(The Center Square) – Regulations that could cost developers millions more in construction costs are the driving factor behind the state’s high condominium prices, according to a report from the Economic Research Organization at the University of Hawaii.
The average price of a two-bedroom condominium in Hawaii is $672,000, the third highest in the country behind California at $715,000 and New York at $685,000. The median cost of regulation is $387,000, according to the report.
Housing is not permitted on 96% of Hawaiian land. Ninety-three percent of the land available for housing is for single-family housing only, meaning 99.7% of the land is not available for multi-family development, researchers said.
Land costs average $1.5 million for half an acre but is only 1.4% of the average cost of building a condominium. Construction costs make up 41%, and regulatory costs are 58%, according to the report.
“The cost of regulatory hurdles in Hawaii County are the lowest, but this is not because regulations are more liberal, rather there is less demand for new condominiums, so the regulations are less costly,” the report said. “We estimate a per unit regulatory cost of $561,000 in Maui, $567,000 in Kauai, $347,000 in Honolulu, and $343,000 in Hawaii County.”
Developers are often paying for infrastructure projects, including roads, sewers or electrical upgrades, the report said, citing a project in Honolulu as an example.
“A recently approved project on Ward Avenue included a $7.3 million ($13,400 per unit) transfer to the government for water and sewer fees,” researchers said. “This portion of regulatory costs is not entirely wasteful, because it generates needed infrastructure. However, putting the cost burden of infrastructure on developers, rather than funding infrastructure through general property taxes, significantly inflates the cost of housing production and effectively asks new homebuyers to bear the full costs of new infrastructure.”
Another hurdle for developers is the average wait time for a permit–an average of 400 days, according to the report.
The Aloha State has the country’s highest housing cost, which creates problems with workforce retention, researchers said.
“In 2022, Hawai‘i experienced a net outflow of 11,000 residents to other states. Regulations can create important community benefits such as environmental preservation and affordable housing units,” the report said. “However, it is worth weighing these benefits against the huge burden of high housing costs.”
Lowering the regulatory burden could attract more multi-family development, researchers said.
“More housing production would lower housing costs, which could have significant benefits for overall housing affordability in the state,” they said in the report.