Developers, responding to population growth and demand from wealthy tourists, are refreshing Honolulu’s aging core with new condominium towers, and adding shopping malls and hotels in the city’s biggest building boom in at least a decade. Seeking to cater to affluent customers — and offset the high construction costs associated with Hawaii’s isolation and unique cultural issues, they’re adding thousands of luxury properties at a time when affordable housing is in short supply.
The median home value in Honolulu was $605,300 last year, behind only California’s San Jose and San Francisco among the 100 largest U.S. metro areas, according to Zillow. With a population of almost 1 million, Honolulu has a deficit of 24,000 dwellings, including 18,000 units for families earning less than 80 percent of the metropolitan area’s median income, according to a September report for the city housing office.
To keep up with population growth, Honolulu needs about 4,000 more homes a year, the equivalent of all the residences planned for Ward Village. According to Nick Vanderboom, senior vice president of development for Howard Hughes only 20 percent of the company’s planned homes will be reserved for residents who earn between 80 percent and 100 percent of the median household income for Honolulu. Last year, the median was $95,800 for a family of four, according to the U.S. Department of Housing and Urban Development.
For the 482 condominiums in Ward Village’s first two towers, prices will average $2.2 million! Housing prices are simply out of reach for to many residents here in Honolulu and we’re right up there with Hudson Yards in Manhattan or Battersea Power Station in London when it comes to condominium pricing.
Permits for all types of new construction reached a record $2.07 billion last year in Honolulu County, which includes the entire island of Oahu, up 11 percent from 2013, according to the University of Hawaii Economic Research Organization.
As commercial high-rise construction increased, the value of new residential permits fell 41 percent to $376 million, led by a drop in new single-family permits, which were at their lowest since 1982.
Even as the number of new condo towers increased, residential permits fell because of the time lag associated with high-rise construction, according to a March 27 report by the organization.
Lawsuits and a lengthy entitlement approval process have delayed development of the two largest single-family home communities on Oahu, but Hoopili, an 11,750-residence project by D.R. Horton Inc. appears to be on track for development although affordable housing demand far exceeds availability and then there is Koa Ridge, a 3,500-home development by Castle & Cooke Inc I’ll be blogging on more in the the weeks to coming.
We have a market with rising prices that’s vastly under-supplied.
Hawaii construction costs jumped 22 percent in the two years through December 2014, the most since late 2005. That compares with an 8 percent increase across the U.S. Mainland!
Costs are inflated by high prices for materials that must be imported, a scarcity of land, strict environmental regulations and local laws governing treatment of unmarked burial sites from the era before Captain James Cook set foot on the islands in 1778.
Demand is stronger at high-end projects such as the Ritz-Carlton. With more than 90 percent of the development’s 555 condos are sold, the remaining units range from studios starting at $949,800 to penthouses asking $25 million!
In greater Honolulu, one of the reasons for all this activity is that it’s recovered very nicely from the recession and we have a broad buyer base from all over the world, east and westbound and even north bound from Australia.”
Retail developments are springing up to appeal to growing numbers of affluent residents and visitors. On Waikiki’s Kalakaua Avenue, Taubman Centers Inc. is building the $465 million International Market Place mall, anchored by a Saks Fifth Avenue store. The beachfront shopping street attracts an average of 50,000 people a day, according to William Taubman, chief operating officer of the Bloomfield Hills, Michigan-based real estate investment trust.
Honolulu’s boom is “driven by U.S. customers and Japanese customers, but increasingly so also by Chinese and other Asian customers. So much of what is under construction now is being built with the expectation of increased demand for that part of the world and few seem to be focusing on the locals.
In Honolulu’s Kaka’ako district west of Waikiki, interest is coming mostly from locals. Market-rate condos at the 60-acre 24-hectare project was more than 80 percent pursued as of March.
Since coming to market in January, buyers have put deposits on about 60 percent of the 215 residences at Park Lane Ala Moana. The units, with prices ranging from $1.2 million to $28 million, are connected by a bridge to the Neiman Marcus store at the Ala Moana Center mall west of Waikiki Beach.
Prices at the Collection, a 43-floor, 464-unit condo project that broke ground in October, start in the “high $300,000s” and rise to more than $1 million for a top-floor penthouse. More than 90 percent of the units already have sold, mostly to current full-time Honolulu residents.
To meet the city’s housing needs, Honolulu officials are weighing measures such as requiring builders to reserve as much as 30 percent of projects for affordable housing, encouraging denser high-rises along a new passenger rail that’s expected to start running in 2018, and allowing owners of single-family homes to add rental units to their properties. But, it’s a Band-Aid to a cancer the average Joe is facing here on Oahu and city planners simply need to come up with even more solutions to accommodate local residents with affordable housing.
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