Puna residents face volcano, infrastructure challenges

Would-be buyers are lured to the Big Island district despite the lava risk from Kilauea and a lack of modern conveniences

DISCOVERING Puna for the first time is like entering the proverbial Garden of Eden. It's a place where lush, green rain forests and brilliantly colored flora distract the eye but can't completely obscure the mournful charred remains of Pele's previous fire battles with the locals. Puna's lunar landscapes and black sand beaches seduce with their magic and remind passersby that the only constant in life is change.

Like Pele, also known as Ka wahine a' honua, or the woman who devours the land, droves of mainland buyers have been scarfing up pockets of Puna. In 1999, San Francisco designer Robert Trickey bought land in Puna Beach Palisades and hired famed architect Craig Steeley to help create his vision of a home floating on a sea of lava. Trickey said the home's location in a 1955 lava field tripled its building costs and forced him to seek specialty insurance from Lloyd's of London.

All told, it cost Trickey about $450,000 and an additional $6,000 a year in insurance to leave his mark on Puna, and he lives with the knowledge that his home, now worth well over $1 million, could be obliterated at any time.

"People ask me quite often why I decided to build there. The truth is that the lava could come out anytime," Trickey said. "You kind of make your peace with the danger. It's so beautiful, and really nothing in life is certain."

HIGH GROWTH ZONE

Apparently, many others feel like Trickey. In the last decade, Puna has seen the median price paid for single-family homes increase threefold. While single-family homes on the Big Island realized an average 18 percent annual price appreciation over the past five years, the Puna district itself averaged 27 percent appreciation for single-family homes and 61 percent for land.

Would-be buyers driving rental convertibles have been knocking on doors offering homeowners cash for choice properties, and custom builds have begun to replace the kit- and plantation-style houses, grass shacks and hippie buses. In 2005, the Big Island granted 3,000 new residential building permits, and at least a third of those were in Puna, said Chris Yuen, the Hawaii County planning director.

Word is out about Puna's investment potential; however, some say that the recommendation should come with a caveat. Sure, the southeastern-most corner of the Big Island has become a second-home haven that's worthy of mention in the New York Times as a place where buyers still can find affordable land and homes with ocean frontage or views.

But Puna residents are at risk from active volcanoes -- lava flows and airborne fragments, explosive eruptions, volcanic gases, ground cracks and settling earthquakes and tsunamis.

Puna sits in close proximity to Kilauea, one of the world's most active volcanoes. Since 1952, there have been 34 eruptions, and since January 1983, eruptive activity has been continuous along the east rift zone, according to the Hawaii Hazard Mitigation Forum. As land development has expanded toward areas of high hazard, the threat to life and property has increased, the forum has said.

Also, the region's lack of paved roads, piped water systems, sewers, streetlights, sidewalks and other modern conveniences have created infrastructure challenges. And if that weren't enough, Puna's isolation increases the likelihood that emergency personnel will take some time to respond to any disaster.

While the region's growth rate might be good for home valuations, it has outpaced Puna's infrastructure needs, Yuen said.

"We have some severe problems right now, but the government tends to react to problems when they become really apparent," Yuen said.

PUNA'S PARADISE TAX

The challenges in Puna drive up insurance rates, make obtaining construction loans and mortgages more challenging, and make it impossible for most homeowners to completely protect their investment, said state Insurance Commissioner J.P. Schmidt.

It's the most difficult region in Hawaii to insure," Schmidt said.

Traditional insurers generally will not assume the risk that it takes to provide coverage in a lava zone, so most Puna homeowners are forced to pay higher premiums and obtain insurance from the state insurer of last resort, the Hawaii Property Insurance Association, Schmidt said. However, since HPIA caps insurance replacement coverage at $350,000, homeowners like Trickey, who have considerable more investment in the area, are forced to seek insurance from places like Lloyd's of London, where their premiums can be up to 100 times more than those of conventional insurers.

"It's just one of the costs that you have to factor in if you want to live here," Trickey said, adding that to him, the cost is well worth it.

The state-set HPIA cap, which recently was raised, was once adequate to cover the average Puna home, Schmidt said. Gentrification has widened the gap between value and coverage, he said.

"You had people that had to be out there, adventure sorts, who wanted to get away from it all and thought it was an interesting challenge to live off the grid and try to be self-sufficient," Schmidt said. "Now that's changing."

Government programs were designed to help regular folks out, "not to encourage people to build mansions in dangerous areas," he said.

"We want to encourage rational decision making," Schmidt said.

Nationwide, there is plenty of debate about the need to strike a balance between growth and sensible land-use planning, especially as more Americans gravitate toward high-risk areas, said Eric Goldberg, assistant general counsel for the American Insurance Association.

People like to be near the water and the mountains, Goldberg said.

"There are over $7 trillion in assets along the coast from Maine to Florida," Goldberg said, adding that more than 50 percent of all Americans live within 50 miles of the coast.

Coastal Florida, the Gulf Coast of Texas, the Carolinas, Massachusetts, Cape Cod and Nantucket and California are all regions where insurers have struggled to provide coverage in the wake of risk, he said.

"I don't know why people choose to live in danger zones. I guess most people don't think that a disaster will happen to them," said Nicole Mahrt, director of public affairs for the American Insurance Association's western region.

"There is a substantial risk of earthquake in California, but only 12 to 13 percent of homeowners have earthquake insurance," she said.

While Hawaii's insurance rates and risk tends to be middle of the road, Puna is an anomaly, Schmidt said.

"It must be a nightmare to insure," Goldberg said.

"More and more insurers and lawmakers and public policymakers are thinking long and hard about mitigation strategies that include good building codes, enforcement and land-use plans. That doesn't seem to be going on in Puna," Goldberg said. "However, I don't know what you could do to stop lava."

MORTGAGE RISKS, TOO

The risk to insure lava and off-grid properties also has made it difficult to get underwriters to approve traditional loans in Puna. As a result, businesses like Wells Fargo that will underwrite mortgages on select off-grid properties have seen a boom in recent years, said Phil Maise, a Puna-based loan officer for Wells Fargo.

"Lending on more difficult properties is up 300 percent since 2004," Maise said. "The ability to buy a piece of land in Hawaii and put up a little grass shack is going away, but we are ending up with more robust housing inventory."

Wells Fargo is one of the few companies in Hawaii that will underwrite loans for homes that are unpermitted, off-grid or in lava zones, he said. As a result, many would-be homeowners, like 34-year-old Daron Scarborough, have resorted to creative financing methods.

Puna's lengthy construction permitting process inspired Scarborough to finance construction costs for his dream home with low-interest-rate credit cards, ranging from zero to 3.99 percent. Once the 2,000-square-foot custom home was built, Scarborough rolled the debt into a fixed-rate debt consolidation mortgage.

"They told me that I could apply for a construction loan in three easy steps, but the third step was at least three pages long, so I sat down with my builder and decided to find another way," Scarborough said. "Using credit was easier than pulling all the permits for a construction loan."

PROVIDES A BUFFER

While lava represents the ultimate danger for all Puna residents, it is also the protective force that keeps massive residential and commercial development away from the isolated outpost.

"Lava keeps a lot of really big money away," said Dennis Dehler, 42, who purchased four lots in Seaview in 2004. "Do you really want to build a million-dollar home with tennis courts in a lava zone 1 or 2?"

Dehler said he knows wealthy mainlanders who refuse to invest in Puna because of the risk.

"It takes a certain pioneer spirit to want to live here," he said. "You have to be an adventurer to move to the Wild, Wild, West."

Puna also has proven enticing for second-home buyers whose primary homes are in risky regions.

"That's why a lot of Bay Area residents like it," said Tim Lawson, Trickey's partner. "They already live in a catastrophic zone so it doesn't really bother them to live in another."

Besides, it's difficult to equate peaceful Puna as a place where danger bubbles just below the surface, he said.

"There's a feeling of being at the end of the road here," Lawson said as he gazed out over the black stillness of the never-ending lava field that bumps up against the back wall of his home.

"It's a beautiful palate to build a dream on," he said.