State lawmakers are looking for ways to generate more state revenue by taxing foreign real estate investors. But, as HPR’s Wayne Yoshioka reports, local economists don’t recommend that as a viable course of action.
Housing prices in Hawai’i have been higher than the mainland for more than 60 years …driven by limited land, a small market and regulatory constraints. That, according to Economics Professor, Carl Bonham, who is also executive director of the U-H Economic Research Organization, UHERO.
“This is census data that shows the ratio of Hawai’i to U.S. owner-occupied home values. So Hawai’i’s home prices in 1950 were about one-and-three-quarters times the national average. By 1990 they were over 3 times the national average. And in 2015, they were still almost 3 times the national average. So really we’re not talking about something that’s new.”
State Economist, Eugene Tian, says a short housing supply and strong demand drive up prices. But he says most purchases since 2008 were made by local residents.
“We have 73.2 percent of the homes sold to local residents. If you add this data about 26 percent sold to out-of-state. You can see that Maui leading the trend with over half of the homes sold to out-of-state residents. That’s followed by Kaua’i County and Big Island. O’ahu has about 11.3 percent to the mainland and 3.8 percent to foreign residents.”
Tian says foreigners make up an average four percent of owners statewide. But state lawmakers have a number of bills this session to tax off-shore real estate investors as a way to increase state revenue. U-H Manoa Economics Professor Emeritus, James Mak, says British Columbia enacted legislation last summer to lower demand and lower prices for the city of Vancouver.
“If you were to buy a house in Vancouver for one million dollars - you’re a foreigner – the tax on that is 150-thousand dollars, 15 percent. On top of that, the Provincial Government also levied a 15 percent property transfer tax on foreign purchases of residential housing. Together, that’s 300-thousand dollars.”
Mak says the average home price in Vancouver is over 2 million dollars. Economist Paul Brewbaker says government tinkering on the supply side of housing by requiring developers to provide below market units will also backfire. He says lawmakers should promote building more multi-family dwellings statewide.
“Think of Mo’ili’ili; think of Beretania-King Street; two story walk-up; its gotta be six. It really is primarily about urban living, even when we’re talking about the neighbor islands. On Maui it’s a huge issue because the best place to do that is right next to the Pu’unene Mill where the plantation just shut down. You tell me why I shouldn’t build six-story, four-story affordable condos along Dairy Road. And that’s gonna be a huge battle in a jurisdiction like that. That’s the challenge we face.”
According to the Department of Business, Economic Development and Tourism, Hawai’i’s combined annual family formations and one percent growth rate, creates a demand for 65-hundred housing units each year. But, less than half that amount is being built statewide. Wayne Yoshioka, HPR News.