Kauai Woman Spring 2005

Housing CRUNCH

As home prices and rents skyrocket, Kauai’s leaders scramble to solve the crisis, but why are we in this mess in the first place?

By Pamela V. Brown

Of all the emotions, gnashing of teeth, finger-pointing, facts and figures involved in the affordable housing crisis on Kauai, there are only three essentials upon which there seems to be general agreement: that there is indeed a crisis, that “affordable” means different things to different people and that something needs to be done about it yesterday.

Politicians, administration employees, real estate agents, builders and private developers who spoke to Kauai Woman all view from different perspectives the road that led to Kauai’s current affordable housing crunch, each see different causes and different solutions, all of which feed upon each other.

What comes together as the whole picture is a small county that has been hit simultaneously with unprecedented demand – finally discovered as the jewel of the state it always was – at a time when low interest rates make larger mortgages easier to obtain and the volatile stock market makes real estate a more stable, attractive investment. A vibrant local economy fueled by a strong tourism industry tempts owners of rental properties to increase rents to whatever the market will bear. Add to that the jittery post 9/11 desire of mainland residents to go – often to move to – somewhere perceived as safe, warm, beautiful and that conveniently operates under American laws.

Stir in a large measure of lack of long-term planning, understanding and awareness of inevitable market and economic cycles and the very potent need for politicians to tell constituents what they want to hear in order to cement their re-election aspirations.

Blend all at high speed for several years and what do you get? We’re living it: high rents, higher home sales prices, depleted rental inventory, working couples and families priced out of the home ownership market, and having to double and triple up in houses built for single families.

Workforce Housing

Certainly there are programs in place to help people afford to rent or buy homes – most paid for with our federal tax dollars. But that adds a new wrinkle to Kauai’s housing dilemma. Home prices on Kauai have skyrocketed so high that the family income level the government uses in their “affordable” calculations, can no longer come close to purchasing a home on Kauai.

Case in point: the average home price on Kauai is $500,000. Assuming a couple has a modest monthly car loan payment, average monthly credit card payments and has somehow saved up $75,000 cash for the down payment and escrow closing costs, using typical current loan terms for a 30-year mortgage, they’d have a monthly mortgage payment of about $2,600. That’s assuming they could qualify for the mortgage in the first place, which would require an annual income of about $112,000. Not likely if both partners work in some of the jobs that keep the county operating, like police officers, firemen, teachers, automobile mechanics.

“We really need to refer to it as ‘workforce’ housing these days,” said County Councilman Jay Furfaro, who also served 18 months on the Planning Commission. “Over the last three years, housing costs have increased 26% per year. There’s no way that workforce salaries have increased by that percentage.”

Kauai Mayor Bryan Baptiste believes that the county can “create avenues for partnerships for the county and private sector,” he said. “I don’t think we can do it all on our own. But the buck stops with us.”

In retrospect, the time to plan for affordable housing is when there’s already a glut of it on the market, Baptiste said. That’s when contractors are available, prices are lower and the county could set the stage for when the cycle tightens up again. Unfortunately it’s a tough sell to convince the public – and private landlords – that that’s a good idea.

Baptiste, Councilwoman Joanne Yukimura and Senator Gary Hooser, among others, recalled the time about 10 years ago, when in the wake of Hurricane Iniki, the island economy tanked when tourism plummeted and the housing cycle was the opposite of where it is now.

Suddenly the number of available rentals exceeded demand, many units of which were owned and being rented to residents by the county. “The Housing Agency was accused by landlords of competing with them and cutting their rent,” Yukimura said.

“Our role is that we aren’t responsible for ensuring high rents for landlords,” said Yukimura, who served as Kauai mayor from 1988 to 1994. To the landlords who told the county not to build, “we should have told them, ‘OK if you don’t raise your rents if we get into a shortage.’ “ she said.

Have to look long range

Both government and the general public seem to behave in a reactionary fashion, Baptiste said. “It almost seems like you have to take the criticism to do things at the right time for what you predict to be future situations.” He’s not sure, had he been mayor during the housing glut, if he would have been able to convince the council to spend money on housing projects. “It depends on your persistence. It’s a very hard thing to do, in all honesty, to do things that people may not see there’s a need for,” he said. “You need a vision.”

Maybe it’s that vision that’s been missing.

“Decision makers have to look long range,” Yukimura said. “That’s our job and we don’t do that very well. We need to explain to the public and show them what happened in the past. What we have to recognize is that we go through these cycles. We could go to an affordable housing surplus in the next six months if we had an airline strike, terrorist attack or something to drop tourism here.”

But Ken Rainforth, executive on housing for the Kauai County Housing Agency, doesn’t think it’s that easy. “It’s easy to say now that you should always continue to build affordable housing even when you’re in a low cycle,” he said. “But the reality is the political will isn’t there. Even if they understand the principle, they’ve got to get re-elected.”

Rainforth, who has been the housing executive for six years and with the Housing Agency since 1979, said the answers lie in more socialist-type solutions, such as land trusts and government-supported non-profits operating rentals. But these kinds of programs eliminate big profits for sellers. “They’re programs where you can find a decent place to live,” but not money-makers for the owners, Rainforth said. “And that’s kind of a (mental) hurdle. That’s where I see our future – because of what our residents can afford.”

The good news is that the desperation of the situation has galled into action just about everyone on Kauai who can help. The mayor has no less than two groups examining the issue: a task force to try to get housing “in the ground” in the next two years, and an advisory committee to look at the processes involved in building affordable housing to make it easier and quicker.

In theory, speeding the process for affordable housing makes good sense, but some island developers worry what will happen to the process for the things they build to sell at market value. Those are the projects from which profits come to build affordable housing, which is normally a financial break-even proposition at best.

“We develop all kinds of products,” said Mike Furukawa, vice president of Grove Farm Company, Inc., explaining that commercial, industrial and market-value homes are what pays the bills. “If the review process just focuses on the affordable, the other stuff, which really makes the money for us might take a back seat and that would be damaging, not good for us,” he said. “Hopefully the county can allocate additional resources for permit review (for all types of projects). That’s critical to people like us.”

If they’re using raw land, private developers like Grove Farm and A&B Properties, Inc. are usually required to install all of the infrastructure long before they can build – much less sell – their first unit. Installing things like the water source for the subdivision, electricity transmission, sewers and roadways can run at least 50 percent of the cost of the entire project.

“It’s tens of millions of dollars. The entire process can take five to 10 years before we can start selling but the expenses begin from Day 1,” Furukawa said. It’s very expensive and not usually something for which a bank will provide financing, he said. “In many cases, that’s what’s standing in the way of development. Those are the hurdles that everyone faces.”

To that end, the County Council adopted a resolution late last year, introduced by Furfaro, that the council work to acquire parcels of land for affordable housing development using various federal and other funding mechanisms, and to work with various non-profit organizations to build homes. Once built, the resolution stipulates that the homes will have a 30-year buy-back provision, keeping them in the affordable inventory and preventing owners from cashing in on the current high market values.

“It’s like the ICE problem. It took awhile for the awareness to become that widespread,” Hooser said. “There are a lot of things in motion right now which will result in increased (affordable) inventory three, four, five years from now.”

Until then, Kauai residents can only wait and watch.

“History indicates that we’ve done a very good job in the management of Kauai. In return, the good management has resulted in a big magnet,” Furfaro said. “Now we just need to work collaboratively and we need to take some risks . . . And we’ve got to do it with some urgency.”

Contact Information:

Pamela V. Brown

(808) 651-3533 cell

(808) 821-1027 fax

pam@writepath.net

"Individuality of expression is the beginning and end of all art."             --- Johann Wolfgang von Goethe, Proverbs in Prose

© Copyright 2004 Write Path, an L.L.C. and Pamela V. Brown  

All material, pictures, concepts, intellectual property and rights reserved. 

© Copyright 2004 Magical Concepts §©ª¨