focus on the center of Tokyo, which did grow, it also had very modest house-price appreciation.
That’s one example and there is some more information in the appendix that we’ll get to in a moment.
There are also real-world case studies from places like Palisades Park, N.J., Seattle and Charlotte [N.C.] that demonstrate the efficacy of light-touch density in places in the United States that have actually accomplished significant additions to supply.
When you apply light-touch density to Hawaii, we think that they could add about 20% additional housing units over a decade. Specifically, Honolulu County, which is Oahu, could add around 26,000 units over 10 years without subsidies and in areas that already have infrastructure and other amenities, in many cases.
Unlike McMansions and monster houses, light-touch density units are generally priced more closely to the existing housing stock. It does not lower housing values, as we’ll see. And California, which is, we think, a really good example — I’ve already mentioned that California has gone down a similar path as Hawaii, even predating it back in the ’50s — but it’s now facing the same challenges as Hawaii and it’s taken some steps recently, in 2017, with expansive accessory dwelling unit legislation that’s allowing for substantial additions to supply, particularly in places like Los Angeles and San Francisco, and recently enacted Senate Bill 9, a light-touch density bill, which took effect [on] the first of this year and allows two units on a lot and lot-splitting.
A little bit more on Tokyo. Tokyo has a very large population, 13 million, but they constructed 142,000 homes in 2014. That’s more than the entire 84,000 homes started in the entire state of California with three times the population.
We show what the supply is down in the left panel chart, and we show what the rents have been on the right panel chart. And again, these are the kinds of results that you want from a policy that’s working.
And by the way, Tokyo is very subject to earthquakes and so these high-rise buildings have to be built to very strong earthquake-resistance standards.
Next slide, please.
The next real-world example is Palisades Park, located just across from Manhattan by the George Washington Bridge. Their policies go back to 1939, but because of the growth and land prices, they didn’t start shifting from one-unit to two-unit by-right building until the late ’80s and early ’90s. It was completely developed with one-unit structures, and then those one-unit structures over time — in the late ’80s, ’90s, the odd years up to the present — have been replaced with two-unit and duplex structures. This was done by market forces responding to land prices.
Leonia, a neighboring borough, took a completely different path and they left the zone entirely for a single unit. As a result, it had virtually no growth during this time period and their land, their structures have basically stagnated. But they also have very expensive structures because, again, there’s a shortage of supply.
Relative to other neighboring jurisdictions that do not permit light-touch density, Palisades Park has had more housing construction, greater population growth, higher land values, stronger commercial activity and lower property tax rates, as shown in the appendix.
Next slide, please.
The map on the right shows Palisades Park and Leonia. You can see Palisades Park is all blue and Leonia is all yellow. You can see on the right chart the blue columns for Palisades Park, you can see how much more recent construction there’s been in Palisades Park. Most of the housing in Leonia is 1959 and before, with over a third of it pre-1940.
You can also see on the left map the comparison between Palisades Park and Ridgefield Park. They both look very blue, but there’s a difference.
In Ridgefield Park, while it appears that two-family homes are allowed throughout — and they are — Ridgefield Park requires twice as much land for those homes, which makes building a duplex economically infeasible, so few get built.
I’ll come back to that because we found a situation we believe that’s very similar to that in Honolulu.
Next slide, please.
We now turn to Seattle. Tobias?
Tobias Peter: Sure. Thanks, Ed. I’m going to continue with some other real-world examples, this one from Seattle, Wash.
If you focus first on the lower right area on the map, you see a simplified zoning map of Seattle. What stands out is we have colored three areas: the largest one, the orange, is single-family zoned; the blue is zoned for low-rise multi-family; and then the gray is zoned for anything else, so that could be very high-rise or it could be industrial, it could be airports, you name it.
But what we found is that the single-family zones, those are the orange ones in the map, they have almost three times the units as the low-rise multifamily zones.
But in terms of new construction, the low-rise multi-family zones have about two times as many new units built as the single-family zones. In fact, the share of homes built in 2000 or later added 7% of the existing stock in the single-family zone, but it added a whopping 35% in the low-rise multifamily zone, with 10% just being added since 2015.
It’s also quite telling what is being built. In the single-family zones, one-unit homes are being replaced with much larger one-unit homes. The stuff that’s getting torn down has about 1,800 square feet and the new stuff has about 2,600 square feet, so that’s about 50% larger, and off course, it is selling at a much higher price point. The new homes are selling for about $1 million to $5 million, but the existing stock is “only” valued at about $875,000.
In the low-rise multi-family zones, we are replacing one-unit structures with mostly single-family attached townhouses. These townhouses are only marginally larger in square footage than the existing stock, and they’re also selling only at a modest price premium over the existing housing stock.
For example, the new homes that have been built in the low-rise multifamily zone since 2000 or more recently, have been selling for $765,000, versus the existing stock in those zones selling for $715,000. So only a modest price premium.
And then, if we were to do just a simple back-of-the-envelope calculation and we were to say that, “Well, if all the single-family zones were upzoned to a low-rise multifamily zone,” we find that the city of Seattle could add up to 25,000 housing units, or 11%, to the existing housing stock over a decade. All done without subsidy, all done through private means, as is currently happening in the low-rise multifamily zone.
Sticking with Seattle, a common concern among homeowners is oftentimes that property values are going to decrease when you upzone. Here, as the chart shows, the constant-quality home-price appreciation has been about identical between the low-rise multifamily zone and the single-family zone.
You can clearly see here — we’re plotting it month by month, starting in January 2012 — that both lines are indexed to 100, and you can see the two lines track relatively closely until the start of the pandemic, and then there was a slight divergence with the start of the pandemic, which we attribute to the desire for more living space and larger lots. That was an outcome of the pandemic, but time will tell whether this home-price appreciation differential remains or if the two lines will, again, come much closer to each other.
I’m going to stick with other real-world examples, but now, we’re shifting to Charlotte, North Carolina.
We looked at two streets in the Plaza-Midwood neighborhood of Charlotte. The areas are Pecan Street and Kensington, which on the map are the yellow shaded streets. Those have about 74 homes and those are zoned R22MF, which means 22 units per acre. The comparison street is the Plaza, which is the blue area, which has about 40 homes in the zone R5, or five units per acre.
Because those streets are so close to each other, we think we have a nice natural experiment on the impact of zoning on the construction activity, because lumber costs between those two areas should be identical. Labor costs should be identical between those two neighborhoods, and land costs should also be very similar because they are so close to each other. The only difference here is the loss as expressed through the zoning: 25 units per acre versus five units per acre.
If you look at the outcome, we find that the area with 22 units per acre has a much larger range of price points compared to the area that is zoned for five units per acre. We hold that this holds true generally across the entirety of the metro [area].
While both streets have single-family detached housing that top out at about $1 million in terms of price, if you look at the lower end of the price range, you can see, in the homes on Pecan and Kensington, on the lower end, they’re selling for about $300,000, but if you look at the homes on the Plaza, where you have a much lower density, you’re finding that they’re selling for $500,000, $600,000. So you have a great disparity in pricing.
And because you have such a wider range of home prices in the Pecan and Kensington [areas], you also find a much greater diversity in age among residents, and particularly among homeowners.
You’re actually finding that people of younger age, people that are just starting families, someone’s grandchildren, they’re actually able to afford homeownership in Pecan or Kensington, but they are not able to afford homeownership on the Plaza because home prices are so much higher. Also, we’re finding a greater mix of renters and owners in Pecan and Kensington because of these wider disparities on pricing.
OK, so now we’re switching over to Hawaii and the solutions for Hawaii.
We think that what Hawaii needs to do is to enact effective light-touch density so it can provide more housing choices at different price points.
Currently, Honolulu has [three] residential districts: R-3.5, R-5, and R-7.5 zones. Those are the areas, if you look at the zoning map, in various shades of yellow. You can see that most of the yellow areas are north of H1 but then, in the center of the map, you can also see that some of those residential zones are extending all the way to the water.
In these three residential zones — R-3.5, R-5 and R-7.5 — while they appear to legalize two-family or duplex structure, in effect, they don’t really do so. The reason for it is because they all require more land. if you were to go from a one-family structure to a two-family or a duplex structure.
For example, if you look at the building code in the R-3.5, where lot sizes are generally about 3,500 square feet, if you want to build a one-family detached dwelling, you need exactly the 3,500 square feet, but if you want to build a two-family dwelling or if you want to build a duplex of two units, you need 7,000 [square feet], or twice as much land to build the home. And since most of the lots in this zone are 3,500 square feet, in effect you cannot really build a two-family or a duplex.
Furthermore, the economics don’t really work because all you have done is, in terms of low-area ratio, you’re still building the same structure in the same lot. So in terms of economics you have not really done anything to improve the economics. And we think the same applies for the R-5 to an extent and the R-7.5.
We think a similar situation may be present with accessory dwelling units, which, while they are legal, there’s little evidence that they’re being constructed because of these building restrictions.
But what we found when we looked on Zillow and we actually looked for duplexes and ADUs that are being built in Hawaii, they actually provide more housing choices at different price points.
A substantial body of research on California, where ADUs have recently started being developed, starting in 2017, they’re finding the same experience in ADUs being rented at much lower rental price points than regular homes.
Here we have a couple of examples of such housing in Oahu. For example, starting from the top left, this is a newly built home that has on the right a larger unit, and then on the left, it has an ADU. You can see the separate entrances for this. Likewise, if you look on the lower left, you have a nice duplex structure with two entrances in the middle — separate entrances — and then the units to each side.
We have four more examples. We always have separate entrances, and oftentimes you have an ADU combined with a larger unit. To us, these homes don’t look like eyesores, they’re just regular structures that fit nicely within the existing topology of the housing in Hawaii.
Now the question is, how can we enable market-oriented policies based on light-touch density and also high density?
The fundamental question should be if something is allowed for detached single-family homes, it should also be allowed for light-touch density. For single-family homes, you don’t have any limits on renters, rents, dwelling square footage [or] occupant income, so why should there be limitations on light-touch density? It just doesn’t make sense.
Similarly, the Hawaii Legislature should set rules for light-touch density that localities must follow. So, for example, if certain localities want to put in burdensome building restrictions that do not infringe on the reasonable and safe land use or result in high-cost housing, that should be overridden by the Hawaii Legislature.
Ultimately, the property rights should be restored to the owner, so that the owner can by right build on their own land. The Legislature should also legalize fast and economical construction, and it should allow for adaptation and keep it simple.
To do that, it should expand local property owners’ control by legalizing ADUs, duplexes, triplexes, all the light-touch density structures that we just went through, and it should be done in residential, multi-family and commercially zoned areas, and it should follow California’s ADU and SB9 legislation that Ed just went through.
We think this would result in the revival of small-scale development to shape and grow cities. It would unleash a swarm of builders and rehabbers at the local level, at the grassroots level.
Likewise, high-density should follow the same by-right zoning approach as light-touch density, but, if you focus it around walkable-oriented development, meaning around areas of commercial activity, you could mitigate some of the negative consequences that come from it.
So, of course, the challenge of public policy is always to bring along voters, and how can you overcome the NIMBY, the not-in-my-backyard opposition?
Here are a couple of points for policymakers that we think would sway the public’s opinion.
One argument is that if you allow light-touch and high-density development, this would be a way of reducing the need for monster homes. As Ed earlier said, these monster homes are a symptom, not the root cause. They are a symptom because that’s just a shortage of housing, so if you increase the amount of housing available, this reduces the need for monster homes.
Likewise, if you go with light-touch density, it promises gradual rather than sudden change of the neighborhood. By sudden, I mean you put in a large multi-family development versus light-touch density, [which] tends to be gradual, on a smaller scale.
Then,also as we’ve also gone through, from the example from Charlotte, housing supply additions are across a broad range of price points, sizes, types and tenure, which allows for owners and renters to live in the same neighborhood and it also offers a range of housing options for children and grandchildren, [who] are otherwise in real danger of getting permanently priced out of the housing market.
It also appeals to the economics, and the economics argument is that all else [being] equal, property values will increase on the land, as the land has more value because it can be converted to a higher and better use, but the cost of land for newly built housing units goes down.
The prospect of lower property taxes due to a broader residential tax base increases commercial activity, yielding higher commercial property tax receipts. So you broaden the tax base by allowing more and more taxpayers in a denser area, which would allow you to lower the tax rate, and we gave an example from the appendix on Palisades Park, where this has actually happened.
It will also unleash a virtuous cycle as modest residential density boosts increased urban/suburban vitality and the number of amenities. This is good for property values in the tax space in Palisades Park, [which] today has a much more vibrant commercial area than Leonia.
Also, it should appeal to environmentalists, because these light-touch density homes replace functionally obsolete homes that have low energy efficiency, and have different maintenance with state-of-the-art energy-efficient buildings.
In many areas of the country — and we believe this is also true in Hawaii — an aging housing stock and the aging infrastructure with, for example, aging sewers — those are all ripe for upgrades, and this can be combined with an upgrade to light-touch density.
Furthermore, light-touch density also opens up areas of opportunity for people [who] are otherwise frozen out of those.
Finally, while density will increase, if you combine especially high-density development around areas of commercial activity, the area’s walkability helps offset the increase in traffic, so If you’re putting high-rise buildings next to areas of commercial activity where people can walk to or where they go to work, even better, you decrease the increase in traffic and also it brings people closer to their jobs, which is also a positive because they spend less time on commuting.
Another solution for Hawaii — and I’ll switch gears away from light-touch density and high density — is to open up modest amounts of land for development. Currently, we think Hawaii has about 5% of its land devoted to urban and rural use. If that 5% were to go to 7%, you would actually free up 40% more developable land for development, so this would be quite a large increase in percent terms, but 5% to 7% doesn’t seem too much. We also think this would likely run into less NIMBY opposition because the development would occur further outside.
But opposition from environmental groups, in particular, could be stiff, in particular because the new developments require large infrastructure investment because you need to put in the sewers, you need to put in the police, the garbage [facilities] — all that needs to be put in place versus just light-touch density, [where] everything is already in place, and you’re just moderately increasing the density in those areas.
And then also, many homes that will be built tend to be built on larger lots, which also increases the cost for those homes, because ultimately you have not done away with these burdensome building regulations.
As far as we can tell, this appears to be already happening. Many homes built since 2000 have been situated around Ewa and Ewa beach, which we think used to be largely agricultural areas. This is the area circled on the map. But of course, just looking at the affordability in Hawaii, much more is needed, and we think that’s where light-touch density and high-density development can come in.
Then finally, another option is the ALOHA homes and the Singapore social-housing model. It is certainly very appealing because it works and it has [been] shown to work in Singapore. The homeownership rate in Singapore is around 90%; 80% of residents live in high-quality government housing, and it has fostered a cohesive society through racial and income quotas. Housing tends to be fairly affordable there.
But Singapore may be unique and may not be a suitable model for Hawaii.
For example, Singapore, after its independence, had really a clean slate. Singapore back in the 1960s consisted mostly of shanty towns, and the government today owns 90% of the land and it can acquire private land at low costs.
Furthermore, Singapore also has a highly effective public leadership cadre and it really has only one form of government that is not as responsive to voters necessarily, which allows it to overcome many barriers to increasing supply.
So the downsides for applying such a model to Hawaii could be that this Singapore model may not necessarily be scalable. And if you end up with a failure, it could come at a heavy cost, because you could end up with public housing, as is very common in the mainland, where you have basically increased racial and income segregation, you have also trapped many residents in housing and it has reduced social mobility. And generally, these projects, if the government gets involved, tend to be very expensive and they tend to exceed the budget.
With that, that’s our presentation and we can now turn it back to Sen. Chang for questions.
Chang: Thank you so much, Tobias and Ed. That was a really detailed and thorough presentation that gave us a lot of data and a lot of statistics and facts and figures that I think will really help the public conversation. For those in the audience, if you have questions, feel free to use the Q&A feature in our Zoom.
I’ll kick things off with some Q&A to begin with. So, I’m glad that you folks spent a lot of time talking about the political benefits and the political dimension of implementing these policies.
You correctly identified so-called NIMBYism, or “not in my backyard,” as one of the main obstacles to both light-touch density but also the other solutions that you proposed.
You did mention some of the real-world places like Seattle, Palisades Park, and Tokyo that did increase density. Can you talk about how they were able to overcome those forces in their political processes and to achieve those policies despite the typical opposition?
Pinto: Great question, Senator. Let’s start with Tokyo. Tokyo is a little unique because, as many people know, after World War II it really was under the control of the United States. General MacArthur was in charge in Japan, and he put in place a constitution that had a lot of similarity to the U.S. Constitution, and it had very strong property rights. Those property rights were kind of overrun for a while. But then, by the early 1980s — I think it was a court decision; I’m not 100% certain — that you couldn’t impinge on the property owner’s rights. Therefore, they had to allow the owner to develop the properties.
To some extent, [it’s] somewhat similar to what people think of with Houston, which is considered to have one of the least zone-restricted areas in the country.
In Palisades Park, it turns out that it was in 1939 when they set up their first zoning ordinance. They basically said, “Well, one-unit, two-unit, what difference does it make? They’re both fine. We’re just going to allow both of them.” And it just sort of lay dormant for a number of years.
It turns out I grew up in Palisade Park, that’s how I stumbled on it, but they just didn’t think anything of it, and that actually was the common thought back in the early 20th century. If you were to talk to someone in the early 20th century, they would’ve said, “Oh, that duplex next door, fine. That triplex, the townhouse, small apartment buildings, commercial strip next to my residential area, oh yeah, all that’s fine.” And that all changed in the ’20s and ’30s in the United States through zoning.
I think the better cases are Seattle, which did this — what Tobias described — which allowed for this lower-density multifamily family, smaller multifamily. Then we have Oregon and California.
Oregon at the state level implemented what we would call light-touch density laws. It has two different levels of it, one having to do with up to quadplexes in cities of, I think, 25,000 population or more. Then it has duplexes allowed in what they call urban areas that aren’t necessarily meeting the 25,000-population [level], but they’re still urbanized.
That was passed a couple of years ago. The jury’s still out on how it’s working. These things do take some time, and the early returns haven’t shown much traction. But again, that tends to be because localities tend to put in restrictions, which is what is, coming now to California, what California found.
California looked at two different approaches, putting aside that they started with ADUs back in the mid-1980s. That’s over 30 years ago. They started with the accessory dwelling units. But in the 2010 to 2020 period, they were focused on two different approaches. One was high-density development around transit nodes, transit stations. And they never could get that passed through the legislature, notwithstanding a number of attempts over many years.
They eventually shifted gears, and, in my mind, learned something from the accessory dwelling unit experience, which was, “Oh, the accessory dwelling unit experience has actually gotten a fair amount of support.” There’s actually surveys that show it’s very widely supported by the population in California now, and is viewed as something pretty normal now. Not everywhere, but in general. So they then decided to expand at the lower end rather than at the high-density end, and that’s what led to Senate Bill 9 and the second unit on a lot, and the lot-splitting.
They eventually were able to build a coalition that overcame the NIMBYism. In California, that NIMBYism actually has a special name. I don’t know if it would apply to Hawaii also, but it’s called BANANA: Build Absolutely Nothing Anywhere Near Anyone. That is the form of Nimbyism in California. And what they’re trying to do is break that with this light-touch density through SB 9. And we’re going to be tracking that to see how it works, but we’re cautiously optimistic.
Peter: Yes. Just to add to that, Ed, another argument, particularly in Minneapolis and Oregon, was zoning’s racial past.
Back in the 1920s, zoning was more or less explicitly implemented to keep undesirables out of certain neighborhoods, undesirables of course being African-Americans, but then also Eastern Europeans and other groups that were at the time not viewed very favorably.
Especially in very progressive cities, this racial component of zoning has given the impetus behind this notion that we need to get rid of it, and at least allow for light-touch density in these areas.
Chang: Great. Thank you very much. It’s still very much a challenge here in Hawaii to have this conversation because of so-called monster houses, which people in Hawaii are familiar with. They tend to take the form of very large buildings with a dozen, even more bedrooms, that are all being rented out. Or maybe they’re not, maybe it’s multi-generations of the same family that’s occupying the same house.
The term light-touch density that you’ve introduced, you’ve said it encompasses things like duplexes, where maybe they’re two conjoined homes or triplexes that are, say, three homes on three different levels of the same building. But uou’ve also pointed out, there’s a distinction that you drew between creating two separate houses, two separate units on the same property, and selling those separately, like in Palisades Park.
Do you think that all forms of light-touch density, including separate homes on the same lot and also homes that are together, that are built together in the same building, will address the problem? Or do you think that there’s one specific form that’s preferable to the other?
Pinto: As Tobias said, one of the advantages of light-touch density is that you can put something in place and you can adjust it. One of the problems with public housing — and again, public housing in the United States going back to 1949, there was some public housing before that but the high-rise public housing dates to 1949 largely — once you put lots of units in one spot, you’re committed to that spot.
When you do light-touch density and maybe there’s five or six different ways you can do it, you’re doing one here and one there. You’re not going to raze, you’re not going to tear down a whole neighborhood and then put in 50 duplexes. We’ve not seen that.
What we’ve seen is, in Palisades Park, it was a span of 25, 30 years, and a few thousand of these got built. But they were built by hundreds or dozens and dozens of developers and contractors, hundreds and thousands of property owners. It just takes time.
And Palisades Park actually made some mid-course adjustments. They had some concerns about parking, and so they adjusted the parking requirements. They also found that when they suspended, for about a year, the ability to build duplexes, that led to a big decline in their revenue at the municipal level, and they very quickly solved the problem by adjusting the parking requirements and then came back to their way of allowing this.
Again we think it allows for a responsive process [in which] you learn from what’s happening because it’s going to have to unfold over a number of years. It’s not going to all happen in a couple of years.
Tobias, anything else to add?
Peter: No, you said it. These monster homes, from the ones that I’ve seen, they’re just a symptom because you have such a shortage of housing. If you could naturally increase the amount of housing available, you would probably also decrease the need for these monster homes.
Also, the way I understand it, some of these monster homes are already outlawed. It just means the building codes need to be enforced. But I think light-touch density offers the middle ground between doing the one extreme — the monster home — and on the other hand, the other extreme: keeping things as they are, even though housing is getting really, really unaffordable.
Pinto: I think what you’d need to do, Senator, is look at the economics of the monster home. Tobias went through this in Seattle and, it’s not a perfect analogy, but you could have likened it to the McMansion. So you look at Seattle where the houses that are being torn down were, what, was it 1m500 square feet?
Peter: Yes. 1,800.
Pinto: 1,800 and then up to 2,600 or 2,800 square feet. That’s a pretty big boost in square footage. That’s being driven by land costs.
The way highest and best use works is it’s the highest and best use that’s legal. So if all you can build is a one-unit structure that’s legal, and the land is very expensive, and you’re going to tear down what’s there, then if you have a lot that sells for $800,000, you can’t build a $200,000 house.
Let’s assume that could be built at that price. You can’t build a $200,000 house. You can’t even build a $400,000 structure on that. You have to build an $800,000 or $900,000 structure so that your land costs and your structure costs are at least equal, if not the structure cost being more like 60% or 65%.
So, if you then take that concept and say, “I’m now going to allow triplexes or quadplexes, I’m going to allow quadplexes.” And that quadplex, the land is still, let’s say, $700,000, but I’m going to allow a quadplex, and each quadplex is $250,000. I now have a million dollars of improvement on that lot, with the lot being $800,000. I have now have a million-eight, but I’ve got four units for a million-eight rather than one unit at something approaching the same thing.
That’s what you’re seeing with the example again out of Seattle.
Chang: One of the themes that keeps coming up in the questions is the issue of a lack of infrastructure. You mentioned that light-touch density could actually facilitate infrastructure construction, but unfortunately, it tends to be a chicken-and-egg problem.
Is the municipal jurisdiction going to be willing to proactively invest in the infrastructure that will enable the creation of light-touch density, ADUs and so on? It’s been historically difficult in this state for counties to proactively invest those funds. As a result, many, if not most, of the neighborhoods are actually capped in terms of wastewater capacity.
How would you overcome the lack of infrastructure in building these units?
Peter: That’s a great question. I think it’s probably a bit more involved than what we could get into here. I think again, you have to look at the economics. In Palisades Park — again, I don’t know if Tobias can weigh in on this because he spent a few days at Palisades Park really talking to people and studying this, including things like the sanitation and storm sewers — but I think if you could increase the density, create, maybe — and I’m just thinking out loud — a tax-increment district that would take that money and use that for the infrastructure, now you’re bootstrapping.
Again, what we know is, No. 1, you’re going to get more property tax revenue, and No. 2, you’re going to get more sewer-connection revenue.
I assume that each unit has a sewer-connection charge that’s monthly for, you know, the sewer charged. So if you have twice or three times as many sewer charges, you could create a tax-increment financing district out of both the property taxes and the sewer hookup taxes, or the sewer monthly fees, and then pay for the infrastructure. That way they go hand in hand. That’s just one idea.
Peter: Yeah, I would argue that the time to do this would be now. All the money that states have received from the federal government, and many states are struggling to find ways to effectively spend this money. Why not use some of the COVID relief funds that states have received and use that money to upgrade infrastructure? But I also think Ed is absolutely right.
You’re broadening your tax base, you’re increasing your commercial activity, which again raises your tax revenue from commercial activity. Then, on the other hand, light-touch density and upgrading this infrastructure promises to be much cheaper than greenfield activity.
If you’re going further out, and you’re putting in new developments there, you need to put in the roads, you need to put in the sewer completely, you need to put in the garbage. the sewer, the police. Everything needs to happen from scratch.
If you do it in these areas that already have some of the infrastructure in place, I think, ultimately, this is going to be a much cheaper option than doing nothing or doing the greenfield development.
Chang: Another one of the most common questions that we get, and an issue raised today by Claudia, is this issue of foreign investors and foreign buyers.
Obviously, Hawaii is a very desirable vacation destination. There are a lot of folks who do own properties here as vacation homes. There are others who operate their homes as short-term vacation rentals using platforms like Airbnbs.
How can we ensure that any new housing built through light-touch density models will be used as housing for local families, instead of being converted to hotels and residential neighborhoods?
Pinto: That’s another great question, Senator. In general and we went through the numbers for foreign ownership, I don’t know if there’s any dispute about those numbers, but they basically said that’s not a big issue. It may sound like a hot button issue, but people coming from California swamps the percentage of people or the number of people that are coming from outside of the United States, and that number was dropping. We don’t have numbers for 2020 and 2021, but my guess is they probably fell more, in terms of international.
In terms of the tourist side and Airbnb, I think Hawaii has to decide whether it’s going to support its tourism industry — which I assume is a very large part of its economy, and it’s one that’s been hurt by the pandemic substantially — and is it going to try to rebuild that and support it, and if it is, it can’t do that by saying, as some islands are trying to do, we’re going to ban new hotels or we’re going to ban Airbnb or restrict Airbnbs. I think, again, the issue has to be: Let’s get more housing.
California — I think [there is] a link in the presentation on the ADUs to some research that came out of California — California has been adding ADUs. They are not being used as Airbnbs. A majority of them are being used as rental properties to full-time rentals, not Airbnb-type transitory rentals. No. 1.
No. 2, the second biggest use is for the personal use of the homeowner. They’re using it as an office, they’re using it as additional living space, they’re using it for the family to stay, or they’re allowing the family to stay there. But the majority are being used to add permanent housing units to the market. A very small percentage are being used for Airbnbs.
Chang: OK, we only have a few minutes left. I wanted to make sure that we got your permission, if you don’t mind, to send us your slides so that we can share them with our audience members, because they were so detailed. Would that be OK?
Pinto: Absolutely. Anything we’ve put out is freely usable. All we ask is, if anybody wants to take anything out of it, they just cite the source, but please feel free to distribute it far and wide.
Chang: OK, great. Maybe we’ll take a step back with this last question which is, there has been a trend in recent years — you mentioned the states of California and Oregon, you mentioned the city of Minneapolis, to proactively enact these policies, embracing light-touch density in various forms — but the reality is that homeowners who want to preserve their neighborhoods, whether you call them NIMBYs, whether you call them neighborhood defenders, whether you call the phenomenon “place attachment,” whether we refer to slogans like Republican President Trump’s “save our suburbs” slogan, these are very, very popular policies and, to a great extent, it feels like folks who are attempting to loosen those zoning restrictions are swimming upstream against really a lot of people who would just rather everything stay the same.
Why do you think that just leaving everything the same has proven to be such a resilient and popular policy choice across both sides of the aisle, across all the different geographies of our very large country?
Pinto: Well. We have a ladder, a housing ladder, and the people who are on the housing ladder have done very well. And I fault federal policymakers both on the monetary side, the financing side in terms of FHA, Fannie Mae, Freddie Mac. I also fault the Fed for making the situation that has allowed house prices to really get out of whack, particularly in places where it intersects with these land-use restrictions, like California and Hawaii, Seattle and other places.
I just had a conversation with a reporter from Canada this morning. Ontario has a report, I’d be happy to send it to you. I just found out about it, that was released a couple of weeks ago, recommending quadplexes broadly through Ontario.
So as I look at this, I think we’ve got the wind at our back here, Senator, in terms of we’re going in the right direction. There are states that are doing this, there are other states that are considering it, there are localities that are considering it. There are many localities — Durham [N.C,], Washington, D.C., have done accessory dwelling units, Montgomery County in Maryland has done accessory dwelling units — so there’s a lot of activity going on here compared to five or six years ago, and there’s a lot of research being done. We cited much of it in our presentation.
So it’s always good when you have the tailwind at your back rather than the headwind, which has been a headwind, as you just described, for a very long time.
I think millennials are the largest population cohort right now, they’re more amenable to this. They’re trying to get on the ladder. They’re more amenable to more income diversity, ethnic diversity. So I think we’re going in the right direction, but this isn’t going to happen overnight.
It took 100 years to get us to this spot in terms of the zoning. It took us 50, 60 years in terms of the land-use restrictions. Then it’s going to take us 20 years to fix this. That seems like a long time, but if we’re going to do this right, we have to do it the right way.
Peter: Yeah, and the problem keeps getting worse and worse. Affordability keeps worsening and worsening. Home prices right now are going up almost 20% year over year. I haven’t looked at Hawaii recently, but I’m assuming it’s even more there. So a lot of people have already been priced out of the market. At this rate of home-price appreciation, even more are getting priced out of the market. At some point, something will need to be done, and light-touch density, we think, offers the middle ground between doing nothing and doing something that’s highly disliked.
Chang: OK, great. Well, unfortunately, that’s all the time we have today. I wanted to give you a big thank you, a big mahalo on behalf of our audience here in Hawaii and all over, to our two presenters Ed Pinto and Tobias Peter.
As mentioned, they’re happy to share their slides and their data with anyone who’s interested. So do contact us if you’d like a copy. Thank you again to our audience. Have a great day, everyone.
Pinto: Thank you, Senator. Keep up the good work.