Solving Hawaiʻi’s housing crisis means building smart, not just more
An analysis of Maui’s housing stock demonstrates that, although Hawaiʻi is building more housing, we’re not building it at the prices that meet demand from local residents.
The Maui County Council recently commissioned a comprehensive five-year housing plan, which will be presented to the council members on Monday, July 19. One of the most important parts of the plan is assessing the gap between the type of housing that is being built versus the type that is actually needed to address the county’s affordable housing needs, and then proposing solutions to bridge that gap.
As part of the team that helped draft the housing plan, the Hawaiʻi Budget & Policy Center (HBPC) looked at what housing has been built in Maui over the past five years (2016–2020) and compared that to the kind of housing the most recent Hawaiʻi Housing Planning Study (2019) said would be needed over five years starting in 2020. Comparing supply to local demand should help guide future housing production.
Housing comes at different monthly rent and mortgage costs, so it’s important to not just keep track of how much housing was built, but at what price it was sold or rented. In other words, for whom was it affordable?
One of the most common measures of affordability lies in comparing housing costs to the level of household income needed to afford the home. For example, the federal Department of Housing and Urban Development (HUD) defines an affordable rent as 30 percent or less of a household’s income. A $2,000 apartment is therefore considered affordable to a household with at least $6,600 in total monthly income, or $79,200 a year.
However, just knowing that a house is affordable to a household earning roughly $80,000 a year still leaves out critical information. For example, if the household income is split between two adults earning $40,000, does that represent a higher or lower than average annual wage for the region? In Hawaiʻi County, $40,000 a year represents a higher than average wage, but on Oʻahu it’s a bit lower.
To compare housing affordability across years and locations, HUD uses the area median income (AMI) as a benchmark. It then measures affordability along a spectrum with 100 percent AMI being the median income. Last year on Maui, the household median income according to HUD was $97,500. So a couple earning $80,000 would be considered to be earning 82 percent of the area median income. A $2,000 per month apartment on Maui is therefore affordable at 80 percent AMI (using HUD’s 30 percent rule). By contrast, in Sandpoint, Idaho, where the median income is $61,500, a $2,000 per month apartment is only affordable to households earning 130 percent AMI.
Figure 1. Current Maui County Housing Supply vs Demand
Figure 1: To assess the affordability of housing being built in Maui, HBPC analyzed more than 3,300 homes either built or under construction between 2016 and 2020 and organized them by commonly used AMI categories. Then we compared the list to the demand, as reported in the 2019 Hawaiʻi Housing Planning Study.
Key Takeaways
The category of housing with the highest demand and the highest supply on Maui are homes that are affordable only at 140 percent AMI and above. This is generally considered “market rate” housing, or homes that are sold on the open market for the highest possible price. On Maui, this represents households earning at least $136,500 a year. Since the median wage on Maui is $44,117 per year, this means that most homes being built are not affordable to local residents. And yet, the demand for these homes exists, which reflects the fact that many are sold as second homes or investment properties.
In 2020, only 20 percent of the housing needs for local residents earning below 140 percent AMI was met. Housing built to be affordable at less than 140 percent AMI is not market rate; instead this kind of housing has restrictions on its price designed to make the housing more affordable to more people. Generally this requires some form of subsidy—either from government funding or from private developers—that provides below-market rate homes to meet affordable housing requirements.
The category of 30–60 percent AMI has more supply than other non-market rate categories due to the LIHTC program. This is the price range for government-subsidized rental housing through the Low-Income Housing Tax Credit (LIHTC) program. This program combines federal and state tax credits with state rental housing funds to create price controlled rental housing that must stay affordable for 60 years. All of the new affordable rental housing built in Hawaiʻi is funded through this program. Eligible households on Maui would have incomes of between $40,950 and $81,900 per year.
There is almost no housing being built in the 60–80 percent AMI price range. That’s because the pricing is above what that current Hawaiʻi LIHTC program will fund, but below what private market developers are required to provide. The household income range for this “missing middle” category is $81,900 to $109,200.
There is also a severe shortage of housing in the 0–30 percent AMI range. The housing demand study estimated that 1,700 homes are needed for households earning less than $40,950, while only 135 homes that fit this category were built over the past five years. That satisfied less than 4 percent of the demand. Unfortunately, this is predictable because housing at this price range requires the greatest amount of public subsidy. The homes that are being developed for this category are also a result of the LIHTC program, which requires that 5 percent of homes be built at this price range.
Another way to assess housing supply versus housing demand is to look at the percentage of homes being built at different AMI levels compared to the percentage that is needed. Imagine a factory that builds 1,000 1-bedroom homes and 1,000 2-bedroom homes, but the demand is for 2,000 1-bedroom homes and 4,000 2-bedroom homes. The factory not only needs to produce more homes, but it also needs to change the proportion of each type built to meet the demand.
Figure 2. Percentage of Maui County Housing Supply vs Demand
Figure 2. By looking at percentage built versus percentage needed we can see whether we are building homes in the right proportions. As this figure shows, we are clearly not.
Looking at the proportion of housing built that is built at market rate (140 percent AMI and higher) versus below-market shows two things:
Maui is building twice as much market priced housing (66 percent) as affordable housing (34 percent), even though there is a higher demand for below-market housing (54 percent of demand).
Adding more supply in the current model will continue to produce housing in the wrong proportions and fail to meet housing needs.
This means that, even as we build more homes, we are not satisfying local resident needs.
If our goal is to actually meet the need, we cannot simply build more housing in the same proportions as we do now. We need policy solutions that change whatʻs coming through the housing pipeline in addition to increasing supply.
From analyses of effective housing policy in cities and countries across the globe, it’s clear that the solution will require more government subsidy and intervention, not less. Solving the housing crisis will also require that we, as a community, start treating housing as, first and foremost, a basic necessity—a place to live—and not primarily as a means for investment and wealth-building.
