August 2019 Email Updates Oahu Real Estate

Here is our 08/09/2019 e-mail update. The newsletter is sent after the statistics for the preceding month have been posted on the Board of Realtors website. You can find previous newsletters by visiting www.stott.com/news. You may also follow us on Facebook and Instagram.

The median price in July set records for both single-family homes and condos while demand improved. The median price for single-family homes was $835,000 (5.8% higher than July, 2018) and for condos was $461,500 (7.5% higher than July, 2018). It appears that a drop in mortgage rates helped push buyers off the fence. More sellers are putting their homes on the market as well, hoping to cash in on the high prices. There are currently 3.7 months of inventory for single-family homes and 3.9 months of inventory for condos.

Tim and Tracey listened to Paul Brewbaker, a leading Hawaii economist, who described recent trends in the Hawaii economy. Hawaii’s real gross domestic product (GDP) has failed to keep pace with the rest of the U.S. since 2010, growing at an average rate of 1.8% versus 2.3% growth in the U.S. Statewide employment has been fading since 2016 and has dropped to levels last seen in 2015. Unemployment has been rising since late 2017 from a low of 2.1% to its current rate of 2.8%. The economic trends are impacting Oahu’s real estate sales. Sales price growth has decelerated from a rate of 5.6% in 2011 to about 2.3% for single-family homes and from a rate of 6.6% in 2011 to about 2.8% for condos. The state’s population has shrunk in recent years and mirrors the reduction of military personnel in Hawaii from a recent 2014 peak of 49,800 to the current level of 36,600. One member of the audience mentioned how depressing Paul’s presentation and stats were. It really only becomes depressing for those people that fail to adjust as necessary.

Hawaii landlords should take notice of the changing composition of Hawaii households over the years. In 1960, 56% of the households consisted of a married couple with children, 30% included other related family members, 12% were single occupants, and 2% consisted of unrelated adults. In 2010, 20% of the households consisted of a married couple with children, 47% included other related family members, 23% were single occupants, and 10% consisted of unrelated adults. The average size of a Hawaii household has dropped from over 4.0 in 1950 to less than 3.0 in 2019. Tim often hears from some clients that they would prefer a “traditional family.” Unfortunately, landlords that target a “traditional family” are only targeting 20% of the households on Hawaii and essentially turning away 80% of the households. That marketing strategy no longer maximizes revenue and results in longer than necessary vacancies. Stott Property Management, LLC has seen many more unrelated adults pooling their resources to rent three-, four-, and five-bedroom houses while the number of “traditional families” looking to rent larger homes have dropped dramatically.

Recently signed Bill 89, the latest city law related to vacation rentals, has already created serious disruption and anger to both small investors and residents. Tim and Tracey have recently spoke to several Waikiki condominium owners that have been dropped by their hotel pools because they do not have non-conforming use permits for their units. A vice president at Turtle Bay Resort was surprised to find that Kuilima Estates was not in Turtle Bay’s Resort’s zoning despite being located along Turtle Bay’s golf course. The latest law allows the city to fine owners for merely advertising a rental for less than 30-days on sites such as Airbnb and VRBO. In typical ham-handed fashion, the Department of Planning and Permitting (DPP) sent out 5,000 “courtesy letters” to owners suspected of operating illegal vacation rentals out of their properties based on “drop pins” that show locations of rentals on vacation rental sites. Apparently DPP does not realize that the drop pins are often inaccurate. Tim has to move the drop pins to the correct location every time he advertises for new employees on CraigsList. DPP has received 820 complaints from property owners receiving the letters as of 07/31/2019. Tim has also received phone calls from concerned clients and Tim assured them that the signed long-term leases should help show compliance with the law. The following website is a good source of information regarding the new law.

New Short-Term Rental Law

A Honolulu Star Advertiser front-page article describes the concerns of Hawaii investors and economists regarding Bill 89. Paul Brewbaker, who advised the Honolulu City Council not to pass Bill 89, was quoted as saying, “I have a strong feeling that there is a train wreck that is unfolding.” Brewbaker’s concerns stem from the fact that tourist numbers have climbed over the past six years and Oahu’s hotel inventory has stayed relatively the same. Bill 89 might unwind those gains resulting in fewer dollars from tourism. Southwest Airlines spokesman was quoted saying that the carrier “is closely monitoring the city’s work to address unregulated and unlicensed short-term rental units. As a carrier growing our service for island communities, we are heavily invested in an accurate landscape of available lodging for overnight visitors in Honolulu so that our flight activity can accurately reflect the marketplace.”

The Hawaii Vacation Rental Owners Association has filed a lawsuit in U.S District Court stating that Ordinance 19-18 (more popularly known as Bill 89) is unconstitutional because it violates rights regarding illegal search and seizure, due process, property, privacy and free speech. The attorney for the group filed a previous lawsuit in 2018 against the city arguing that a renter can stay for only weeks or days as long as the renter has exclusive right to stay up to 30 days. The City and County of Honolulu settled the case allowing for the 30-day rental agreements even when the tenant did not intend to stay the entire period of time. Mayor Kirk Caldwell has insisted that the first citations will be issued shortly while the court rules on a requested restraining order sought by The Hawaii Vacation Rental Owners Association against enforcement of the law. The hearing for the restraining order has been scheduled for August 15th.

Progress has been made towards reopening the Arizona Memorial to walk-on traffic later this year. Helical pilings have been screwed into the seabed up to 100 feet and are expected to provide a stronger anchor to the floating concrete dock. A Navy floating crane will be used to reinstall the 30-foot floating metal bridge that spans the distance between the floating concrete dock and the memorial.

Update & Video on Arizona Memorial

It appears that Governor David Ige and law enforcement have let protestors gain the upper hand in delaying the Thirty Meter Telescope project (TMT) after four years of delays in gaining the necessary permits. The governor announced that construction would begin on July 15, 2019 (the week prior) and stated that the state and local law enforcement were planning on providing security so that construction crews could gain safe access to the site. About 500 Native Hawaiian “protectors of the mountain” showed up and some chained themselves to cattle guards to block the access road. No arrests were made on Day One of the protests. The Governor signed an emergency proclamation prohibiting access to Mauna Kea on Wednesday, 7/17/19, and police arrested 34 elders for organizing the protests. Since then, police have not made any more arrests and have mostly kept their distance from the protestors camped at the intersection of Daniel K. Inouye Highway and the Mauna Kea Access Road. Crowds grew to over 2,000 during the following weekend and the protestors enjoyed a festival like atmosphere as crowds watched hula and listened to several award winning musicians on Sunday. Lt. Gov. Josh Green visited the protestors on Monday, 7/22/19, and apologized to the crowd for “things that have been said” but did not specify what was said. The front page showed several photos of Native Hawaiians sharing ha, touching foreheads and sharing their breath, and one of Governor David Ige with one of the elders when he traveled to the Big Island. Governor Ige apparently felt out of his depth since he delegated the task of negotiating with the Native Hawaiian protestors to Big Island Mayor Harry Kim. Mayor Kim has been criticized by some in his police department for pulling police officers back from the earlier arrests. He appeared to give away any negotiating leverage by claiming that he did not want to be the one to lead the negotiations and he opposed the use of force. The newspaper article did not clarify Kim’s definition of force, which could range from putting people in handcuffs to using more physical forms. Meanwhile, 56 Honolulu Police Officers returned home after spending a week on the island and essentially accomplishing little in providing security. On Tuesday, 7/30/19, Governor Ige rescinded the emergency proclamation and pushed the deadline to start construction for two years. It does not appear that time will solve the issue because the protestors position is that the telescope can and should be built in the Canary Islands.

The front-page newspaper articles covering the protests highlight the state government’s inability to enforce the rule of law, even after the Hawaii Supreme Court ruled that construction could begin. While much has been written about the opinions of the “protectors of Mauna Kea,” little has been covered about the silent majority’s support for the TMT project and the time and money spent by the TMT Board. Some local businesses have voiced concerns over the state’s reputation for failing to properly support large developments and caving to special interest groups. Losing the TMT project could dissuade others from initiating major initiatives in the future.

Click Here to See Photos of Mauna Kea

Along a similar thread, the Honolulu Police Department (HPD) reported that they have 270 unfilled positions, a figure representing over 10% of the total positions in the force. Chief Susan Ballard has informed the City Council that the department does not even investigate property crimes (burglaries, vehicle thefts, etc.), some of which are considered felonies. HPD has been cutting services while exceeding their budget due to the amount of overtime being paid. It appears that the City Council and Chief Susan Ballard should sit down and set appropriate priorities so property crimes are investigated.

State Legislatures and City and County of Honolulu representatives appear unwilling to put their money where their mouth is in terms of climate change and rising sea levels. An impasse over who will provide the matching funds for $220 million in federal funding for an Ala Wai Flood Risk Management Project has placed the federal funds at risk due to a missed deadline. The state failed to authorize full funding for the project and the city refused to serve as sponsor for the project until the entire amount has been authorized. The Mayor, Governor, and most legislators have been talking about the “climate change emergency” for years yet seem to have failed to act in helping mitigate the risks to Waikiki.

A student transfer program in Hawaii’s public school system has highlighted both the lower performing schools in the state and the higher performing schools. The Department of Education (DOE) provides parents a method of choosing schools outside of their neighborhood for various reasons. Many of the parents are requesting transfers from schools with performance issues to schools that have higher average test scores and college acceptance rates. While the article highlighting the issue discusses the budgetary fallout from the shrinking student employment of the lower performing schools, there does not appear to be any programs in place to turn these poorly performing schools around or discussion of closing them.

The city’s pilot program to require residents to schedule their pickup times for bulky trash appears to have failed miserably as junk is piling up in the streets of the Kalihi neighborhood. In typical bureaucratic fashion, city employees have been placing green stickers on improperly abandoned items on the street and apparently notifying the scofflaws that they should take their trash back. It appears that they have not figured out that the bulky items left on the street are from residents that have moved or from someone that dumped the items in someone else’s neighborhood. The deputy director of the city Environmental Services Department feels that the pilot has been a success since the amount of material scheduled to be picked up has reduced while trash continues to pile up on the streets.

The impeachment filing against Honolulu Prosecutor Keith Kaneshiro has been delayed as the judge ruled that electronic signatures could not be used since the impeachment procedure did not authorize them. Kaneshiro is currently on paid leave as the FBI and Justice Department investigates Kaneshiro for conduct related to convicted Deputy Prosecutor Katherine Kealoha. Businessman, Tracy Yoshimura, has committed to collecting hand-written signatures of 500 registered voters to meet the standard for starting the impeachment process.

Howard Hughes Corp. announced its seventh tower, Victoria Place, named in honor of Victoria Ward, who bought 60 acres makai (oceanside) of Kapiolani Boulevard with her husband in 1870. The tower will contain 137 one-bedroom units, 146 two-bedroom units, 77 three-bedroom units, and no commercial space. The residential tower combines two earlier planned towers to allow for more green-space and cultural activities. Some businesses have had a difficult time due to the low homeowner occupancy rates of the first finished luxury towers. Ward Village will need to find a way to attract more owner-occupied buyers if its 60-acre master planned community is to materialize into reality.

Hilton, having witnessed the chaos surrounding the 2018 strike against several Marriott hotels in Waikiki, avoided having a similarly disruptive strike by agreeing to raises of up to $6.13 per hour for its housekeepers and offer employees of a subcontractor to become Hilton employees. The employees had worked a year without a contract and had threatened to strike if new contract negotiations failed. Hyatt Regency Waikiki agreed to a similar contract a few days later.

A report published by the Environment America Research & Policy Center issued a report short serve as a note of caution for beachgoers and swimmers nationwide. After reviewing data of beach closures and advisories nationwide, nearly 60% of all beaches tested had above-threshold contamination at least one day in 2018. Swimmers can contract Gastroenteritis by swimming in fecal contaminated water or through food poisoning. Swimmers can also suffer respiratory, eye, ear, or skin infections from contaminated water. Sampling on Oahu beaches found that 75% of days sampled at Punaluu Beach Park, 16% of days sampled at Hanauma Bay Park, 11% of days sampled at Waimanalo Beach Park, and about 10% of days at other Honolulu beach parks, were potentially unsafe. Kauai had the highest average percentage of days of potentially unsafe conditions at 13%, Oahu came next at 8%, Maui at 5% and the Big Island at 4%. While it is not a cause for alarm, beachgoers should be aware of the risk and abide by beach advisories and closures.

A massive wildfire on fallow land that used to be sugarcane fields serves notice to Maui residents of the unintended consequences related to closing agricultural businesses deemed to be nuisances. In this case, the Maui sugar plantations closed as a result of complaints from neighbors complaining about the smoke from burning the sugarcane as part of the harvesting process. The wildfire resulted in the evacuation of thousands of residents while firefighters brought the blaze under control. A 28-year old man was arrested for suspected arson.

Hawaii’s macadamia crop suffered a dramatic 28% drop in production this past season resulting in a 37-year low. Local farmers and officials attribute the shortfall to flooding on the east side of the Big Island, trees destroyed by last year’s Kilauea eruption, and a tight labor market that limited harvesting activities. Demand for Hawaii macadamia nuts has heavily outstripped supply for the last three or four years.

Tracey finished the last race in the North Shore Swim Series on August 3rd, a 2.3-mile ocean swim, along with her brother, Mike, and cousin Bill. Mike and Bill flew out last year as well to participate in the event. Tracey has successfully completed five race, 7 mile, swim series for the fourth time. The 2020 race schedule has already been posted on the website, www.northshoreswimseries.com.

Tim competed for the 11th time in Kailua Racquet Club’s Men’s Night Doubles tennis tournament. The annual event occurs in late July and early August. Next year will be the 50th anniversary of the tennis tournament.