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April 2021 Email Update

| Click to listen | Tim & Tracey listened to a Zoom call in March featuring one of Hawaii’s leading economists, Paul Brewbaker.  He highlighted the disparity in economic impact of the COVID-19 pandemic on Hawaii workers where the high wage workers were largely unaffected, the mid-wage worker experienced a 6.7% reduction in earnings, and the low-wage worker experienced a 27.6% reduction in earnings.  While the media headlines routinely proclaimed the lack of affordable housing on Hawaii, Brewbaker pointed out that housing prices were very affordable historically in 2019-2020 and not nearly as expensive as 1981 and 1990 when compared to the median income for a family of four.  More than half of Hawaii four-member households could afford a 30-year fixed mortgage higher than the median priced Hawaii property from 2019 to 2020.  The latest price-appreciation reduced the affordability and the median income for a four-member household can afford about 85% of a conventional mortgage.  He also described a recent divergence in single-family home inventory versus condo inventory on Oahu.    Single-family and condo inventory historically tracked each other, however, the Honolulu City Council’s 2019 ordinance to aggressively enforce a ban on vacation rentals initially caused stagnation in the condo market and the COVID-19 pandemic aggravated the problem by shifting sales from Honolulu’s urban core to the suburbs and exurbs.  The increased condo inventory has dampened condominium median price increases while single-family home prices have accelerated due to record low interest rates.  Brewbaker considers the Oahu single-family home market frothy but does not consider it a bubble since prices still track long-term appreciation trends within a margin of error.  He does not see median prices following the roller coaster of the 1990’s and 2000’s and describes the current market as an escalator instead.

Tim and Tracey recently helped clients successfully complete a 1031 Exchange.  They sold their Kailua house and used the proceeds to purchase three condos in Sacramento and increasing their monthly rent from $3,200 to $5,500 per month and providing them a monthly positive cash flow of $3,000 per month.  More details and photos are available on our blog.

1031 Exchange – Kailua to Sacramento

The City and County of Honolulu developed the Rental & Utility Relief Program from federal COVID-19 relief funds. Qualified people on Oahu will receive funds to pay their rent and utilities based on the person’s financial situation.  The city launched the program on April 5, 2021.
 
The following people can qualify for the program:
 
Oahu residents who are renting on island.
Proof of COVID-19 pandemic related job loss, unemployment, or pay reduction.
Proof of difficulties paying for rent and utilities.
One person per household.
There will be income limits for eligible households.
 
Documents Required:
 
Government-issued photo ID.
Proof of Oahu residency.
Rental Agreement
Tax documents or pay stubs of two (2) months most recent income.
Proof of COVID-19 pandemic related hardship, such as an unemployment insurance letter.
 
The website, www.oneoahu.org/renthelp has additional information.  Tenants could apply at www.oneoahu.org or submit a paper application on April 5th.  The website took applications for approximately four hours on Monday and was then closed to new applicants because the limit of 8,000 applicants was reached.  The city will announce the next day new applications will be considered.

ONE OAHU.ORG

March visitor numbers are improving as the number of immunizations grows nationwide and more people feel comfortable with longer haul flights.  Domestic visitors are returning faster than international travelers since many countries still have the borders closed to flights from the United States.  Hawaii may benefit from closed borders in the short-term since Americans that are itching to travel currently have fewer international destination choices.  Domestic visitor counts were off by about 55% in the beginning of March and the gap closed to about 35% by the middle of March.  March 18th showed that 7.2% more domestic visitors arrived compared to last year as the pandemic related restrictions started to affect international travel in March 2020.  Total visitor counts are still roughly half those logged in 2019.  Arrival figures on March 30th highlight the devastating impact of the 14-day quarantine imposed on travelers in 2020 and the impact of vaccines becoming more widely distributed.  301 visitors arrived on Tuesday, 03/30/2020, compared to 16,776 arrivals on Tuesday, 03/30/2021, and compared to 26,742 arrivals Tuesday, 04/02/2019.

Governor Ige approved Mayor Kawakami’s request to rejoin the state’s Safe Travels pre-testing program effective April 5th.  The approval should increase Hawaii’s appeal as visitor destination once tested visitors can more easily visit several islands during their vacation.  The mayor expects that all hospitality and restaurant employees, healthcare workers, first responders, and older residents will be fully vaccinated.

Hawaii landlords should pay attention to several measures that are progressing through the 2021 legislative session that have already been highlighted by the nation’s major news outlets including U.S. News & World Report, The Associated Press, and The Wall Street Journal.  The tax and housing bills will negatively impact Hawaii landlords, many who have struggled during the pandemic eviction moratoriums.  HB 1376 proposes extending the period for notice of summary possession to fifteen days from five and requires landlords to experience time consuming delays if the tenant schedules or attempts to schedule mediation.  HB 133, HD 1 proposes to increase the Hawaii capital gains tax rate to 9% from 7.25% beginning tax year 2021.  HB 445, HD 1 proposes to lower the inheritance excluded from the state tax to an undetermined amount from the current $5.49 million.  Even if these measures do not pass this year, the legislature has historically resurrected these bills in the following years where they may eventually pass.  Hawaii investors will be in an even bigger bind if President Biden follows through with a campaign promise to raise taxes and eliminate the 1031 Exchange.

A March 9, 2021 article by the Honolulu Star Advertiser provides another example of how state’s bureaucratic mess gets in the way of helping those that need it most and the state legislatures’ inability to learn from Hawaii’s pandemic failures.  State lawmakers are now pointing to the rent that the state pays itself as the reason for the Department of Labor and Industrial Relations’ failure to fully staff the unemployment call centers that have been constantly overwhelmed by those seeking financial relief from the governor’s economically crushing emergency proclamations.  DLIR apparently must pay the Hawaii Tourism Authority (HTA), another state agency, millions of dollars out of its budget to rent the space at the Hawaii Convention Center that the call center occupies.  The space would have just sat vacant because the governor shut down its borders to the rest of the United States and has not hosted any conventions.  Instead of focusing on upgrading DLIR’s information systems and streamlining the state’s byzantine accounting practices, lawmakers are looking at giving the governor even more power during emergencies.  Governor Ige has already abused his emergency proclamation powers over the past year and another committee is looking into limiting the length of those proclamations without legislature approval while this committee looks at giving him more power.  State legislators and DLIR rejected a Honolulu Star Advertiser request for details behind $105 million budgeted after the state House announced the budget was to address the thousands of unpaid unemployment claims and the overwhelmed call centers.  They also would not answer how much of those funds would be used to pay rent at the Hawaii Convention Center.

The Department of Hawaiian Homelands (DHHL) continued failure to build the infrastructure so that Native Hawaiians can build homes on land reserved for Native Hawaiian beneficiaries has eroded the trust of Native Hawaiians who protest any revenue generating projects.  Native Hawaiians protestors gathered below Nanakuli Valley to protest a proposed solar farm on low-grade DHHL agricultural land located in a flood plain.  Opponents of the project state that reducing Hawaii’s use of fossil fuels alone is not a good enough reason to build a solar farm on the site and object to a portion of the proceeds going to investors instead of to Native Hawaiian beneficiaries.  Comments during an October beneficiary meeting were overwhelmingly critical of the project yet DHHL turned a deaf ear to the feedback and proceeded with soliciting bids from developers.

Mayor Rick Blangiardi emphasized affordable housing and homelessness during his State of the City address on March 15th stating that “the same old tired solutions to our affordable housing crisis are clearly not the answer.  It hasn’t worked for 30 years.”  City Council Chairman Tommy Waters introduced a bill to create incentives for the private sector to build affordable housing using financial grants and helping make the business of offering affordable rentals profitable.  The mayor should also lobby the state legislature to back off their landlord unfriendly bills that threaten his initiative.

Homeless encampments like those in Honolulu city beach parks are making headlines again as the city and state attention shifts from its single-minded focus of restricting its residents’ personal freedom in the guise of protecting the public from the COVID-19 virus.  The city council is considering a bill to reduce the hours that Diamond Head beach parks are open to help police stop the “caravan of people coming up from Waikiki and Kapiolani Park” to illegally camp in the underbrush.  About 200 people illegally camp in the parks every night and neighbors describe them as “chronically homeless,” who refuse to sleep in shelters.  The beach parks do not have restrooms, so the campers use the showers as open sewers.  Neighbors complain of drug dealing, prostitution, and a rash of burglaries.  Volunteers cleaned up about 150 needles and tons of trash during the last parks cleanup.  Police will be used to enforce the closures and their job becomes practically impossible once it gets dark due to the rough terrain.

The bad news and communication gaps continue to plague the Honolulu Authority for Rapid Transportation (HART) despite having a new leader.  Interim CEO, Lori Kahikina, only notified the HART board chairman and vice chairman that HART was facing a more than $3 billion budget deficit before mentioning it in a video program produced by the Honolulu Star Advertiser.  Neither Kahikina, nor the board chairman and vice chairman, notified the rest of the board members of the shortfall catching them by surprise.  The following week the city council and the HART board learned that rails price tag ballooned to $12.45 billion from an $11.2 billion figure that ex-Mayor Kirk Caldwell submitted just five months ago and Kahikina had no proposed solution for the $3.6 billion budget deficit.  In the latest setback, Kahikina disclosed that the train’s wheels do not fit properly when the tracks cross each other.  She learned of the problem a few weeks ago while HART learned of the problem late last year.  Two other issues related to the tracks must be addressed before train testing can continue.  The first involves improperly welded side switch plates that HART originally pinned on shoddy work by Kiewit has been reversed since HART provided fabricated switch plates to Kiewit.  The second incident involved cracking of track switching equipment that requires repairs.  It looks like the city may never successfully finish the rail project even though city council members committed to talk about the issue further.  Meanwhile, the city continues to borrow money to fund an organization in charge of this white elephant of a project.

The mayor has successfully worked with Governor Ige and his administration to modify Oahu’s Tier 3 restrictions.  Bars may open under the same guidelines as restaurants, funerals will no longer have arbitrary attendance limits provided that social distancing protocols are maintained, and businesses will be allowed to serve alcohol until midnight from 10:00 pm. Outdoor, organized team sports will be allowed provided that the participants wear masks, but spectators and potlucks are still prohibited.

While the mayor is diligently working through state bureaucratic resistance to restore the publics freedom, the Honolulu Police Department (HPD) and their chief, Susan Ballard, continue to harass people gathering outside in public parks and enforce outside mask requirements.  Approximately 40 officers descended on a peaceful gathering at Kapiolani Park to protest the city and state’s COVID-19 health restrictions.  Ballard, acting on intelligence that 4,500 people were going to gather, sent her crime reduction units (some in riot gear), to enforce the city’s restrictions.  The 400 to 500 protestors who showed up, most not wearing masks, became agitated when the officers started handing out citations and arresting two people who refused to give their names.  One woman was forced to her knees by a group of officers before being arrested.  Ballard refused to answer if she thought her officers’ actions were justified when asked by the Honolulu Star Advertiser.  It will be interesting to know how many of these citations get thrown out of court.

Federal charges filed against five Honolulu Department of Planning and Permitting (DPP) employees and an architect have validated what many people in the construction agency and real estate community have suspected for years.  The six individuals were charged with giving and receiving bribes to expedite the permit review process.  The investigation follows a statement by a civil engineer and permit router who stated during a 2018 city council meeting that “I don’t want to blatantly say bribery, but there are gifts and favoritism.  I have multiple real estate agents and many, many clients ask me to pay a gift to a ‘friend’ in DPP to have their permits, you know, passed through, and I refuse.  I shouldn’t have to pay a civil servant a gift to do their job…I don’t want to go to jail by bribing a city official no matter how long (it takes to get a permit), and how desperate I am.”  While former Councilman Rom Menor cautioned her about being careful what she said, former Councilwoman Kym Pine started investigating DPP and came up with plans of reform.  One of the accused is charged with soliciting and accepting $89,205.81 in return for expediting the permit application according to the complaint.  Opponents of Honolulu’s monster homes controversy think it is a start, but they also think more digging is required because this blatant behavior was ignored by other DPP employees and allowed to happen.

A public hearing was held on April 8th to discuss the long-awaited draft of the rules to regulate Oahu’s short-term rentals related to ordinance 19-18 that was passed in the summer of 2019.  The Department of Planning and Permitting stated that the final draft would be ready by August, one-year permits were supposed to be issued and seven months after an earlier announced extension.  The draft rule would allow homeowners to apply for a limited number of Bed and Breakfast (B&B) certificates.  The application process would be open annually from August 1 through August 30 and the order of applications processed would be determined by lottery.

The Koko Crater summit closed for three weeks starting March 29th to mitigate safety issues from the aging and abandoned tramway.  The mitigation project includes removal of debris from tunnels and shafts, sealing the shafts, vents, and tunnels, and installing signs warning visitors of unstable conditions.  In a welcome change, the city has acknowledged the Kokonut Koalitions concerns about completely removing the summit’s platform until a separate replacement project can be organized over the next 18 months.  Hikers successfully completing the “Stairmaster from hell” will still be able to take in the breathtaking views at the top in about three weeks.

Kauai’s Lydgate Farms survival is heartening while also highlighting how hard it is to run a farm in Hawaii without also catering to tourists.  The cacao farm was able to survive the year-long pandemic restrictions on tourism by pivoting to online sales of its chocolate and partnering with Koloa Rum and Holy Grail Donuts as exclusive chocolate suppliers.  Despite a 300% increase in online sales, 2020 revenue was almost $200,000 lower (2019 revenue was $751,000 and 2020 revenue were $552,000).  80% of Lydgate Farms’ 2019 revenue came from tourists who pay to tour the farm and eat their locally made chocolate. The company was helped in 2020 by obtaining to Paycheck Protection Program (PPP) loans and an Economic Injury Disaster (EIDL) loan.

Lydgate Farms

Turtle Bay Resort will reopen on July 1, 2021 and welcome visitors to their renovated hotel.  450 construction workers are putting the final touches on work that started during the pandemic related shut-down.  The remodeled lobby opens view planes to the ocean, a new terrace pool deck surrounds a family pool, kids pool, and adults-only pool, and 42 Ocean Bungalows have been redesigned with an exclusive pool opening this summer.  The hotel bar and restaurant also received cosmetic improvements to enhance ocean and sunset views.  Renovation of the resort’ 410 guest rooms will start later this year.

Honolulu’s ban on plastic bags, plastic straws, and plastic utensils at restaurants went into effect Thursday.  Some restaurants have started using paper bowls, bags, and wood utensils while others have migrated to other forms of non-plastic utensils and non-plastic bags.  Meanwhile, the Restaurant Association, the Hawaii Food Industry Association, the Hawaii Chamber of Commerce, and the Retail Merchants Association have submitted a request to the city for a two-year exemption to help those establishments recovering from the pandemic related business restrictions.

Kaneohe Marine Corps Base will soon be home to six Reaper drones and their maintenance and operating crews.  These drones are a far cry from the civilian versions that are used to take scenic photos.  The Reaper has a 66-foot wingspan, is 36 feet long, carries Hellfire missiles and laser-guided bombs, and can fly for 34 hours straight at a maximum altitude of 50,000 feet.  The drones are part of the military’s strategy to upgrade the Pacific Fleet’s capability in response to China’s expansion of its military capabilities in the South China Sea and the Pacific Ocean.

While the University of Hawaii (UH) gets most of the attention for Hawaii college sports, Hawaii Pacific University (HPU) puts together some very competitive NCAA Division II teams and for the past five years, the women’s basketball team is no exception.  The HPU Sharks qualified for their fifth consecutive time at 13-0.  They unfortunately lost in the first round of the tournament to finish the season 13-1.

Manu Minute by Hawaii Public Radio brings you bird songs from Hawaii’s native forests and shorelines.  A different Hawaii bird is featured each week with information about its habitat and conservation efforts.

Manu Minute by Hawaii Public Radio 

On January 27th, the Kolea, Pacific Golden-Plover, was featured.  Tim and Tracey have seen them lately with their plumage changing from the speckled brown to the more dramatic black face and underside and distinct white border.  They will fly off to Alaska later this month.  Here is a photo taken from our parking lot on April 7th.

Bellows Beach will be closed to overnight camping from April 19th through September 2nd in anticipation of the Hawaiian green sea turtle nesting season.  Several turtles laid eggs in nests last year for the first time in documented history.  Here is a short video we put together to commemorate last year’s news.

Honu Hatching Video

Pacific Northwest-based Franz Family Baker has bought the rights to market their baked goods under the Love’s Bakery name and packaging.  While the baked goods will no longer be made in Hawaii, the items will be shipped to Hawaii and still show up on grocery store shelves.  The Oahu bakery closed its doors for good on March 31st, laying off its 231 employees.

Pali Lanes will close in Kailua after sixty years in business on June 30th.  The bowling alley had already been struggling financially before the COVID-19 pandemic and Alexander & Baldwin had announced that it was going to redevelop the site in 2017 and delayed the project after receiving emotional pushback from the community.  Pali Lanes is one of the few remaining bowling alleys in Hawaii.

Tim and Tracey have added paddling in their one-man canoes to their ocean activities during the past year.  Their adventures had been limited to paddling off Kailua, Lanikai, and Waimanalo Beach until their Kaneohe Bay paddle two weeks ago.  They launched from Kahaluu Beach directly into the wind to meet their friends anchored off the Kaneohe Bay Sandbar approximately 1.6 miles away.  The trip took about 55 minutes on the way out and about 20 minutes to return.  Tracey thought about Kaneohe Bay being a shark breeding ground while navigating the wavy conditions.  Here is a picture of them getting to the sandbar.

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