Most people agree that the so-called monster homes cropping up in residential neighborhoods are eyesores. But are the proposed pieces of legislation before the Honolulu City Council the solution?
That was the topic of the Oct. 6 episode of “Talking Tax” on ThinkTech Hawaii, featuring co-hosts Tom Yamachika and Mark Coleman along with guest Paul Brewbaker, a prominent local economist and principal of TZ Economics, a private consultancy.
At the heart of the conversation was Bill 52, which aims to increase the maximum penalty for building code violations from $250 per day to an initial fine of $25,000, plus an additional $10,000 per day without an upper limit. It would also authorize periodic inspections with “reasonable notice” within two years of construction completion, although it does not explicitly define what qualifies as “reasonable.”
Yamachika, president of the Tax Foundation of Hawaii and a Grassroot Scholar, expressed concern that the fines could be applied not only to monster homes that deliberately and grossly violate building codes, but also to far less severe infractions by property owners whose homes would not be considered monster homes.
He raised the question: “Somebody calculates the yard size after everything’s built … and, ‘Oh, the yard’s a little bit too small.’ So, wham! Big fines come down. Is that what we’re trying to do here?”
Coleman, director of communications for the Grassroot Institute, said monster homes probably house hundreds of people, and presumably most of them do meet the existing building codes. But even for those that don’t, the bill fails to address the root issue, which is the shortage of housing on the island.
He said rather than addressing “the original bad laws which locked in single-family neighborhoods to a certain kind of a home regime,” county lawmakers are proposing a “potentially bad law that is trying to fix the results of earlier bad laws.”
Brewbaker, principal at TZ Economics, a private consultancy firm, concurred: “The market is clearly saying, ‘There’s not enough housing!’ And this is how people are doing whatever they can do to get it.”
Brewbaker said the issue at hand is “how do we get a credible threat of enforcement in place without having it spill over and catch up people the rules weren’t intended to snag, while at the same time, enabling the city to grow? Cities grow except when they don’t, when they go into decline. You pick which one you want.”
To view the full episode, click on the video below. A complete transcript follows,
10-6-23 Paul Brewbaker with Tom Yamachika and Mark Coleman on “Talking Tax”
Mark Coleman: Aloha, everybody. I’m Mark Coleman, co-host of today’s episode of “Talking Tax.” I hope you’re having a great day. I hope we have a good show here for you. My co-host — really the main man here — is Tom Yamachika, president of the Tax Foundation of Hawaii.
And we do have a special guest here today: Paul Brewbaker, economist with TZ Economics, and it’s a private consulting firm.
And we’re going to talk today about monster homes, or really some bills that would be applied to monster homes to try to penalize them and keep them in line to the extent that they are being built.
In particular, we’re gonna riff off of a column that Tom wrote last week and [was] published in newspapers throughout the state and also on the Tax Foundation website, titled “Aiming a Sledgehammer at Monster Homes.”
And he was talking in particular about Bill 52, which is being considered by the Honolulu City Council that seeks to increase the daily fine for violations of zoning codes that sort of enable the monster homes from $250 a day up to $25,000 a day. [Editor’s note: The bill actually proposes an initial fine of $25,000 plus plus an additional $10,000 per day without an upper limit.]
And if I understood what Tom was writing correctly, I think he felt that — I think he thought — that the fine, he didn’t seem to be disputing the fine, but more rather that it could be aimed at things that have nothing to do — homes that have nothing to do with being monster homes. Is that right, Tom?
Tom Yamachika: Oh, well, let’s first talk about, you know, what exactly is a monster home? What are these things that we are irked about?
One developer has attempted to define a monster home as large houses built in land zoned for single-family homes, tend to take up more than 75% of the lot space and can have as many as 20-plus bedrooms. And this is built in a residential district.
Actually, we have a picture of one. And here we go. This is a cartoon that was penned for the Grassroot Institute — which Mark is from — and by local cartoonist, Dave Swann. So, that’s what a monster home looks like.
And you see some of these in, like, Kaimuki and Kalihi and, you know, a few other places around town. Neighbors tend to be irritated, to say the least, because if they had a view before, they don’t have one now. And I think when they moved in, they weren’t thinking that there’s going to be a hotel next to them or something similar.
Coleman: Yeah, in defense of that cartoon, that was an exaggeration of what a monster home really looks like. That was almost like a small apartment building. And the point, which is a little more extreme than — but I guess to the neighbor, it might look like that in their mind, you know. They’re pretty huge, you know, as far as close to the lot line as they can go.
And I think in your column, you had a three-story home that went along with the article that you wrote. And it’s true that around the neighborhoods there, they’re quite large and out of keeping with the traditional look in most neighborhoods — although we could talk about that a little bit too, on whether that’s reasonable to assume that neighborhoods are museums that should never change, you know?
So anyway, continue, sir.
Yamachika: OK, so the question is: OK, given that we think monster homes are a problem, what do we do about it?
And one approach that was kind of embodied in Bill 52 in our current city council year was it drastically tinkered with the fines for building something that’s out of code. The current maximum penalty in the ordinance is $250 per day of violation, with a maximum of $2,000. And DPP, the Department of Planning and Permitting, says — you know, with I think some justification — that that amount is far too small to be an effective deterrent.
So they said, “OK, so here’s what we’re going to do. Instead of, you know, this 250 bucks thing, we’re going to add a couple zeros.” So, the initial fine is going to be $25,000 plus $10,000 per day with no upper limit.
But the thing that concerned, you know, the thing that concerned me was what triggers the enhanced fine is that any violation of the development standards in a particular ordinance, which relates to maximum height, height setbacks, maximum floor area ratio, maximum number of wet bars, maximum laundry rooms, maximum bathrooms, minimum sizes of yards, among other things.
So yes, a monster home would violate one, two, maybe several of those. But the same fine structure can be applied to something that violates only one of them, and, you know, by a little amount.
Like if the, for example, if the yard is a little bit too small and somebody calculates the yard size after everything’s built — you know, which may or may not be what was planned for — and, “Oh, the yard’s a little bit too small.” So, wham! Big fines come down. Is that what we’re trying to do here?
Coleman: Well, I think there’s one more problem with that bill. In looking at it, well, there’s also a category — there’s also a section that says that inspectors should be allowed to come around for two years, any time during two years after the permit is authorized to inspect to make sure that there’s been no deviation.
And the bill itself talks about giving reasonable notice. And I thought, “OK, well, reasonable notice, I suppose that’s OK. Maybe not. Maybe even that’s not adequate.” But the Building Industry Association submitted testimony saying, “No, it should be unannounced visits.” And I thought, “My goodness! All right, now we’re talking about something else that’s possibly unconstitutional.”
I say unconstitutional because the $25,000 initial fine that you mentioned, and $10,000 a day could be violating the — you could construe it as being violating the excessive fines clause of the Constitution whereby the violation, the penalty has to bear some proportional relationship to the violation. The penalty has to bear a relationship to the violation.
So, I mean, is it really worth $10,000 a day, plus the $25,000 to impose these fines? I have a problem with that right there. What do you think?
Do you think the amount’s too large? You don’t seem to be arguing that the amount is too large; you’re just worried that it’s a materiality factor that you talked about in your article.
Yamachika: Well, yeah. Let’s get Paul’s take on this as well since he was nice enough to join us today for our discussion.
The tack that I took in my article is, you know, you need some kind of materiality threshold before you can start whacking the advanced fines in there. Because really, the bill as written doesn’t work as advertised. What do you think, Paul?
Paul Brewbaker: Yeah. You know, I’m hearing a lot of legalese, which I understand is important because we’re talking about ordinances and enforcement and so on. And you know, the lawyers have to help us write the language down so that it makes the kind of sense that we intend when we change the rules of the game.
And so, these notions of materiality and cruel and unusual punishment, you know, are important to codify. I tend — as an economist, right? — I kind of tend to step back and think of these things in the abstract.
So, for example, the question of: Is the amount right?
$25,000 — the median single-family home price on Oahu is $1.2 million, if you’re actually talking about a single-family house. Twenty bedrooms is an apartment so, you know, and that’s why this discussion even is occurring.
But even more abstractly than that, there’s this tension, right? between enforcement and inducement.
What we want to see, the community wants to see, is a pattern of urbanization, and that includes urban redevelopment — to go to Mark’s allusion earlier, right — cities change — pattern of urban development and redevelopment that, you know, fits in some sense within the confines of the community’s sense of itself and its evolution. I mean, it doesn’t go too far.
But as Mark said, you know, it doesn’t relegate every neighborhood to being a museum. And then how you get there. As an old — you know, I’m a recovering commercial bank economist, as they say. So, in the banking industry, where you see these kinds of problems, they’re called information asymmetry problems, right?
Somebody has to drive by your house — if somebody has to preserve the right to drive by your house over a two-year period is because they don’t actually know what’s going on. You know what’s going on; they don’t.
The way those kinds of problems are solved, for example, in mortgage lending, right? is that you have to, we try not to select adversely from the pool of borrowers. In this case, try not to select adversely from the pool of contractors or homebuilders, right? Get reputable people — admit reputable people.
And then, on the other side, mitigating morally hazardous behavior — people who, once they’re given permission to build, go off and build something that is materially not, you know, within the boundaries of the guidance that the city gives.
And in loan covenants, for example, there are requirements for monitoring and so on. Or if you’re in a business-credit relationship with the financial institution, they want to see your financial stations and so on.
So, this tension between enforcement on the one hand, and abusement goes to the heart of this matter.
I mean, as I see these monster homes popping up — and they’re apartment buildings, so let’s be clear about that. You don’t have to make it any more complicated than that. Building an apartment building, which replaces its zone for single-family detached dwellings, can’t possibly be legal.
But at the same time, we don’t have the resources to go out and enforce everything. Although, seems to me a drone could fly by the house once every two years and not have to deploy human resources.
Yamachika: OK. So, let’s kind of go back and kind of get at what you said. And that is, you know, do we have a structure within the current law that is adequate to take care of the problem, the perceived problem? And that is, monster homes don’t belong in a residential neighborhood.
And I think the solution that you’re thinking is appropriate — which I kind of agree with — is, well, reclassify the damn things as apartments. And then, you know, proceed against the builder or the contractor, whoever, on that theory, i.e., you’re allowed to build a residential home, you’re not allowed to build an apartment, but an apartment is what you built.
Brewbaker: Yeah. It’s two things really. It’s, on the one hand, the city needs to be positioning the community in a forward-looking way, relying on community input for sure, but identifying where it can grow, where density, where densification is admissible because density is proximity, and proximity is mobility. I mean, it’s just the way cities evolve.
But at the flip side is the enforcement question, right? You want the enforcement to be credible so that you don’t actually have to go to the trouble of enforcing.
And I have no particular insight into what the right — you know, is it $25,000 adjusted for appreciation of single-family homes, or what do you, you know — $25,000 30 years ago is not the same thing as $25,000 today, that kind of thing.
So, but between credible enforcement, but also a path forward where the city allows densification or allows greater urban density, and people know where that’s going to be, where the developers know where they should be focusing their attention, rather than trying to get away with it in neighborhoods where it’s inappropriate.
Yamachika: So, that sounds more like a zoning discussion.
Brewbaker: Straight up.
Coleman: I think that’s exactly the problem, or, you know, the core issue. What we have here is a potentially bad law that is trying to fix the results of earlier bad laws. And rather than going back to the original bad laws which locked in single-family neighborhoods to a certain kind of a home regime, you know, like liberalizing zoning, reducing minimum lot sizes, reducing parking minimums, increasing setbacks, whatever.
Brewbaker: You see these jurisdictions now in California, for example — which basically, Hawaii follows California when it comes to zoning and housing regulation. You see these jurisdictions where they’ve just banned single-family zoning. They just said, “We’re not going to allow it anymore.”
Coleman: They’ve lifted it all, and now you can build duplexes and fourplexes and triplexes.
Brewbaker: And I don’t know about your neighborhood, but in my neighborhood, before we had illegal ohana units, and now we have legal accessory dwelling units. We just changed their name.
But people pop up a second floor and they build an ohana unit in the back for tutu. And, you know, eventually, tutu is not going to be with us. And then what do you do with the accessory dwelling unit? You rent it to your son or daughter’s classmate who’s graduated and starting out a new career.
Brewbaker: And I think that’s the normal way cities evolve.
Coleman: I think that applies to the so-called monster homes as well. I think most of them — you know, correct me if I’m wrong; I tried to find some figures before this show about — I don’t know that anyone’s keeping track really of how many monster homes there really are and how many violations have there been.
How many people are living in these homes? We have a housing crisis; people need places to live. If you just go by — I got the numbers on about four homes, and that was about, well over 20, 30, 40 people. 20, 25, I don’t have the numbers, where are they?
Anyway, we’re probably looking at at least hundreds of people that have a place to live now. Probably mostly single folks, but also maybe small families. And I assume they’re mostly all rentals. So, they are — you know, it’s a place where your older son can move into when he moves out of the house. They’re affordable, they don’t have parking necessarily, or some of the other amenities like garages; you know, they don’t even have garages, most of them.
But anyway, my point was that these are being built mostly legally. They’re following the building codes and that’s why they exist.
Brewbaker: No harm, no foul if that’s the case, right?
Coleman: Yeah. Their plans were approved and it’s sort of like the case against short-term rentals. We’re trying to pass overly broad laws that affect just a few people that are abusing, you know, the short-term rental …
Brewbaker: Well, this brings us back to Tom’s original point which was, you have to be careful about changing the law in a way in which spills over and bleeds outside the territory, the zone we originally intended the enforcement to have an impact, and doesn’t catch up other property owners this, you know, one or two minor infractions.
Coleman: Well, in the homes that are being built due to — so, there’s actually another bill before the Council right now — Bill 44. And that bill — you might’ve heard about it — seeks to penalize people who make false statements to city officials. And it doesn’t say which city officials, and it includes verbal, written, you know, everything. Anything on your document, anything you might say to the clerk at the window and whatever.
Yamachika: That’s something I would certainly support. I mean, you don’t go around trying to get a building permit by lying to the city official.
Brewbaker: Well, yeah. How is that not obvious?
Yamachika: Or giving them fake plans.
Coleman: Well, yes, of course, if you’re lying on your permit. But then there’s the issue of, like, knowingly lying versus, you know, unintentionally quote “lying.” And also, what is a city official? Are you supposed to be under oath every time you …
That’s actually a constitutional issue at the federal level where people get indicted and convicted for lying to an FBI agent when they’re not really even under oath, you know. So, when does it matter that you’re under oath or you’re not?
But if you’re filling out a document for the government about, you know, your house is going to be this large and then you build something much larger, yeah, I think that’s actionable, no doubt.
Brewbaker: But still, our focus is on suppression of bad behavior, which is not necessarily a bad thing for society to do.
Brewbaker: Whereas the market is clearly saying, “There’s not enough housing!” And this is how people are doing whatever they can do to get it.
So, maybe we ought to work equally on this question of, “How do we make it possible? How do we enforce the rules against doing things with untoward outcomes while, at the same time, making it possible …
So, let me give you a statistic: At the time of statehood, 60% of households in Hawaii were married families with children, right? Who lived in a single-family home in the suburbs. Today, it’s 20%. 60%, 20%.
And the number of households comprising individuals living by themselves at the time of statehood was one-eighth of the population. Today, it’s one-quarter. One-quarter of the population comprises people who live on their own, and they’re not all young; many are old.
The point is that the whole structure of society changed, which required people — half of all marriages end in divorce, right?
Even if the population hadn’t changed, there’s a greater need for housing. But of course, the population grew.
So, on the one hand, we’re not solving the problem of housing shortfall. We need to do that while we solve the problem, preempting the bad outcomes. Well, there’s got to be a way down the middle where we solve the housing problem and get exactly what it is we’re trying to achieve.
Coleman: Well, Tom, you know, in addition to wanting to have greater fines for these homes, a lot of people, a few people anyway — Denby Fawcett and [Honolulu] Civil Beat wrote a column to this effect and there was some testimony before the Council — that demolition is really what they should be doing. You know, if a home is in gross violation of the law, they ought to tear it down.
What do you think about that?
Yamachika: Well, I mean, you talk about excessive fines or punishments. You know, having somebody’s house torn down and making them homeless by definition, that’s kind of a severe penalty, I think. And you really should have some, you know, very good cause before you can let government do that, I think.
Coleman: Well, yeah. I remember they tried to shave the top off of that Buddhist temple in the back of Palolo Valley. I don’t know, I don’t remember what happened to that. But there was — but in the Denby Fawcett article, there was a clipping from like back in 19 — when John Whalen was the DPP guy, Department of Planning and Permitting. I think that was his title.
Anyway, he made a big show for the media about how they were actually going to tear down some property in Kahala, or somewhere like that, that had exceeded building permit codes.
But yeah, I think that would probably be going too far, unless they do it before the people move in. But I still think probably modification would be in order if you’re going to go to all that trouble to build something that you could renovate and still have around, you know, for people to live in.
But to the extent that a home meets the code, do we really have a problem?
I know in a lot, if you go through some neighborhoods like Kaimuki, for example, you’ll see all the older homes from the ‘20s and ‘30s and ‘40s that were single-fam — it’s all single-family neighborhoods. But they were one-story homes; generally smaller, two-bedroom, maybe three. And, you know, they were really nice — double-wall construction.
But then in the ‘60s, they started coming up with the single-wall homes. And they all started going two stories.
Now, I would imagine back in those days, those were considered monster homes. You know, they looked awful, and if you lived right next to one, suddenly your view’s gone. And there, you know, there’s more people living next door. I don’t know how many, if that was really — they weren’t turning them into apartment buildings. But anyway, they might have offended the sensibility, but they were legal.
So, the neighborhoods have evolved and now you have a lot of two-story homes in these neighborhoods. Now these so-called monster homes, if they’re conforming to code, it seems to me that it’s just something people gotta learn to live with. Although, like Paul said, it’s clearly a manifestation of the ultimate problem, which is we don’t have enough homes.
Now, going back, there’s another bill called Bill 7 that presumably — it did get passed into law — and it allowed some form of small apartment buildings in neighborhoods. There was a lot of opposition to that. “We don’t want apartment buildings in our neighborhoods,” which is actually a quote from some guy in some neighborhood that I saw.
Then they did a study a few years later. Well, how many apartment buildings have been built? And it turned out none of them, none had been built. And why? Well, because it’s too damn difficult — pardon me — to build a home in Hawaii. You know, it’s just really, really hard to build housing in Hawaii.
And we’re kind of paying the fruits of — we’re kind of, you know, paying the piper for what we’ve caused many years ago with this, locking it into single-family housing. I think that’s the ultimate solution here.
Yamachika: So, looks like we have, you know, many, many different levels of problems that we’re trying to attack here.
We have, OK, the greater problem of what do we do about housing generally? OK, we have urban planning, which is, you know, what kind of houses, if any, and where do you allow them? Which raises questions about the adequacy of our zoning laws and whether we should be putting in new classifications or changing the requirements of the classifications that we now have to better align with the times perhaps.
And what then happens when people try to take the law into their own hands and either lie to DPP or get approved plans and have something built that’s way different from the approved plans, which also happens.
Brewbaker: Yeah. I think this, as I said earlier, there’s a fundamental tension between the issue that brings us together, which is how do we get a credible threat of enforcement in place without having it spill over and catch up people the rules weren’t intended to snag, while at the same time, enabling the city to grow? Cities grow except when they don’t, when they go into decline. You pick which one you want.
Coleman: Well, the other trend right now is adaptive reuse, which would free up the downtown areas, the old office buildings that are no longer occupied. Those could be converted to residential, and that’s another — and mixed-use. We could have greater …
Brewbaker: Yeah, what happened to mixed-use? I mean, what happened to the saimin noodle shop on the ground floor and the apartment upstairs? I mean, why is that illegal? I don’t understand that at all.
Coleman: So, it’s really frustrating that we have to talk about the bad law, you know; potential problems with laws that are intended to fix legitimate problems. But ultimately, you know, I think it’s a bigger story.
Tom, last talk, last comments?
Yamachika: Well, you know, we have lots of interesting issues around housing. We’re trying to kind of evaluate the laws that are being brought up by our legislative body to see what the problems are in these proposed bits of legislation.
And I think the thoughts that were expressed in today’s show really, I think, should be some food for thought for lawmakers on how they should be looking to aim and craft legislation.
You know, certainly, the bill that we were talking about — Bill 52 — as drafted by DPP, doesn’t do it. And they need a different approach, and we’ve talked today about the different kinds of approaches that may be available legislatively.
Coleman: Paul, I know we’re kind of running short on time here. Last word from you?
Brewbaker: As Tom said, I think we need to be careful how we write the laws. But my sense of the balance is that where we’ve gone off track is by not allowing enough urban development to evolve in its own sort of organic manner.
Coleman: Meet demand. Well, thank you very much. And I forgot to mention that you’re a proud graduate of Maunawili Elementary School..
Brewbaker: [laughs] Woo hoo!
Coleman: Yeah, so anyway, on that happy note, thank you very much everybody for tuning in today. We’ll be back in a few weeks, a couple weeks with more exciting conversation on “Talking Tax” with Tom Yamachika and myself, Mark Coleman. Aloha.