Will the Kaka‘ako Condo Boom Ease Honolulu’s Housing Crisis?
With plans for new towers on hold (and a splashy luxury condo scratched), experts are arguing if we’re in a lull or a bust. Either puts an end to the idea that Kaka‘ako would lead to a housing solution. A closer look at O‘ahu’s most intractable issue.
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Photos: Aaron Yoshino
We’ve gotten so used to the cranes doing their dip-and-peck dance in Kaka‘ako, dominating our skyline and the conversation, that it comes as a bit of a shock now that the dust is settling. After all the fuss, the new towers have barely made a dent in Honolulu’s acute housing shortage. Surely, after so many units built (3,971, including those under construction), we should be seeing some relief by now. But no. Instead, rents are up and housing prices are setting records every month. What happened?
We’ve actually lost ground, given that Hawai‘i needs about 5,200 new units a year, according to state economist Eugene Tian. But, in 2015, the number of units completed sank to a low not seen since 1947; the state granted just 800 permits in 2014, also a low. Finally, while we’re certainly grateful for the 1,865 units set aside in Kaka‘ako as affordable or “reserved,” the latter’s income levels seemed unrealistic, favoring the better off, considering the all-important reality of what the average resident can afford.
Maybe we’ve let the new Kaka‘ako distract us—all the Howard Hughes towers and promise of “live, work, play,” the artists lofts, Kamehameha Schools’ industrial-chic SALT complex, movies on the lawn, ice skating, Pow! Wow! murals, and hipster food and drink offerings. Fun stuff. But Honolulu, O‘ahu and the state overall haven’t built housing to keep pace with a rising population, so we’ve been boxed in. And, while we love our ‘ohana, too much togetherness is beginning to wear on us. We’re being squeezed financially to pay the rent or the mortgage, or being squeezed into too little space with too many other people.
One effect of the shortage is predictable: The price of housing keeps going up and is staying up. Rentals, too, shot up more than 10 percent over the past two years. “I’ve seen a 30-percent appreciation in the better neighborhoods three years in a row,” says appraiser and real estate expert Stephany Sofos. “Everybody says we’re not in a bubble. We’re in a bubble.”
It may be hard on real estate developers when it pops, but the end of a bubble is usually a good thing for renters or buyers. But the moment we are in today seems different from, say, the 1980s or 2009. People in the know seem to be saying that the bubble will continue, but the construction of new units will end.
Why? Costs are in a bubble, too. And then there’s the paradise tax: “On the most isolated island in the world, everything needs to be imported,” says Stanford Carr, who started out a flooring contractor and now heads his own development company, which has built luxury housing from Hawai‘i Kai to Maui and the Big Island but has recently focused on Kaka‘ako, pulling off several complicated projects for low-income residents. “Our challenge here is the freight will cost more than the materials.”
“When you have a very hot construction market like you do now, the costs of your materials and equipment are too high,” explains Ryan Harada, principal at Downtown Capital LLC, developer Marshall Hung’s company. Downtown Capital specializes in workforce housing, not luxury units. “We were very fortunate to get into the market at the right time,” says Harada. “We completed our 801 South St. Building A in June of 2015, and we finish Building B in January of 2017. Our costs are locked in, so we’re still within the sweet spot.”
And then? “After that,” Harada says, “I don’t see the market doing much—there will be a lull for a few years. Especially the luxury market. These things go in cycles. Sometimes you go five, 10 years without anybody building. It all comes to a close in 2017.”
On the heels of a boom and a concurrent shortage in Hawai‘i housing, we can now expect future housing development to just dry up. Wait, what?
Future historians may note Jan. 16, 2016, as the day illusions of solving O‘ahu’s housing crisis anytime soon were laid to rest.
Eight months before, in May, developers started taking deposits on a luxury high-rise called Vida at 888 Ala Moana, with units priced from $1.8 to $3.3 million and amenities that included two pools, a gym, a yoga room, movie theaters and private dining rooms (with chefs), guest suites for visitors, play areas, storage areas, even a “tool workshop.”
Vida wasn’t the ritziest address in the strip that stretches along Ala Moana and Kaka‘ako—that honor goes to Park Lane and its $22-million to $28-million penthouses. But when buyers rushed in to grab 40 percent of its units in the month of May, the local condo market seemed certified golden for the next decade, with plans for up to 20 new high-rise towers on the books of major players like Howard Hughes and Kamehameha Schools. Brokers gushed: “Kaka‘ako will be Hawai‘i’s fastest growing and most exciting new market for some years to come,” tripling in size to 30,000 residents.
Vida’s developers, The MacNaughton Group and The Kobayashi Group, are credited with sparking the current boom—back in 2002 with Hokua, a luxury condo. The first high-rise in Kaka‘ako in more than 10 years, Hokua sold out 95 percent of its units before groundbreaking, at an average of $1.1 million each. By the time all 247 condos closed on a single day in 2006, a development dash was on.
The housing shortage was news back then, too, but even so there were heated battles over the Hawai‘i Community Development Authority’s greenlighting so many tall, view-blocking towers, especially while repurposing hip and funky Kaka‘ako at price points that seemed directed at offshore investors, not local residents. But the HCDA is an authority, not a democracy, and developers carried the day again and again. Various rationales were offered: The luxury condos would be offset by 20 percent affordable housing; millennials prefer cozier urban environments where they can skateboard to work. Mayor Kirk Caldwell even painted more high-rises as a means to “Keep the country country,” by preserving ag land from development. (North Shore activists cried foul.)
Then came Jan. 16, 2016, and the Vida announcement that it was returning deposits and would never be built. That there hadn’t been a single sale since May warranted a gulp and a fresh look at reports of stalled luxury condo sales and frozen condo resales. Locations executive vice president Scott Higashi had signaled concern nearly three months earlier: “Certainly at the high price points, from $1.7 million and up, the market is tight. I don’t think there are enough buyers in that marketplace to support the inventory, and it has slowed.” By January, Higashi had scaled back that $1.7 million to $1 million and up.
The boom was over. And yet Stephany Sofos was still seeing a boom. And so were others, as long as they weren’t looking in the Kaka‘ako-Ala Moana districts. What the heck was going on?
A tale of two markets, it seems. And, possibly, a core problem: We’ve been building for everyone but ourselves.