Housing affordability gap widens

Home prices have been rising a lot faster than increases in paychecks

The affordability of homes in Hawaii has reached a level not seen since the Japanese bubble period in the early 1990s, according to a new report.

The median home price more than doubled over the past five years, peaking at $640,000 last year, up from nearly $300,000 in 2001, according to the latest investment market report released this week by Colliers Monroe Friedlander Inc.

An anticipated reduction this year in the growth rates for personal incomes, job growth and overall gross state product will continue to widen the affordability gap for the average household to buy a new home, said Mike Hamasu, Colliers director of consulting and research.

"Unless your paycheck is rising as quick as the appreciation in home values, it makes it more difficult for you to afford a home," he said.

The common factor that has linked inflationary problems over the last three decades is a land-use regulatory environment that has severely restricted the supply of housing, said Paul Brewbaker, Bank of Hawaii's chief economist.

"Because supply can't respond with sufficient elasticity, home prices rise very rapidly and affordability erodes abruptly," Brewbaker said.

Meanwhile, high land and construction costs will likely slow the expansion of commercial real estate development, the report said.

Hawaii real estate sales totaled nearly $3.8 billion last year, down from the record $4.3 billion in 2005 because of fewer available listings.

The state saw a significant increase in institutional buyers, who spent $2.55 billion on commercial real estate, up from $2 billion in 2005.

However, nearly 70 percent of the roughly 350 transactions in excess of $1 million were with local buyers, who spent an average of $5 million per property, compared to the average $23 million spent by mainland and international buyers.

Other highlights of the report include:

Office:

» Fewer large spaces will make it harder for large tenants to relocate or expand.

Retail:

» Retailers will continue to face hardships in expanding because no large scale retail developments are planned in Honolulu.

As rents and construction costs continue to rise, national retailers are reconsidering expansion to Hawaii.

Industrial:

» The shortage of vacant industrial land has resulted in a 100 percent to 150 percent increase in land values for West Oahu industrial parks over the past two years.

Multi-family:

» Honolulu apartment rents rival prices in San Francisco and Boston.

However, it is still not financially viable for developers to build apartments with construction costs of more than $300 per square foot.