High housing demand, heightened by low supply, drives up Hawaii’s home prices, not out-of-state buyers, according to new research released today by the Grassroot Institute of Hawaii.

The policy brief, “The ‘Outsider’ Theory of Hawaii’s Housing Crisis,” written by Jensen Ahokovi, concluded that out-of-state buyers have had little meaningful effect, if any, on the large increase in Hawaii housing prices over the past 14 years.

Ahokovi’s research showed that between 2010 and 2020, locals purchased the vast majority of Hawaii homes. Home prices kept increasing, and although sales to local buyers trended up, sales to out-of-state buyers steadily decreased.

“Considering these two trends, it is difficult to associate rising housing costs with fewer out-of-state buyers,” Ahokovi said of the report, which used data from the Hawaii Bureau of Conveyances and nationwide tax assessment records provided by the American Enterprise Institute’s AEI Housing Center.

Ahokovi, a research associate for the the Grassroot Institute of Hawaii, also found that “outside buyers,” who in 2021 accounted for about 25% of Hawaii’s residential real estate purchases, were hard to define and typically were not bidding on the same properties as local buyers.

The Grassroot Institute of Hawaii says the report’s findings show that Hawaii policymakers should focus on reducing the number of governmental barriers such as land use, zoning and home- building regulations that restrain the state’s housing supply.

Grassroot institute of Hawaii President and CEO Keli‘i Akina said: “Using outside buyers as a scapegoat detracts from the fact that Hawaii has the most housing regulations in the nation and consequently the most severe housing shortage.

“We need to focus on the real problem — Hawaii restricts home building more than any other state. We need to allow more homes to be built so that local families can afford to stay in the islands.”

Unless Hawaii’s land-use and housing regulations are liberalized, the Grassroot Institute of Hawaii predicts that the state will fall short of the state Department of Business and Economic Development’s 2019 estimate that about 3,600 new homes a year through 2030 are needed to meet demand.

Eugene Tian, DBEDT chief economist, said during the last 10 years (2012-2021), statewide total new housing units authorized by the county building departments have averaged 3,995 per year.

“Total housing units authorized in 2021 were 5,274 units, the highest since 2007,” he said. “I think the supply of housing units and the demand are close in general.”

Tian reviewed Ahokovi’s policy brief, noting that “the analysis by Grassroot Institute using the correlation between the percentage share of out-of-state purchases and the housing price may not capture the true impact since the analysis assumed other factors remain unchanged and, in fact, they did change over time.”

Ahokovi said he used regression analysis to determine which variables have impact on housing prices, and found that there is “no statistically significant relationship between out-of-state buyers and home prices” in all 50 states and the District of Columbia.

He said a regression analysis of 2,300 counties nationwide yielded “a statistically significant but weak positive relationship between out-of-state buyers and counties’ home prices.”

“You can have 99% outside buyers and one local buyer. That doesn’t change the fact that we have a housing shortage that we need to deal with.”

Aedward O. Los Banos, deputy director of the city Department of Community Services, formerly executive director of the Hawaii Community Development Authority, said Honolulu Mayor Rick Blangiardi has been vocal about creating housing for local people.

“There are definitely some gems in (the report) and lessons learned in here from other jurisdictions that are worth taking a look at. We do want to focus on getting quality inventory for the local folks here. We don’t want to see them going away to Las Vegas or other places,” Los Banos said. “We don’t want to see the brain drain, so we have got to create those opportunities.”

He said that the city has accelerated the pace of affordable housing development around Oahu over the next five years with 972 units in six projects estimated to total nearly $28.2 million.

Los Banos said Oahu voters in the Nov. 8 general election also will be asked whether they want the percentage of overall property taxes for affordable housing to increase to 1% from 0.5%, which would double the city’s affordable housing fund to $15 million to $16 million from roughly $7 million to $8 million annually to fund future projects.

John Jacobson, lead real estate analyst for Locations, said he agrees with Ahokovi’s findings, and said the local housing market remains incredibly tight.

“Over the past couple of months, there has been an increase in inventory and a slowdown in sales, and even with that we are still at a place where there is less than two months remaining inventory,” Jacobson said, adding that a balanced market has about six months of remaining inventory.

Rie Hakoda, who lives on Oahu’s West side and would like to move closer to town, said she does not need an economic report to tell her that the market is tight. On Sunday she was told during an open house for 3577 Woodlawn Drive that the Manoa home listed for more than $1.79 million had gotten an offer that morning.

“We just started looking this year, but we are getting more serious,” Hakoda said. “There’s a really short supply, not a lot.”

Thomas Jencks, another potential buyer at the open house, also expressed frustration with Hawaii’s real estate market, which he and his family began trying to navigate after relocating from New York in January 2021. Jencks, who grew up in Nuuanu, said the family has looked at many homes, and between all the competition and rising mortgage interest rates fear that they may have missed the market.

“We’ve looked at so many houses. We made an offer in the spring of 2021 — over asking. But they had double-digit offers and ended up with an all-cash buyer,” he said.

Joe Kent, executive vice president of the Grassroot Institute of Hawaii, said more housing development could take place in Hawaii if the Land Use Commission increased the land it has zoned urban statewide to 6%. That 1-percentage-point increase would lead to a 20% increase in the land zoned for urban development.

“That would allow for approximately 200,000 units, which would meet exactly demand right now,” Kent said.

He said that the “Tokyo model,” which lightened housing regulations to allow for more mixed-use homes, has “resulted in low home prices in Tokyo for the past two decades.”

“There has been enough supply to meet demand in Tokyo, while at the same time their population has increased. Now in Hawaii our population is decreasing, yet we still can’t find enough homes,” Kent said.

Kent said regulators also might consider reducing the backlog of building permits by allowing third-party or private-sector review as well as grandfathering in old buildings that are out of code.

He said a “by-right development” process establishing a rule-based development approvals process also might help avoid the not-in-my-backyard (NIMBY) mentality that can stall a discretionary approvals process.

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