Government and Housing
Price of Paradise · Hawaii Public Radio · aired 1993-12-18
Guests: Kent Keith (President, Chaminade University; former Director, Hawaii Department of Planning and Economic Development); Nick Ordway (Professor, University of Hawaii; Director, Hawaii Real Estate Research and Education Center)
Duration: 0:30:36

[00:00:00] Randall Roth: My guest this week are Kent Keith, who currently is president of Shamanard University and previously was the director of the State Department of Planning and Economic Development. And Nick Ordway, UH professor of business, who also is director of the Hawaii Real Estate Research and Education Center at the University of Hawaii. Kent and Nick are here to talk about land and housing and all sorts of related issues. Nick, why is land so expensive in Hawaii?
[00:00:29] Kent Keith: Land is expensive because we don't have enough of it and people want it and government won't give us permission to develop it. Uh, there are a lot of people who want to come to Hawaii and they're going to have to pay a price.
[00:00:45] Randall Roth: You say government doesn't want to give us permission to use it. Why?
[00:00:50] Kent Keith: Government gets power from creating a system where people have to pay, uh, money for fundraisers. Uh, they have to go through hoops so that the bureaucrats can remain employed. Uh, there are a lot of reasons. Uh, we did a study at the center and found out that it takes up to 20 years to get permission to develop a subdivision here in Hawaii. And Dallas, Texas, you can get permission overnight.
[00:01:24] Randall Roth: Kent, you're a former bureaucrat. Is that what was motivating you?
[00:01:28] Nick Ordway: Well, I think that um, sure, everybody wants to be important and the center of attention. And if you're somebody who is a regulator and has to make an important decision, then uh perhaps the longer it takes you to make it, the longer you're important. But, um I think that there are some some real conflicting signals that government officials have gotten from the public here in Hawaii. I think that uh a lot of people really are worried about urbanization and development. Um, and even on an issue as important as housing, you you find the public split over, do they want agg, do they want housing? How do you manage that trade-off? So, I think that uh to some extent, the uh the public has not been clear as to what it wants the choices to be and what it wants its government to do. Um, I would disagree with Nick a little bit. I my main point I think is that uh there really is a lot of land. And uh on another level, Nick and I agree and that is, uh if there is, how do we get it into the right uses in the right way? And we certainly aren't getting enough out there for uses in such as building housing.
[00:02:24] Randall Roth: Now, what do you mean there's a there's a lot of land? Uh, aren't we kind of crowded now?
[00:02:28] Nick Ordway: Yeah, you know, that's our our daily life, isn't it? We we live and work in the urban district, but the uh the urban district is only one of four in the state land use classification system and it's only 4.3% of all the land. We actually have 47.7% in agriculture, which is almost all open space, and 47.7% in conservation, which is almost all open space, although a lot of that is mountaintops. So, really very little uh of our land right now is urbanized, but that's where you and I live, that's where our offices are, that's where the traffic jams are.
[00:02:58] Kent Keith: Yeah, but do we really want to uh develop uh all of this open space?
[00:03:03] Nick Ordway: Well, you know, we have for example in housing, a tremendous pent up demand. Um, one estimate is that there's a demand for more than 25,000 households right now. Um, if you were to to make some assumptions, you know, like how many houses of what kind can you build per acre? Let's say that you build uh five or six uh single-family homes per acre or, you know, 10 or 15 multi-family units per acre and then you look at that pent-up demand, um you can you can build that out with only 3600 acres. I mean you can meet today's demand and that's like 3/10 of 1% of all the land in the state. Uh there really is land, plenty of land to do the things we need to do.
[00:03:42] Randall Roth: But if you do that uh here in in the urban area, then we've got worst traffic and and more demands on water and sewer and all that sort of thing, and if you do it uh some place on the big island where there aren't any jobs, uh who's going to live there?
[00:03:56] Nick Ordway: Well, I think that um any of the things we talk about today can be done well or badly. I found that a bad idea can be done well and a good idea can be done badly. Um but there are a tremendous number of good ideas in terms of planning communities uh so that they are complete, so that the infrastructure makes sense, that they include not only residences, but commercial centers and and job centers, and I think that the whole uh philosophy and plan for Eva and Kapolei has to do with that kind of a concept. Uh it can work.
[00:04:25] Randall Roth: Kent, would you agree with Nick that that the primary reason that land cost so much in Hawaii and and presumably that means the primary reason why housing is so expensive in Hawaii is government regulation, the way government is regulating land use right now?
[00:04:39] Nick Ordway: I think that's a a huge factor because that's where I see the real limit. Not the fact that we have only 4.1 million acres in the state, but the fact that that government is very slowly parceling out the land in small units decision by decision in a very complex regulatory process. So it's an artificial shortage.
[00:04:55] Randall Roth: What about the fact that we've got so few land owners? We've got uh the estates, for example, Bishop estate or Campbell estate or what have you, that own so much of the land. Isn't that a factor?
[00:05:04] Nick Ordway: Well, I think it is because um we're very unique in the the percentage of land owned in the state by by only a few uh major owners. Uh and to some extent, I'm sure they want to maintain their land values and wouldn't want to dilute it by by suddenly putting a whole lot of of land on the market. Um but even the major land owners, uh who want to build homes uh at a more rapid rate are being held back. I for example the Mililani development, which was conceptualized in the early 60s as a 3500 acre master-planned community complete with all the infrastructure, places for schools, the whole thing. Um Castle & Cooke, a major land owner, has only been able to get approval 50-60 acres at a time and it's just being stretched out over over decades and a major factor is the government will not move any faster.
[00:05:48] Kent Keith: I I think uh government adds 35% to 50% to the cost of developing a home here on Oahu.
[00:05:57] Randall Roth: So a house that currently is costing the consumer $300,000 or $400,000 could be available for $150 to $200,000 if government would um change the way it's regulating land use?
[00:06:08] Kent Keith: Easily, it could be available for 125,000.
[00:06:12] Randall Roth: Boy, that's a big difference.
[00:06:13] Kent Keith: It's a big difference.
[00:06:14] Randall Roth: Uh is that affordable? We hear that word affordable housing a great deal. Is that affordable now, Nick?
[00:06:19] Kent Keith: Well, it might be affordable to a president of a university. 125,000 125,000 is still awful expensive for a college professor.
[00:06:29] Randall Roth: What is government's role in providing affordable housing?
[00:06:34] Kent Keith: It seems to be to obstruct the ability of the private sector to develop it.
[00:06:39] Randall Roth: You're talking about what's happening in Hawaii.
[00:06:41] Kent Keith: That's so what the role seems to be as I see it.
[00:06:44] Nick Ordway: Let me give you a little different response. I think government has uh planning responsibility. I think government ought to look at the entire society, all of its needs, its land, its resources, and say there's things that make sense to the government that should be done here, and things that make sense that should be done there, and there should be some guidance. I I would argue that can be done quite well to the county level and we don't need a land use commission to do it. Uh, the next thing government can do is actually do what government used to do. I mean, they used to actually build roads and and install infrastructure at the expense of the public because it was a public service. Um, the third thing I think is that there are legitimate ways for government to intervene in the free market economy with tax incentives or other mechanisms to call attention to the opportunity and to stimulate the private sector to to invest and to make things happen.
[00:07:30] Randall Roth: If I heard correctly, you said to get rid of the land use commission was one of those steps?
[00:07:34] Nick Ordway: Well, I think the land use commission played a really uh useful and important role for a couple of decades, but I don't really see the need for it now. Um let me give you a couple of examples. We found in uh we did some informal research in the middle uh 80s. Uh we looked at 1963 to 83. Those are the first 20 years of the land use commission's existence. And this was when you were with Dbed? Yeah, when I was in the government and we um we found that half of all the cases that went before the commission were for 15 acres or less. And the justification for a state land use commission really ought to be some compelling or important state interest in the decisions that are being made. We didn't think 15 acres or less unless it was really environmentally sensitive acreage really was justified and we were able in working with the community and the legislature in changing the law so that anything in ag, urban or rural no longer had to go to the land use commission.
[00:08:21] Randall Roth: And so you you just changed that.
[00:08:23] Nick Ordway: That was changed in '85. Uh the other thing we found out was that in '80 in 85% of the cases, the land use commission and the counties agreed. And in only 8% of the cases did the uh county uh not want something that the land use commission would have allowed, which left only 7% in which the land use commission stopped something that the counties wanted. So you could say in only 7% of the cases did the land use commission make a difference.
[00:08:48] Randall Roth: Yeah, but 100% of the time it slowed things down and added to the cost.
[00:08:50] Nick Ordway: Exactly, added a lot of cost.
[00:08:52] Randall Roth: You're listening to the Price of Paradise Radio Show. I'm Randy Roth and my guests this week are Kent Keith, current president of Shamanard University and former director of Dbed, and Nick Ordway, professor of business and director of the Hawaii Real Estate Research and Education Center at the University of Hawaii. Nick, whatever happened to the state program from a few years back? I think it was called the 60/40 program where the the state was dictating how 60% of of certain housing units would be priced. What happened to that program?
[00:09:20] Kent Keith: What happened is that people started to realize that it didn't work. As government put new restrictions on the private sector, it caused house prices to actually increase in the category called market houses. Uh so, uh there has been kind of a subtle change and a softening of this uh plan. But the plan basically said that you in any uh large subdivision would have to sell 60% of the houses at quote affordable prices. And then you would make up the loss which was about $75,000 per house by adding that to 40% of the houses that were called market houses. So a market house that might cost $200,000 to construct had to be sold for uh $450 to $525,000 to make up the loss.
[00:10:15] Randall Roth: So it was in effect shifting wealth from the people who were buying the market priced houses to the other people?
[00:10:20] Kent Keith: That's correct.
[00:10:21] Randall Roth: And they've abandoned that?
[00:10:23] Kent Keith: They haven't abandoned it. Uh they have softened it. It's still on the books uh but they now have new ways of um creating incentives. For example, if you buy if you build rental housing, then it softens your requirement to uh build affordable houses.
[00:10:41] Randall Roth: Kent, is is this a good thing that the government is doing, uh either dictating how many units will be priced below market or dictating other decisions that in many other jurisdictions would be decided by the private sector?
[00:10:53] Nick Ordway: Well, no, I don't agree with that. I think that um government has shifted from trying to support and encourage and make the right things happen to to trying to dictate that certain things will happen and I don't think that it that it works. I don't think it's working in this case.
[00:11:06] Randall Roth: It seems a little bit odd to me too that this affordable housing program is directed toward the middle class. In in most places, isn't affordable housing programs directed more to people who can't afford housing at all as opposed to people who can't afford to own a home?
[00:11:20] Nick Ordway: That's right, and for example, those who simply could not qualify for a mortgage and couldn't participate in a regular uh market program.
[00:11:27] Randall Roth: Um Nick, any thoughts on on how government should be approaching this?
[00:11:32] Kent Keith: Government would be well advised to implement uh the housing policy study uh that was done uh may uh reported in May of 1993 by the Housing Consortium. The Housing Consortium consisted of all four county governments, uh state government and uh several uh developers and they hammered out a number of concessions and policy statements that would call for streamlining of the permitting process, the funding of infrastructure through uh sources outside of the house itself and a lot of ideas that uh are really good ideas and if they were implemented, they could really help solve some of the serious aspects of our housing problem here.
[00:12:21] Randall Roth: So there's a good plan in writing, what's the next step?
[00:12:25] Kent Keith: They need to implement it. We have [unintelligible — audio glitch] they is government, uh the private sector, uh everybody who's involved in policy making in the state. But we have a lot of plans uh that uh are in the Hamilton Library and that's one reason that our library is so overcrowded.
[00:12:45] Randall Roth: Kent, is is there some good reason why uh these policy recommendations wouldn't be followed?
[00:12:53] Nick Ordway: Well, I think that we um we're in a period in our our state's history where some of the uh the policy directions that that we really need uh at all levels of government are are our our are are fuzzy, they're they're hazy and uh to build the right kind of coalition to to get the the right kind of solutions in place is an awful lot of hard work. And uh I think that this is a good partnership offering from people who know a whole lot about housing and what will work, and uh to to share that, to to gain support for that, to go through the political process and make it work is a a whole lot of effort and certainly worthwhile.
[00:13:28] Randall Roth: Are there people who don't want housing prices to come down? They don't want housing to be affordable because they don't want everybody from California or wherever to be moving here or they don't want to lose the equity in their own home, or is that not a factor in this political process, Kent?
[00:13:43] Nick Ordway: Oh, I think that is a factor. I think uh there's a little bit of the uh, you know, pull up the anchor, I'm aboard uh factor, when somebody who has a home doesn't want homes built nearby, that's more cars on the road, more traffic in the morning when they go to work. And that goes back to an earlier statement I made that the the political process does get conflicting signals.
[00:14:01] Randall Roth: Nick, the the underlying thought so far as this policy study is concerned, is it uh pro-growth or is it trying to hold growth down, or you know, if if someone were being critical of this, would they say that it's not sensitive to the environment, how would they uh attack it?
[00:14:18] Kent Keith: Uh they could attack it but by not reading the study and then attacking it, the way some things often are done here. But but growth is not really uh addressed directly because uh we have uh mechanisms in place to keep growth from happening. Uh in the 1970s our state grew by 25%, in the 1980s it grew by 15%. Uh looks like now we may if we're lucky, grow 7% in this coming decade. Uh high prices are excluding people. Kids that go to the mainland for college, 75% of them stay on the mainland, never come back. 46% of people who are uh known uh who designate themselves as native Hawaiians on the last census, do not live in Hawaii.
[00:15:11] Randall Roth: Kent, you wrote a chapter for the Price of Paradise Volume 2 where you talk about Hawaii is being under-preserved. Right. What do you mean?
[00:15:19] Nick Ordway: Well, I I've I've said that I think there's plenty of land to do what we need to do. Uh that doesn't mean I'm not worried about land use. I I really am and my my recommendation is that at the state level, uh we really focus not on on a defensive regulatory posture but on a real positive aggressive posture of going out and identifying what the public needs, um and what land would be best to to meet those needs. And I mean aesthetic values, environmental values, uh I mean school sites, recreation, uh beach parks, all the things that the public values, we got to go out and identify it and the government ought to acquire it, ought to ought to buy it out right, ought to exchange land for it, ought to buy development rights, so that we can be assured over time that that enough of Hawaii will still be Hawaii and we we will not be filled with as much fear about urbanization.
[00:16:04] Randall Roth: Have we not done a particularly good job preserving Hawaii in the past?
[00:16:08] Nick Ordway: Well, I think some good things have been done. I think the state and the Board of Land and Natural Resources has has consistently tried to do this and has worked with other groups like the Nature Conservancy to do this. But sure, there are places that should have been public uh rather than uh than uh sold to a private developer. There are controversies that really shouldn't have been necessary like Sandy Beach. If people really want that for public use, the public should buy it.
[00:16:32] Randall Roth: Nick, what do you think? Are we under-preserved?
[00:16:36] Kent Keith: I I think uh we are deteriorating and we need to preserve ourselves more. So, yes, we're definitely under-preserved.
[00:16:48] Randall Roth: You're listening to the Price of Paradise Radio Show. I'm Randy Roth and my guest this week are Kent Keith, current president of Shamanard University and former director of Dbed, Nick Ordway, professor of business and director of the Hawaii Real Estate Research and Education Center at the University of Hawaii. Uh Nick, what about speculators? Aren't they a a major reason why housing is so expensive in Hawaii? Shouldn't we do something about speculators?
[00:17:15] Kent Keith: Speculators uh were very responsible for prices increasing uh by 140% from roughly 1987 through 1990. Uh these speculators consisted of investors from offshore markets and local speculators. Uh when the late Professor Don Bell and I appraised the most expensive house in Hawaii in 1984, uh we determined that that house which was the late Doris Duke's house was worth about three and a half million dollars. Uh Chris Hammeter during the height of the bubble put one of his houses up for sale for $70 million. Uh that is way beyond the cost of producing that house. Uh those kind of decisions led to a serious, serious increase in the affordability problem. And uh uh speculators can uh be regulated by a proper taxing system.
[00:18:16] Randall Roth: Any thoughts on that, Kent?
[00:18:18] Nick Ordway: No, I think it it again it it cuts both ways that that there are people who benefited by the speculation and people who who've lost and both of those signals get into the political process.
[00:18:28] Randall Roth: Rent control. Are we going to see it? And if so, uh when, Nick?
[00:18:33] Kent Keith: Whenever we want to destroy Hawaii, we should pass rent control.
[00:18:38] Randall Roth: Now, why would rent control destroy Hawaii?
[00:18:42] Kent Keith: Uh what you need to do is take a look at New York City where uh rent control has been in full sway and you will go through parts of New York City that look like they were bombed by the Germans in World War II. Uh a gentleman by the name of Star did a study
[00:19:00] Randall Roth: the New York rent control system, and he said it was worse than a nuclear attack. Uh, this is a serious, serious problem. Uh, if rent control passes in Honolulu, I estimated that values will drop by, get this, over $10 billion.
[00:19:17] Kent Keith: $10 billion.
[00:19:19] Randall Roth: $10 billion. That's a B.
[00:19:21] Kent Keith: What about Hawaiian homelands? I know you made a controversial recommendation on that in your chapter. Can you tell us about it?
[00:19:28] Randall Roth: I think that land should be distributed to uh Native Hawaiians, so they do not have to die on waiting lists. Uh, get out of their way, pass the sovereignty movement, uh and let them develop their land at their own uh initiative, and government needs to basically give back uh the land in a second Great Mahale.
[00:19:54] Kent Keith: Kent, why wouldn't we do that? Or why wouldn't somebody else. Yeah, I I think that uh, it doesn't make sense to anybody that the land isn't actually going to the purposes for which it was it was designed.
[00:20:08] Randall Roth: Um, my understanding is that some of the land that's that's being distributed is not especially appropriate for agriculture, and there may be some issues as to, you know, its value in in and whether we're really helping by distributing that kind of land, but no, I don't think anybody's come up with any reasons for uh for dragging this out [unintelligible — audio glitch] not distributing the land.
[00:20:27] Kent Keith: In uh in their chapter in in volume two, Pete Garrett and Bruce Plush talk about all the land that's already come out of sugar and pineapple production. And uh it's a tremendous amount of land. They talk about a strip uh two football fields wide that would run from Honolulu to to um San Francisco. Uh that that much has already come out. And they go on to say that diversified agriculture can't begin to take up the slack even if the land were available for free, uh to be used in diversified agriculture, it wouldn't begin to take up all the slack, assuming they're right. What's going to happen to all of that land?
[00:21:00] Randall Roth: Kent, very little. And and this is a real dilemma for us. Virtually anything will grow in Hawaii. It's really tantalizing, and 75 years of wonderful research have been done on on dozens and dozens of different crops that can grow well here. Uh, but of the 1.9 million acres in AG right now, only 226,000 is planted. A very small percentage is actually being used. Um, you you can satisfy the local market with only a few thousand acres. I mean, in terms of vegetables and fruits and and that sort of thing.
[00:21:27] Randall Roth: So you have to have a major export crop and we just have not been able to hit a magic item like sugar that would take up that much acreage. So I don't really see a future for, you know, grazing or open spaces is all that that I can imagine.
[00:21:40] Kent Keith: Nick, are we going to be the grazing capital of the world?
[00:21:44] Randall Roth: It may be too expensive uh to plant grass on some of our land.
[00:21:49] Kent Keith: So it may simply lie fallow.
[00:21:51] Randall Roth: Exactly.
[00:21:53] Kent Keith: What are some really great ideas? Let's pretend Governor Wahi called right now, and he said, Nick and Kent, I need some advice. I want to do the right thing with respect to to land use. Nick, what advice would you give the governor?
[00:22:06] Randall Roth: I would tell him to definitely call Kent. I tell him to call Nick.
[00:22:11] Kent Keith: Now wait a minute. Kent's the former politician, not you. Or bureaucrat.
[00:22:15] Randall Roth: No, I I feel very strongly and I I feel very focused. When I concluded my years in government, the the thing that I most wished that I could be part of in the future is the process of of identifying the public's long-term future needs and systematically identifying the lands to support that and acquiring them and salting them away or land banking them or making it making it certain that they'd be available in the future.
[00:22:36] Kent Keith: Nick, what can people in the community do to better understand uh land issues, housing issues, and once they've gained that understanding, how can they get actively involved in bringing about what for them would be positive change?
[00:22:51] Randall Roth: I think uh the best way to become informed is to read the newspaper daily to realize what kind of political situation we really have. And uh these individuals should talk to as many different people as possible, uh listen to shows like this, and for sure, Randy, and I know you'll love this, read both Price of Paradise books.
[00:23:19] Kent Keith: Uh, good job, Nick. Uh, Kent, have you, just $20, you know. Uh, Kent, have you read the book Land and Power in Hawaii? Oh, I've only read parts of it.
[00:23:28] Randall Roth: Uh, I've yet to find someone who's read the whole thing, but it's a slow read.
[00:23:31] Kent Keith: It's a slow read. Um, is there a message in there?
[00:23:34] Randall Roth: Sure. Sure. There there was a period of intense and almost absolute idealism in Hawaii with the Democratic Revolution of '54 and so forth. And then there was a period when when a lot of goals were achieved and people began, you know, taking advantage of the system, whether it was legal, illegal, moral, or moral. They they took advantage. And um I think that that we need to get refocused on some major policies that will excite enough people. We'll really have the coalition that we need to get it done. How do we get refocused?
[00:24:02] Kent Keith: Um, it really is a person by person. It really means people going to the legislature. It means people lobbying. It means people writing letters and making calls and, and really turning out. Because [unintelligible — audio glitch] it means, it means being a real democracy.
[00:24:14] Randall Roth: Has to be grassroots.
[00:24:16] Kent Keith: Sure does. It was back in '54.
[00:24:18] Randall Roth: Makes sense to you, Nick?
[00:24:19] Nick Ordway: Makes sense to me.
[00:24:21] Randall Roth: Thank you, guys. My guest this week were Kent Keith, president of Chaminade University, and Nick Ordway, director of the Real Estate Research and Education Center at the University of Hawaii. This week's show was produced by Jill Senner with technical assistance from Mark Wagner. You've been listening to the Price of Paradise Radio show. I'm Randy Roth. Aloha. This program is produced by the Consortium of Price of Paradise authors in cooperation with Hawaii Public Radio. The Price of Paradise is a best-selling book that has become a must-read for every concerned citizen of Hawaii. A sequel, Price of Paradise, Volume Two has quickly become another bestseller after recently arriving in Oahu bookstores.
[00:25:07] Randall Roth: Please tune in next week when Randal Roth, a special guest and one of his 65 co-authors from the two Price of Paradise books, will take on another question of importance to listeners in Hawaii. Cassette copies of this program are available from Hawaii Public Radio for $10 by calling 955-8821.