Looking for housing in all the wrong places?

Many people in Hawaii believe the best way to “solve” the state’s housing crisis is through greater government involvement.

They believe this even though studies upon studies overwhelmingly show that such involvement is the primary cause of the crisis in the first place.

The University of Hawaii Economic Research Organization, for example, recently looked at where Hawaii stands in terms of the Wharton Index, which measures government barriers to housing across the nation. The index shows a strong correlation between high levels of regulation and high housing prices.

And so it was with Hawaii. The Aloha State ranked No. 1 nationwide in the UHERO-Wharton Index analysis, and — no surprise to me, at least — our median and average home prices were among the highest in the nation as well.

The obvious conclusion is that reducing regulation is what we need to help grow housing. But too many of the proposed “solutions” we so often hear about take the opposite approach.

Their advocates honestly believe that more land-use or zoning restrictions, affordable housing programs, public housing projects, homebuyer subsidies, blanket prohibitions or punitive taxes are the way to go.

Consider, for example, Bill 107, which will have its final hearing before the Maui County Council on Tuesday, Sept. 20.

Originally, the bill sought to redefine how buyers would qualify for affordable home mortgages. But while trying to make it easier for Maui residents to purchase a home, it also would have forced the homebuilders to reduce their home prices by 20% to 25%, wiping out most or all of their profits and discouraging them from building any homes at all.

After that first hearing, the bill was recommitted so the Council’s housing committee could address some of the concerns that had been raised. Those deliberations resulted in an updated bill that is substantially similar to the old one, but with a new twist that makes it even more problematic: a subsidy program with ill-defined parameters that threatens to fall directly into the laps of Maui taxpayers.

In essence, either the homebuilders will get taxpayer money to offset any profit margin that the bill would eliminate, or homebuyers will get taxpayer money so they can get lower mortgages for homes that are already being sold at below market rate.

I can think of a few questions here: Can Maui afford this? For how long? Would the subsidies for homebuilders be high enough to cover their losses due to the new price cap? Is the county prepared to increase subsidies if inflation and other economic factors drive up the cost of building new homes?

Is the county prepared to administer such a large and complex subsidy system? Are there safeguards in place to prevent the subsidies from being exploited by those who do not need them? And most important, does this mean that the county will have to increase taxes to maintain the builder and buyer subsidies?

Maui County’s Home Acquisition and Ownership Programs Revolving Fund currently has less than $2.5 million in its coffers — not nearly enough to support such an ambitious subsidy program. But even if there were ample funds available, policymakers should still ask themselves what the long-term effects of this policy might be.

The great economist Milton Friedman once said: “There is nothing so permanent as a temporary government program.” Once Maui begins subsidizing homebuilders and buyers, those subsidies are likely to grow in scope and complexity, putting a bigger strain on the county’s budget and adding yet more red tape to the process of building and buying affordable homes.

So what do I suggest as an alternative? Well, greater economic freedom, of course. And not only in a general sense; I do not like to criticize a proposal without having something specific in mind to take its place.

In this case, my colleagues and I at the Grassroot Institute of Hawaii have suggested multiple ways Maui lawmakers could responsibly address the county’s housing crisis — without adding any new government workers, programs, regulations or taxes.

Those include streamlining the permitting process, reducing political approvals, waiving some building-code requirements for temporary homeless shelters, and liberalizing zoning laws to allow smaller housing, smaller lots, residences in commercial districts, accessory dwellings, subdivision of existing buildings and more.

Never forget that the housing crisis is ultimately a supply problem. If policymakers in Hawaii continue to ignore or even add to the many regulations that prevent housing growth, expect to see continued high home prices and more of our family, friends and neighbors being priced out of paradise.

This commentary was Keli’i Akina’s weekly “President’s Corner” column for Sept. 17, 2022. If you would like to have his columns emailed to you on a regular basis, please call 808-864-1776 or email info@grassrootinstitute.org.

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