New UHERO report nails it on housing

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By Keli’i Akina

There’s no getting around the basic rules of economics.

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For years, I have been saying that the housing crisis is exacerbated by regulatory roadblocks at the municipal, county and state levels. Delays, zoning rules and a long pathway to approval make homebuilding difficult and expensive.

In essence, Hawaii’s lack of affordable housing is an issue of supply and demand: the slow growth of housing creates limited supply, driving up the price.

Now, a new report from UHERO, the Economic Research Organization at the University of Hawaii, has confirmed that regulation is one of the primary reasons for the high cost of housing in our state. Released this week, “Measuring the Burden of Housing Regulation in Hawaii” is an attempt to gauge the regulatory barriers to development in Hawaii relative to those in other states across the U.S. with high housing costs.

Keli’i Akina

UHERO used the Wharton Residential Land Use Regulatory Index, which surveys public officials about local regulation that affects the building of new homes. To get some idea of how Hawaii’s regulatory barriers compare to others in the U.S., UHERO submitted the survey to Hawaii’s county planning departments.

The survey asked how much different parties, such as local government, the community and the state, are involved in the regulatory process. It inquired about rules regulating the housing market, such as zoning restrictions and average approval time. And it asked about the outcomes of such restrictions.

Of the 30 counties in the U.S. with the highest median home values, Hawaii had four of the highest overall index scores — that is, the highest levels of regulation. Hawaii County had the highest regulation score in the U.S., with Maui, Kauai and Honolulu scoring in the top 10.

By state, Hawaii’s regulatory burden dwarfs all other states, outstripping runners-up New Jersey, Maryland, Rhode Island and California.

One of the reasons for the high index score is Hawaii’s strict regulation in the categories of court involvement, state political involvement and local political pressure.

The report notes that, “Because developments often require county council approval and may involve pressure from various stakeholders, projects can be rejected because of a perceived lack of community support, even if the project could hold significant benefits for future residents of the community or for the larger housing market.”

Given that the approval process in Hawaii can be a labyrinthine endeavor involving local challenges, county input and even review by the state Land Use Commission, it’s no surprise that Hawaii scored especially poorly in the categories measuring political obstacles to development. But the state also did badly in the categories that looked at zoning and other regulations.

As president of the Grassroot Institute of Hawaii, I have frequently warned against regulations requiring developers to offer a set percentage of units at below-market rates for purchase. This policy, known as inclusionary zoning, tends to discourage development by making it unprofitable. The UHERO report singled out Hawaii’s inclusionary zoning requirements as a significant barrier to growth:

“[E]ven compared to highly regulated markets, Hawaii counties stand out for pervasiveness of affordable housing requirements. Affordable housing requirements reduce the revenue generated by new projects, reducing the incentive to produce new housing.”

Hawaii’s notoriously slow approval process also came in for criticism. As the report noted:

“The average length of delay in Hawaii is more than three times the sample mean. Approval delays across the counties in the state range from about 14 months in Hawaii county to 18 months in Kauai county. Extreme delays in permitting will generate significant costs and uncertainty for developers, creating a disincentive for new projects.”

One could argue that the regulatory barriers to development do not necessarily cause higher housing costs, but the data suggests a strong correlation between a high Wharton Index score and high home prices. In fact, the study found that every 1 point increase in the Wharton Index translates to an 8% increase in housing prices.

The UHERO report acknowledged that other studies of national-level data suggest that this is a case of causation, not mere correlation.

In other words, high government regulation causes higher home prices.

UHERO’s recommendation echoes the suggestions of nearly every rigorous study of housing regulation and cost: Reduce regulatory barriers and streamline development in order to increase the housing supply and lower prices.

Those who have read the Grassroot Institute’s work on “light touch” density and the Tokyo model will recognize the report’s similar suggestion that counties allow more “as of right” or “by right” development — which means that if a building proposal meets all zoning and land-use requirements, it should be allows to proceed without any need for special permits, variances or other discretionary approvals.

The UHERO study even counters the argument that reducing regulation is a “handout” for developers, pointing out that regulation is often an anti-competitive strategy.

“It is important to recognize that large property development firms are able to extract profits because of onerous regulation, not in spite of it,” it says. “Because navigating Hawaii’s regulatory bureaucracy requires teams of public liaisons, lawyers and lobbyists, only large, established firms can afford to attempt multifamily development. The reduction or elimination of regulatory barriers would increase competitiveness in the market for housing development, allowing smaller firms to provide more housing through as-of-right development.”

While there may not be many surprises in the UHERO report for those who have avidly followed the Grassroot Institute’s work on the housing crisis, it is encouraging to see the growing support for light-touch density and zoning reform.

The data makes it clear that regulation and government interference, no matter how well intentioned, are contributing to the housing crisis. Let’s work together to reduce those barriers and make Hawaii housing more affordable.

Keli’i Akina is president and CEO of the Grassroot Institute of Hawaii.

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