Pandemic Exacerbating Hawaii’s Housing Affordability Problem
Low interest rates, combined with changing social and professional norms, are driving demand for homes, and prices, upward.
Every recession is a little bit different. In 1990, fears over the supply of oil following Saddam Hussein’s invasion of Kuwait sparked a short recession. A decade later, a speculative bubble in tech stocks, known as the Dotcom Boom, pushed the U.S. into recession.
Residential real estate was at the heart of the last downturn, in which rampant speculation in housing, bad bets with over-leveraging by banks, and a massive increase in risky, so-called “subprime” lending pushed the world economy into a steep recession.
While some level of business failures and increased unemployment accompany every recession, their impact on the housing market is less predictable. According to the real estate data firm ATTOM, home prices have actually increased in three of the last five recessions.
However, that was not the case in the Great Recession of 2008, which was driven in large part by a bubble in home construction. Although the effect was not uniform across the country, prices cratered in many regions, dropping almost 14% nationwide.
Hawaii saw similar declines in 2009, according to data from the Honolulu Board of Realtors and the U.S. Federal Reserve. But that does not appear to be happening today, six months into the coronavirus recession.
Although activity in the housing market dropped precipitously in April, as regional economies across the United States locked-down, it has since rebounded.
John Connelley, principal broker with the local real estate firm Locations, said after an initial decline of 40%, there is now robust activity in the local housing market.
“We are getting multiple offers, sometimes more than 20 offers for a new listing,” Connelley said in a phone interview.
The combination of rock-bottom interest rates, and Hawaii’s long-running lack of supply, have created stiff competition in the local housing market. The median price of a single-family home on Oahu was just shy of $840,000 in August, a 6% increase from the same time last year.
However, it is a different story in the market for condos, which Connelley says has experienced greater headwinds.
“Single-family homes have had a much more robust recovery than condominiums have,” he noted.
There are a few reasons for that trend. With work-from-home and remote learning, people are spending much more time at home, and are thus looking for more space.
Multiple county governments in Hawaii have also enacted tougher restrictions on short-term rentals in recent years, which Connelley says have made condos less appealing as investment properties.
However, there is also a deeper reason for the divergence between condos and houses that relates to who has lost their job.
This recession has overwhelmingly hit low-wage earners in the service industry. Those are the people for whom an $800,000 house was never an option, but they may have been able to afford the down payment on a condo.
“Those people who have been impacted most by job layoffs were people who might have been in the condominium market,” Connelley explained.
Data from the Honolulu Board of Realtors data show that condo sales in August are down 20 percent compared to the same time last year, although there does not yet appear to be downward pressure on prices.
Residents who already own property are well-positioned to take advantage of the surge in demand, while first-time buyers will benefit from the ultra-low cost of borrowing. However, that excludes a large swath of the population.
Renters make up roughly 40% of the state population, giving Hawaii one of the lowest rates of home ownership in the country.
The state’s renters had been doing relatively well during the previous expansion. Local eviction rates had been low for the past several years, according to Phillip Garboden, professor in affordable housing at the University of Hawaii, who spoke at a recent webinar for the Hawaii Economic Association.
Although he cautioned that good data on evictions is hard to come by, Garboden said Hawaii’s low eviction rate was likely due to the previously strong economy, which at one point featured the lowest statewide unemployment rate in the country at around 2%.
However, he cautioned that will not be the case for much longer.
“We’re about to enter a radically different period in terms of housing stability,” Garboden stated.
“There will be households for the next two, three years that aren’t receiving any income.”
His prescription for those unemployed renters is long-term income support, or at the very least, protection from eviction. The federal government has currently ordered a moratorium on evictions through December 31st, although recent reports found that evictions have still been continuing locally.
The problem will be exacerbated by a potential loss of supply. There will be pressure for the owners of older, cheaper, rental houses to sell while the market is hot, further restricting the supply of lower-cost housing.
In his talk, Garboden noted that many landlords and owners will likely prefer to cash-out, rather than invest in renovating older properties.