Hawaii is an especially desirable place to live — unless you’re trying to buy or rent a home.
Since the start of 2017, home prices are up 50% while rents have soared 47%. Hawaii is now the most expensive state in the U.S., both by median rent (more than $2,200) and home price ($839,000).
What explains these high costs? Hawaii’s housing shortage is the main culprit. Over the past decade, Hawaii has added just 0.8% per year to its housing stock, not nearly enough to keep up with demand. And as anyone who has ever bought or sold a home knows, when housing is in short supply, it’s a seller’s market, and when housing is plentiful, it’s a buyer’s market.
Rents work the same way: When few homes are available for rent, landlords have the power to raise rents sharply, while tenants have better options when rental units are plentiful. So a housing shortage gives power to sellers and landlords and takes it away from buyers and tenants.
This housing shortage is driven by Hawaii’s restrictive zoning and difficult permitting processes. Examples of restrictive zoning include prohibiting apartments in areas zoned for office buildings and commerce, dorm-style co-living, starter homes and town houses on small lots, and duplexes — all of which are much more affordable than large, single-family homes that receive the most favorable treatment under Hawaii’s zoning codes.
Even after the Lahaina fire, cumbersome permitting and zoning restrictions have been a major reason those who lost their homes have found it difficult or impossible to find new ones.
Hawaii is not alone in facing a dire housing shortage that’s driving up rents, pushing homeownership out of reach, and causing displacement and homelessness. But some cities are coming up with innovative solutions to increase the supply of housing.
Minneapolis, for example, now allows apartment buildings on all commercial and transit corridors and has eliminated parking mandates. As a result, the city has been permitting housing at triple the rate of the rest of Minnesota. The result has been both positive and predictable: new housing in Minneapolis, where rents haven’t risen in seven years and homelessness has dropped.
Places as diverse as Portland, Ore.; Tysons, Va.; and New Rochelle, N.Y., have enacted similar reforms that sharply slowed rent growth. Houston achieved similar success by reducing its minimum lot size to allow townhouses throughout the city and has also seen homelessness drop. And states such as California, Florida, Montana and Washington have noticed, and have recently passed bipartisan laws to reform zoning at the state level.
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As recently as the 1970s, homelessness was much less common in the United States. If people couldn’t afford a studio or one-bedroom apartment, they could rent a micro-unit with a shared bathroom and kitchen. This housing was affordable even to someone earning the minimum wage or on a fixed income.
But new zoning restrictions pushed this low-cost housing out of existence, and research shows that high rents are now the foremost driver of homelessness. So, given Hawaii’s high rents, it’s not surprising that the state is one of only five where more than 40 people per 10,000 are homeless.
However, Oahu office vacancies — currently topping 13% — offer an opportunity to revive micro-units and quickly make a dent in homelessness. Allowing vacant offices to be converted into low-cost housing, often called adaptive reuse, addresses several problems at once: reducing vacancies, reviving downtowns, adding rental homes and reducing homelessness. These conversions have been very expensive for conventional apartments. But there is initial evidence that conversions to micro-units with shared bathrooms and kitchens are economically viable.
While Hawaii’s housing affordability troubles and resulting homelessness are severe, the results from places that reformed zoning to allow more homes illuminate a path to quickly improving housing affordability — and reducing homelessness.
Alex Horowitz directs The Pew Charitable Trusts’ housing policy initiative.
