We all know housing in Hawaiʻi is expensive. The state is in the midst of a severe housing crisis, and is particularly short on affordable housing units. But what exactly does “affordable” mean?

According to recently released census data, the household median income in Hawaiʻi for 2018 went up by $2,447 to a new high of $80,212. That may seem like a decent raise until you count the fact that the price of most goods and services went up too. Factoring in the inflation rate of 1.9 percent for 2018, the household really has only an extra $970. Still, that’s something right? Perhaps a car repair, or maybe a new couch. But what about buying a house?

Federal banks define housing as “affordable” if the cost takes up no more than 30 percent of a household’s income. By that standard, “affordable” housing can cost a median Hawaiʻi household no more than $2,005 a month. 

Again, that may seem like a decent amount to cover housing expenses, but not in Hawaiʻi. The high cost of housing here takes up much more than 30 percent of a household budget. Here’s how much the median home would cost per month including taxes, insurance, maintenance fees and the mortgage in 2018.

Even a modest two-bedroom condo with roughly 900 square feet will cost 43 percent of the median $6,700 in monthly household earnings. And that’s before taxes are subtracted. If you take into account federal and state income taxes, house payments could easily rise to more than 50 percent of median take home pay—even with the tax breaks homeowners can claim on mortgage interest. No one would consider paying 50 percent of income on housing to be affordable.       

So what can we do?

Our inability to answer this question has caused a growing number of people to give up on ever finding the stability and wealth-building opportunities of home ownership in Hawaiʻi. Even for those who have lived here their entire lives—whose community ties go back generations—Hawaiʻi offers no easy path to affordable home ownership. 

Lack of affordable housing leading to population decline? Probably

Last year Hawaiʻi saw a population decline of over 7,000 people, and this is now the third year in a row of more people exiting the state than entering. This is worrisome. Hawaiʻi is losing too many residents who simply cannot afford to stay. 

Although we don’t know exactly why each person left, a recent study by ALG Research offers seems to put housing at the top of the list. More than 900 people were surveyed, and 45 percent of respondents said they have seriously considered leaving the state. For 41 percent of the people in this survey, cost of living was the top factor, followed by more job opportunities (15 percent). And the majority of respondents put housing as the biggest budgetary concern.

Not only does housing make up the largest cost for a household’s budget, the cost difference between Hawaiʻi and the U.S. continent is larger for housing than for any other budget item. Food, gas, clothes and electricity are also more expensive here than in, say, Arizona—but the difference is not nearly as big as it is for housing. A person’s grocery bills might be $200 a month more expensive in Hawaiʻi than in Arizona, but housing costs can easily be $1,000 more expensive per month.

This is why housing and homelessness are at the top of the list when people were asked which issues in Hawaiʻi have gotten worse in recent years. Some 71 percent of people believe housing affordability is worse and 79 percent believe homelessness is worse now than ever before.

It’s easy to see the connection between unaffordable housing and the rates of both homelessness and of people leaving the state.

If Hawaiʻi wants to stop the exodus of talented, local workers and be a more humane place to live, housing must become more affordable.

Housing Cost Calculations

The Hawaiʻi Budget & Policy Center (HBPC) assumes a 3.8 percent mortgage interest rate, a five percent down payment, and a 0.5 percent private mortgage insurance (PMI) rate. HBPC assumes home owners association (HOA) fees of $600 for a two bedroom and $700 for a three bedroom. The property tax includes a homeowner’s exemption. Home insurance is $400 per year for condos and $2,000 per year for a single family home. 

Sale price of the home: This model is based on the average sales price for various housing types in 2018 according to data from the Honolulu Board of Realtors. Median prices were $450,000 for a two bedroom condo, $570,000 for a three bedroom condo, and $790,000 for a single family home.

Down payment: The down payment amount was assumed to be 5 percent for a first-time home buyer struggling to save up tens of thousands of dollars and who is likely to use the lowest down payment possible to still access a mortgage. The national average for first time homebuyers in 2018 was a 7 percent down payment. Because Hawaiʻi is a high cost market, the average would likely be lower—around 5 percent.

Home Owners Association fees: The owners association and maintenance fees were assumed to be $600 per month for a two bedroom condo and $700 per month for a three bedroom condo. This pricing was based on analyzing dozens of condos sold in 2018.

Property taxes: This assumes a homeowner occupied exemption of $80,000 subtracted from market value and the current residential rate on Oʻahu of $3.50 per $1,000 of assessed value.  A home valued at $500,000 would subtract $80,000 for the homeowners exemption for a taxable value of $420,000. The tax is then applied at $3.50 per $1,000, or 420 times $3.50 to arrive at $1,470. 

Insurance: Insurance was estimated at $400 a year for a two bedroom condo, $450 for a three bedroom condo and $2,000 a year for single family home.