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Fixing Hawaii’s housing crisis need not be complicated

The following commentary was originally published Oct. 15, 2022, in the Hawaii Filipino Chronicle.
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Hawaii has the highest level of government regulation related to homebuilding in the country. It also has the highest average home prices in the nation. This is not a coincidence.

Multiple studies have established that high home prices are strongly correlated with such regulations, including land-use and zoning laws and multiple layers of approvals and permissions.

A recent report from the University of Hawaii Economic Research Organization revealed that Hawaii’s score on an index measuring government barriers to housing is the highest in our country — and not by a narrow margin. Even regulation-heavy locales like California and New Jersey score lower than Hawaii.

Given that 1 point on the index correlates to an 8% increase in the price of housing, it’s obvious that the best way to bring down housing costs is to reduce government involvement. Unfortunately, some politicians continue to believe that more government programs will “solve” the lack of affordable housing instead.

For example, Maui officials have been considering a bill that would cap the price of an affordable housing unit at a level even lower than it is now. It would do so by insisting that all costs associated with a purchase — such as mortgage, insurance, taxes and homeowner association fees — fit within 31% of the buyer’s gross household income.

So-called affordable homes already must be sold at below the market rate, but this bill would reduce the price by an additional 20% to 22%, which would virtually wipe out any profit for homebuilders.

Joe Kent, my colleague at the Grassroot Institute of Hawaii, testified that the bill would discourage homebuilders from participating in affordable housing projects at all — or if they did, they would have to offset their losses by increasing the prices of their market-rate homes, which already are quite high.

In response to these criticisms, the Council’s housing committee reconsidered the bill. But instead of eliminating the flaws, or even shelving it completely, it brought the bill back before the full Council with an additional proposal: tax-financed subsidies for either the homebuilders or the homebuyers.

That’s right. The full Council now is considering leaning on Maui taxpayers to pay for a proposal that would do nothing to improve the county’s homebuilding environment, but instead, only make it more complicated and costly.

Clearly, the Council should be asking some pointed questions, like: Can we afford this? If so, for how long? Do we have the infrastructure to administer a massive subsidy program? Will we be able to guarantee that unintended recipients cannot take advantage of the program?

Also, would subsidies for homebuilders be high enough to overcome the losses caused by the price cap? Would subsidies increase if inflation and other factors were to drive up the cost of homebuilding? And, most important, would the county have to raise taxes to cover the subsidies for builders and buyers?

My guess is that the answers are not what the proponents of the bill would like to hear.

But if not more regulations and taxes, then what?

Well, there are many things that Maui County could do to lower the cost of building homes, and Kent listed some of those options for the Council, too. Streamlining the approval process and loosening zoning restrictions would be a good start. What’s more — such reforms would not cost the county money, require new personnel or involve any new regulations or taxes.

The point is, whether on Maui or at the Capitol in Honolulu, lawmakers in Hawaii need to realize the simple truth that Hawaii home prices are high because we don’t have enough houses. And if they want to make sure that more houses are built, the most efficient, least complicated, least expensive way to do it is to remove Hawaii’s many barriers to homebuilding.

As the great French economist Frédéric Bastiat (1801-1850) once said: “We have tried so many things; when shall we try the simplest of all: freedom?”

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