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Illustration by Bryant Fukutomi, photo by Anthony Sommer, Star-Bulletin

Kauai renters
fight for space as
landlords celebrate

The post-Iniki low prices and
the isle's recovery make
it a seller's market

By Anthony Sommer
Star-Bulletin

LIHUE -- Hear those hoofbeats? That's the sound of a real estate stampede on Kauai.

But while sellers are celebrating the end of depressed prices that have lasted since 1992's Hurricane Iniki, the ones getting trampled in the surprise land rush are the island's renters.

Many are finding themselves suddenly homeless. Others are seeing their monthly rent rates skyrocket as demand overwhelms supply and landlords, many of whom were losing money on their rentals for years, are eager to cash in.

"People are scrambling for a place to live," said Princeville realtor Ken Kubiak.

"It's like a game of musical chairs and every day there are a few less chairs available," he said.

Judi Pritchett, who manages about 60 rentals for absentee landlords, says she talks to people searching for rentals every day and has to turn them away.

"What's really bad is that most of the homes that are for sale on Kauai are being used as rentals. The new owners want to live in them and the tenants have to leave. People are really stressed," she said.

Makaala Kaaumoana, coordinator of the Hanalei Heritage River Community Program, recently moved less than 100 yards when the North Shore Condo she was renting was sold. Luckily, a neighbor was moving back to the mainland and looking for a long-term tenant.

"If I didn't already know somebody who was looking for a tenant, I probably would be out on the street right now," she said. "There's nothing available anywhere on the island."

Reneging on housing deal

The sudden turnaround caught both county government and developers flat-footed.

Tomorrow, the Kauai County Council will be taking a hard look at a request from Princeville Corp. to be let out of an agreement to build 100 homes for its employees. That was the deal the company cut with the county in 1988 in exchange for zoning for a shopping center.

The homes never were built because there was no demand for them. Now that there is a demand, the company wants to give the county some park land in Hanalei rather than build houses. Many North Shore residents who have watched the rental supply vanish during the past few months aren't sure that's a good idea.

No one is able to pinpoint a single reason for the booming housing sales, but veteran market watchers such as Kubiak and Ken Rainforth of the County Housing Department point to several factors that appear to be at work:

The dramatic decline in property values following Iniki left many owners with houses and condos that were worth far less than their mortgages. Many moved to the mainland to find work and rented out their homes to make up at least some, if not all, of their mortgage payments.

Long popular as a winter home for the wealthy, Kauai has become more popular as a permanent retirement home for middle-income mainlanders. Hundreds, possibly thousands, of people wanting to move to Kauai were watching housing prices drop and drop for seven years, waiting for them to hit bottom. The result: classic pent-up demand.

The market for high-end homes rebounded first, about two years ago. Last summer, middle-income homes began to move. Prices started to nudge upward, and recently it's been like a dam bursting: buyers are rushing in and sellers who have been losing money for years on rentals are quick to sell.

"Buyers who have been waiting and watching for years are afraid all the good deals will be gone if they don't act now," Kubiak said.

"It's a real feeding frenzy."

More short-term rentals

At the same time, Kauai's expanding tourist population has attracted the attention of rental property owners who have no intention of selling but want to make maximum profit from their investment property.

"Many of them are throwing out their long-term tenants so they can use the houses and condos as vacation rentals, which rent for a lot more money," said Rainforth.

Also tied to expanding tourism, unemployment on Kauai has been plummeting.

"Young people, particularly young married couples, are finding jobs in the resorts or the tourist industry and can afford for the first time to move out of their parents' homes," Rainforth said. "That's adding to both the demand for rental housing and for purchases of starter homes."

Meanwhile, no one is building any multifamily rental property. There are only a handful of apartment houses on Kauai because individual rental condos were available and cheap and met the need until now.

The only new condos being built are time-share units for the tourist industry.

It used to be that the planning department would require developers to build a certain percentage of middle-income homes as a condition for getting permits for the rest of the project. But no one has applied for a subdivision permit in a long time, Rainforth said.

As long as it doesn't compete with the private sector, the county can build "affordable housing" to sell or rent to middle-class families (up to 120 percent of median income; currently median income on Kauai for a family of four is $55,900).

Until a few months ago, the county had a surplus of affordable housing and was being accused of overbuilding. That's not true lately.

Rainforth said the county last year was struggling to cut vacancies to 5 percent or less, which is considered a benchmark of a healthy economy.

"Right now, the vacancy rate is zero percent," he said.