Covid-19 Impact on Construction and Hawaii’s Housing Industry
Construction and Housing Post Covid-19
Covid-19 has thrown the world into a state of the unknown. Predictions of what the new normal will look like abound and the only sure way to know the future is to wait and see. That is of little value in preparing for what’s next, but useful for beginning to anticipate scenarios for what’s sure to be different (or not).
The Construction Industry
In the past, Hawaii’s elected officials would use a variety of capital improvement projects (CIP) to try and jump start the economy. Essentially, build our way out of the crisis. While that may be possible if government projects involved a variety of trades that are “shovel ready” and could start quickly. These could include vertical construction such as schools, hospitals, libraries, government offices, etc. They would not involve road repaving or typical infrastructure projects unless they are large regional assignments that support future development. Projects that are already funded are expected to proceed quickly. Future projects will likely run into difficulties as the State may not be able to float bonds to cover new construction. With tax revenues flat or negative, lenders are concerned about Hawaii’s ability to pay back the bonds. This will no doubt continue until we see some stability in TAT and GET tax revenues going forward.
Recent revisions to building codes will increase the cost of housing construction. Rather than protecting public health or safety, code revisions such as requiring 25% of new parking stalls in a multi-family development provide for electric vehicle charging stations. While well intentioned, Hawaii’s EV market penetration is only 1%. A 25% requirement on workforce housing (100% AMI to 140% AMI) will result in an additional financial burden on families who least can afford to purchase a home let alone an electric vehicle. Other revisions to the building code will increase the cost of single family residential construction as well as apartments and condominiums. Ironically, many of the revisions have been adopted with influence from special interest groups and manufacturers of certain building materials (i.e. windows, insulation, fire protection, etc.). The resulting increase of housing prices may have the opposite effect they were hoping for.
Post Covid, the challenges to the residential construction industry will no likely mirror what we already face. Local government regulation and delays in issuing government approvals and building permits and a continuing shortage of housing supply at all price points. There are also an extraordinary number of families in Hawaii that need government assistance in purchasing or renting a home. Local government response to this crisis is to mandate inclusionary zoning conditions and for developers to provide more units for lower income families while building fewer units for sale at market. Delays in government approvals and permits that can take several months to years, creates too much uncertainty and risk both to homeowners and contractors. These two issues will continue to aggravate the development of residential housing in Hawaii.
Market Conditions
With interest rates at historically low levels, one should presume that there will be an increase in demand for housing in Hawaii. However, with tourism accounting for roughly 1/3 of Hawaii’s economy and 1/3 of our workforce idled by the pandemic, buyers will no doubt have a difficult time qualifying for mortgages. If the pandemic is prolonged and the tourism industry is unable to regain its footing until the 1st quarter of 2021, we will see an increase in foreclosures on existing housing units. Even 3 months into the pandemic, it is too early to predict its impact on the housing market, but the longer it lingers, along with its uncertainties and its dampening effects on the tourism industry, the more pronounced the impacts will be on Hawaii’s housing market.
Recovery will take strong will and resolve coupled with a great measure of patience.
Covid-19 Impact on Construction and Hawaii’s Housing Industry
Construction and Housing Post Covid-19
Covid-19 has thrown the world into a state of the unknown. Predictions of what the new normal will look like abound and the only sure way to know the future is to wait and see. That is of little value in preparing for what’s next, but useful for beginning to anticipate scenarios for what’s sure to be different (or not).
More / Less
The Construction Industry
In the past, Hawaii’s elected officials would use a variety of capital improvement projects (CIP) to try and jump start the economy. Essentially, build our way out of the crisis. While that may be possible if government projects involved a variety of trades that are “shovel ready” and could start quickly. These could include vertical construction such as schools, hospitals, libraries, government offices, etc. They would not involve road repaving or typical infrastructure projects unless they are large regional assignments that support future development. Projects that are already funded are expected to proceed quickly. Future projects will likely run into difficulties as the State may not be able to float bonds to cover new construction. With tax revenues flat or negative, lenders are concerned about Hawaii’s ability to pay back the bonds. This will no doubt continue until we see some stability in TAT and GET tax revenues going forward.
Recent revisions to building codes will increase the cost of housing construction. Rather than protecting public health or safety, code revisions such as requiring 25% of new parking stalls in a multi-family development provide for electric vehicle charging stations. While well intentioned, Hawaii’s EV market penetration is only 1%. A 25% requirement on workforce housing (100% AMI to 140% AMI) will result in an additional financial burden on families who least can afford to purchase a home let alone an electric vehicle. Other revisions to the building code will increase the cost of single family residential construction as well as apartments and condominiums. Ironically, many of the revisions have been adopted with influence from special interest groups and manufacturers of certain building materials (i.e. windows, insulation, fire protection, etc.). The resulting increase of housing prices may have the opposite effect they were hoping for.
Post Covid, the challenges to the residential construction industry will no likely mirror what we already face. Local government regulation and delays in issuing government approvals and building permits and a continuing shortage of housing supply at all price points. There are also an extraordinary number of families in Hawaii that need government assistance in purchasing or renting a home. Local government response to this crisis is to mandate inclusionary zoning conditions and for developers to provide more units for lower income families while building fewer units for sale at market. Delays in government approvals and permits that can take several months to years, creates too much uncertainty and risk both to homeowners and contractors. These two issues will continue to aggravate the development of residential housing in Hawaii.
Market Conditions
With interest rates at historically low levels, one should presume that there will be an increase in demand for housing in Hawaii. However, with tourism accounting for roughly 1/3 of Hawaii’s economy and 1/3 of our workforce idled by the pandemic, buyers will no doubt have a difficult time qualifying for mortgages. If the pandemic is prolonged and the tourism industry is unable to regain its footing until the 1st quarter of 2021, we will see an increase in foreclosures on existing housing units. Even 3 months into the pandemic, it is too early to predict its impact on the housing market, but the longer it lingers, along with its uncertainties and its dampening effects on the tourism industry, the more pronounced the impacts will be on Hawaii’s housing market.
Recovery will take strong will and resolve coupled with a great measure of patience.