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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kaka‘ako rising: The view from an affordable tower, Halekauwila Place, looks out on the new urban Honolulu.
Photo: Aaron Yoshino
Scarcity drives demand, of course, and in the City and County of Honolulu we are short 25,847 units of housing, according to a 2014 Department of Business, Economic Development and Tourism study. This probably explains why rents went up 10 to 12 percent in 2012 to 2014 and why single-family-home prices, after a 23-percent hike from 2011 to 2014, have broken records, recently topping $700,000. It doesn’t explain why luxury condos are languishing.
“Low demand,” says Ricky Cassiday, a real estate consultant who has tended his own sales/price database since the 1980s. “Low demand, when everybody and their brother wants to live in Hawai‘i? Yes, but can they afford it? Can we? No.”
Developers shifted from building houses to condos in the late 1990s. Unlike the great condo boom of the 1970s and ’80s, which was local and utilitarian—no yoga rooms, no movie theaters and no requirement to supply two parking slots per unit—the new developments were not aimed at households making the area median income. In 2015 that was $86,900 for a family of four, which, with a 10-percent down payment, gets you a $336,000 mortgage.
There are no $300,000-to-$400,000 condos in Kaka‘ako, except for the subsidized, which are either affordable (for low-income people, or those making a reduced percentage of the AMI) or workforce (those making between 100 and 140 percent of the AMI). Also, that family of four could be going up against a single person, who can make up to $85,150 a year and still qualify. Without the costs of an ‘ohana, he could also enjoy higher odds of qualifying, since the more money a person nets over expenses, the easier it is to get mortgage approval and, also, to accumulate a down payment.
Right now, all this is moot given the cost bubble. “We could never afford to build our last affordable rental today,” says Stanford Carr. He’s talking about Halekauwila Place, with 204 units for renters making 60 percent of the AMI, or $40,000 for a single person and $57,000 for a family of four, which broke ground in January of 2013. “We need more of this kind of housing, we need thousands more,” says Carr.
But what we have are plenty of units with a starting price of $1 million.
When you add in the $1,000 a month maintenance fee that comes with a million-dollar condo, the odds of meeting someone from your high school in the yoga room fall faster than a 45-floor elevator.
So, not so local, these places.
Those who’d protested Manhattan-style urban development had been skeptical of the promise that the rising tide would float all boats. The tide was rolling, all right, right back out to sea. Vacancy rates for condos above 50 units in Honolulu (18 percent) are already three times that of single-family homes (5 percent), reflecting their use as vacation or part-time housing, according to DBEDT studies.
It raises the obvious question: Who are these other people? The ones buying them, and now, not buying?
“Hawai‘i is not just a local market anymore,” says Sofos. “It’s a global market. That’s what local people don’t understand. We’re an international hub.”
That may seem chaotic and weird—a déjà vu to the 1980s when billionaire Genshiro Kawamoto drove around Kāhala in limos packed with suitcases of cash. This time the cash-rich investors are Chinese, many real estate insiders will say flatly, before demanding anonymity.
The number of millionaires in China rose by 60 percent in 2013, according to a study by The Boston Consulting Group. But China also is a difficult place to hang onto your money. Bank interest is minimal, and land bubbles and scandals make owning or developing investment real estate hazardous to your health.
Ever since the mass exit of moneyed Chinese from Hong Kong in 1997, China has tightened restrictions on currency transfers. But the authorities haven’t limited buying or starting an overseas business, so there’s been an absolute gold rush (that favored phrase of real estate sections) of Chinese investment around the world, including the creation of entire cities from scratch in South Africa and Malaysia.
Maybe the $40 billion island “eco-city” north of Singapore has distracted them, but, in Hawai‘i title searches, only 15 Chinese buyers showed up in 2014 and 31 in 2015, compared to 11,000 buyers from the Mainland. It feels strange to find that the Chinese have bought so little Hawai‘i real estate. After all, China became the No. 1 international purchaser of real estate in the U.S. last year, according to the National Association of Realtors, spending $28.6 billion, an average of $831,000 per home.
At the same time, Google coughs up pages of local multilingual asset management services offering relocation services and even college admissions advice, including Choi International at Christie’s, Sotheby’s and, yes, The Trump Organization. To judge from the client testimonials on Asian specialist websites, Hawai‘i attracts gas and oil CEOs, doctor and nurse couples, food scientists, nuclear and self-identified “Facebook” engineers, who’ve all bought recently. In April, the Asian Real Estate Association’s Global+Luxury Summit at the Royal Hawaiian offered days of seminars (“Resorts and Second Homes,” “Battle of the Millionaire Agents,” “Home Sweet (Second) Home”), speakers on the latest geopolitical developments including Chinese currency restrictions, developer showcases (featuring executives from the Kobayashi Group, Howard Hughes and A&B Properties Inc.) and field trips to Honolulu and Maui properties.
All this real estate infrastructure for 31 sales doesn’t seem like an effective allocation of resources, does it? Unless it’s all being handled under the radar. Indeed, “There is a suspicion that they’re registering under a Hawai‘i resident LLC,” a limited liability corporation which can mask owner identities, says Sofos, “and buying apartments as a rental business.” As a sign of its concern about the abuse of LLCs, in 2016 the U.S. Treasury Department began requiring full transparency of all-cash real estate purchases above $1 million in Miami and $3 million in New York City.
Carr doesn’t see an influx, saying, “Ninety-eight percent of our buyers are local. We know by the zip code.” But then, luxury buyers are hardly going to be looking at the low-frills kind of development built by Carr, Hung and Peter Savio, another longtime developer who just opened Rycroft Terrace as an affordable for-sale condominium. Carr does see immigrants and visa holders, however. “Many foreign buyers out there are residents that have been buying existing units or moving up. They may be Chinese or Korean nationals, but they’ve been here for a long time.”
Nobody’s saying the Chinese shouldn’t be a part of the Hawai‘i market. The world’s largest economy is on our doorstep. “These people come in and they really do help the overall economy,” says Sofos. “They are consumers. They shop till they drop, they love the retail therapy and going to the restaurants—all the restaurants, not just the fine restaurants. You see them at Puka’s at Whole Foods, drinking coffee at Starbucks. They have the discretionary income to support the overall economy.
“I personally don’t mind them coming in, because they’re polite. They’re well meaning. And they’re clean—they don’t litter. Local people litter,” she says.
The Chinese do make regulators nervous. In March, Chinese insurer Anbang topped a bidding war with Marriott International over the Starwood Hotel & Resorts Worldwide chain. Had they not pulled their all-cash $14 billion offer at the last second, Anbang would’ve owned The Royal Hawaiian and the Sheraton Waikīkī hotels.
And so we ask: Are they really here, the condo buyers? Anecdotally, yes. But, despite all the shadowy theories, including the popular exercise of standing in front of a condo at night and counting how many units are dark, it’s difficult to say there’s proof. Except that all those condominiums do look awfully dark at night. And all those apartments are off the market for residents.