Opinion | What’s Causing Hawaii’s Housing-Market Crunch?

Opinion | What’s Causing Hawaii’s Housing-Market Crunch?


Beachgoers walk by the Kapaemahu stones at Waikiki beach in Honolulu, June 28.



Photo:

Audrey McAvoy/Associated Press

Honolulu

If you’ve always dreamed of living on a beach in Hawaii, you might be surprised to learn that your retirement fantasy is a source of controversy. Instead of welcoming outsiders with open arms, many Hawaii residents these days would prefer you never buy a home here in the first place.

Like many other parts of the country, Hawaii is suffering from a housing shortage. In fact, Hawaii has both the highest median and highest average home prices in the nation. Given that the state also has the nation’s highest cost of living, policy makers are on the hunt for scapegoats.

The best scapegoat is the one who can’t vote against you, which might be why the “outsider” theory has taken hold in Hawaii. It contends that Hawaii’s housing crisis is the result of out-of-state residents coming in with their deep pockets and buying all the homes. It’s an easy explanation with an allegedly easy solution: Prevent outsiders from buying homes in Hawaii. And Hawaii isn’t the only state where the outsider theory is popular. From Georgia to California, stories abound about foreign investors gobbling up local real estate and driving up home prices.

Hawaii politicians have embraced the outsider theory. At the county and state levels, they have proposed taxes and regulations to discourage out-of-state buyers. Counties have passed ordinances banning nearly all short-term vacation rentals outside zoned resort areas on the theory that some of those houses are being bought by outsiders.

There’s just one problem: The data don’t support the claim that outsiders are responsible for Hawaii’s high housing prices.

A study by

Jensen Ahokovi

of the Grassroot Institute of Hawaii found no meaningful correlation between home prices and outside buyers—in Hawaii or anywhere in the U.S. Mr. Ahokovi analyzed home sales data from the Hawaii Bureau of Conveyances and nationwide tax-assessment records from all 50 states, the District of Columbia and more than 2,300 U.S. counties. The data show that from 2010-20 the percentage of homes in Hawaii bought by Hawaii residents increased while the share of homes bought by outsiders decreased. Yet home prices kept increasing. Moreover, there was a negative correlation between average home prices and the proportion of out-of-state buyers. Both findings contradict the idea that outsiders are the ones driving up housing prices.

But if outsiders aren’t responsible, who is? The research did find a very weak correlation between county-level home prices and out-of-state buyers. But that was dwarfed by the strong relationship between home prices and the level of land-use, zoning and other homebuilding-related regulations. It isn’t outsiders who are making Hawaii’s homes ridiculously expensive. It’s the state’s own politicians, who have spent decades piling on just these sorts of regulations.

This finding is consistent with the large body of research that ties high regulation to high home prices. It’s a correlation that exists everywhere, whether you live in a tropical paradise or chilly suburb.

The University of Hawaii Economic Research Organization recently found that Hawaii ranks highest on the Wharton Index, a measure of government regulation in housing. As a rule, the higher a state’s score on the index, the higher the price of housing in that area. Other states around the nation that score high on the Wharton Index also have very high housing prices. California ranks fifth and has the third highest median home price. Its percentage of outside buyers is one of the lowest in the country.

By contrast, New Hampshire’s index ranking is below average and its median home price is only slightly above the national average. Its outside-buyer share? The highest in the nation.

Not surprisingly, the Grassroot Institute’s new report has caused a stir in Hawaii, both in the media and high policy-making circles. The purpose of the study was to dispense with a myth that has hindered productive discussions about how to resolve the state’s housing shortage. Now that we know outsiders aren’t the main driver of high housing prices—in Hawaii or anywhere in the U.S.—we can begin the real work of increasing housing supply to help bring down home prices.

Mr. Akina is president and CEO of the Grassroot Institute of Hawaii.

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