Slides prepared for the Realtors Association of Maui …files.constantcontact.com › 26fbc1c9401 › 215057db-9800-4528...Slide copyright 2017 5 Initial pace of recovery of Maui existing

Slides prepared for the

Realtors Association of Maui

King Kamehameha Golf Club, Waikapu

by Paul H. Brewbaker, Ph.D., CBE

TZ Economics, Kailua, Hawaii

July 21, 2017

Maui housing market update

Copyright 2017

Paul H. Brewbaker, Ph.D., CBE

Slide copyright 2017

1

[This slide intentionally left blank]

Maui housing market overview


2

Monthly, thousand dollars, s.a., log scale

800

700

600

500

400

300

200

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Existing home sales prices on Maui continue on high single-digit

upward trends established at bottom of valuation cycle in 2011

8.2%

U.S. recessions shaded

Source: Realtors Association of Maui; seasonal adjustment and trend regressions September 2011 through June 2017 by TZE

$694k, s.a.−35%

$443k, s.a.

6.1%

Condominium

Single-family

−40%

+𝜎

−𝜎

+𝜎

−𝜎


3


800

700

600

500

400

300

2011 2012 2013 2014 2015 2016 2017 2018 2019

Closer look at path of appreciation of Maui existing home sales prices

reveals deceleration, 2014-2015, partial reacceleration 2016-2017

8.2%

Source: Realtors Association of Maui; seasonal adjustment and two-standard-error bandwidth from log-trend regressions, September 2011 through June 2017, and extraction of

trend/cycle component using Hodrick-Prescott filter by TZE

6.1%

Single-family+𝜎

−𝜎

+𝜎

−𝜎

Condominium


4

Maui home sales volumes have grown modestly since 2009, and are

back to where, in the last cycle, things were entering the 2000s

Monthly units, s.a.

160

120

80

40

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018


Source: Realtors Association of Maui; seasonal adjustment and trend/cycle estimates by TZE

Single-family

Condominium


5

Initial pace of recovery of Maui existing home sales in the early 20-

teens was somewhat more robust, but sales growth has continued

Monthly, s.a., log scale

140

120

100

80

60

40

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

U.S. recession shaded


Single-family

Condominium


6

Maui 100-120 days on market consistent with 5-10% appreciation rate

40

80

120

160

200

Days on market

2002 2004 2006 2008 2010 2012 2014 2016 2018

100-120 days on

market historically

associated with 5

to 10 percent

annual price

appreciation

Single-family

Condominium



7

-40

-20

0

20

40

60

40 80 120 160 200 240

-40

-20

0

20

40

60

40 80 120 160 200 240

Days on market Days on market

Maui days on market loosely inversely-related to price appreciation:

examining the monthly raw data (seasonally-adjusted)

Single-family

Source: Realtors Association of Maui; seasonal adjustment and regression estimates, 2001 through June 2017 by TZE

%∆pHouse%∆pHouse

Condominium


8

Maui days on market dynamics more complex over last cycle:

extracting movement out of the trend components of the data

Source: Realtors Association of Maui; seasonal adjustment and trend extraction through June 2017 by TZE

Days on market

%∆pHouse

-20

-10

0

10

20

30

100 110 120 130 140 150 160 170 180

2001

2005

2005

2009

2017

2017

(Trend components)

Single-family

Condominium

2001

2009

The last interval of rapid appreciation

during the early-2000s corresponded

with a rise in days on market—an

inventory build-up, and slowdown in

absorption. This was followed by a

lower rates of appreciation after 2005

and a valuation collapse after 2007 as

inventories continued to pile up (some

in foreclosure). After 2009 the

inventory overhang began to draw

down, and after 2011 appreciation was

restored. This year, things have settled

but may be starting to turn, again.


9

Inflation-adjusted (real) Maui housing valuation measures: modest

long-run real returns, bubblicious cycles, recent trend convergence

1,000

500

400

300

200

150

100

1,000

500

400

300

200

150

100

1980 1985 1990 1995 2000 2005 2010 2015 2020

1.7%

2.0%

LR appreciation rates

Real FHFA Kahului-Wailuku-Lahaina

MSA house valuation index

(1988Q4 = 100)

Real mean Maui existing

SF home prices (thous. 2016$)


Sub-P

J-Bub

Source: Locations, UHERO, Realtors Association of Maui, Federal Housing Finance Administration (https://www.fhfa.gov/DataTools/Downloads/Documents/HPI/HPI_AT_metro.txt;),

Bureau of Labor Statistics; seasonal adjustment, deflation, and trend regression estimates by TZE

https://www.fhfa.gov/DataTools/Downloads/Documents/HPI/HPI_AT_metro.txt


10

Maui Goldilocks* existing home market conditions

▪ Sales growing but transactions volumes well below early-2000s cycle (good thing?)

▪ [Sales represent unconstrained housing demand: no entry barriers as on new supply]

▪ Valuations rebounding from deeper trough on Maui than Oahu’s resilient urban core

▪ Maui appreciation steady at 6-8 percent, 2011-2017, vs. 4-5 percent Oahu (higher base)

▪ Appreciation consistent with market conditions tightening to 100-120 days on market

▪ Nominal existing home valuations still at (SF) or below (Condo) 2006, despite recovery

▪ Real (inflation-adjusted) valuations have converged to longer-term trend, c. 2% p.a.

*Not too hot, not too cold, just right


11


Maui tourism performance discussion: it’s good, don’t get greedy


12

Tourism performance measured in million visitor days/month:

domestic segment still dominates; international 1/6 of total days

.30

.25

.20

.15

.10

1.7

1.6

1.5

1.4

1.3

1.2

1.1

1.0

2002 2004 2006 2008 2010 2012 2014 2016 2018


Aloha Airlines

SARS

H1N1-A

TohokuInternational visitor days(left scale, million, s.a.)

Domestic visitor days(right scale, million, s.a.)

Source: Hawaii Tourism Authority, Hawaii DBEDT; data through May 2017, seasonal adjustment, Hodrick-Prescott filter trend estimated by TZE

1.61 mil s.a.

0.29 mil s.a.


13

Tourism transition from recovery to expansion has pushed through to

higher volumes and constant-dollar receipts, slightly slower growth

240

220

200

180

160

140

440

400

360

320

280

240

200

2006 2008 2010 2012 2014 2016 2018

Real visitor expenditure(right scale, million 2016$, s.a.)

Visitor arrivals(left scale, thousands, s.a.)

No Aloha

No Lehman

Brothers

Source: Hawaii Tourism Authority, Hawaii DBEDT; data through May 2017, seasonal adjustment, deflation by TZE


231.6k s.a.

$406.1 mil(16$)


14

Maui average stay length rose while Hawaiian-Aloha colluded, fell

with Mesa, rose as two exited, rose more with additional non-stops

6.4

6.8

7.2

7.6

8.0

8.4

Average stay length (days), s.a.

2002 2004 2006 2008 2010 2012 2014 2016 2018

Are rapidly rising real room rates

undermining gains in stay length from

additional non-stop seats to Maui?


No Aloha

Source: Hawaii Tourism Authority, Hawaii DBEDT; data through May 2017, seasonal adjustment, trend extraction by TZE


15

Maui hotel occupancy at the end of 2016 had just entered “the zone,”

75-80 percent capacity utilization, wherein yields can be harvested

55

60

65

70

75

80

85

Percent of capacity, s.a.

1980 1985 1990 1995 2000 2005 2010 2015 2020


77.4% s.a.

No Aloha9/11Gulf War

Source: Pannell Kerr Forster, Hospitality Advisors LLC, Hawaii DBEDT; quarterly data through 2016, seasonal adjustment by TZE


16

Maui avg. real room rates (right scale), already have been ratcheting

upward over the last several years reaching $341 at end-2016 (s.a.)

55

60

65

70

75

80

85

Percent of capacity, s.a.

320

280

240

1980 1985 1990 1995 2000 2005 2010 2015 2020

Constant

2016$/night

$340.63 s.a. 2016$

Source: Pannell Kerr Forster, Hospitality Advisors LLC, Hawaii DBEDT, U.S. BLS; quarterly data through 2016, seasonal adjustment, deflation by TZE

Hotel occupancy(left scale, percent, s.a.)

Real average daily room rate(right scale, constant 2016$, s.a.)


17

Maui constant-dollar hotel room yields: real revenue per available

room has punched through prior cyclical high—pushing too hard?

250

200

150

1980 1985 1990 1995 2000 2005 2010 2015 2020

Constant 2016$/night


$264 s.a. 2016$No Aloha9/11Gulf War

Source: Pannell Kerr Forster, Hospitality Advisors LLC, Hawaii DBEDT, U.S. BLS; quarterly data through 2016, seasonal adjustment, deflation by TZE


18

Maui real average daily visitor expenditure: down 10 percent vs.

early-2000s—longer stays (lower $ per day); plus exchange rates

240

220

200

180

160

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018


No Aloha

$207 (s.a., May 2017$)

Source: Hawaii Tourism Authority, Hawaii DBEDT, Bureau of Economic Analysis, Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org/series/PCEPI); monthly data through

May 2017, seasonal adjustment and deflation using U.S. personal consumption expenditure deflator, chain-type price index, by TZE

https://fred.stlouisfed.org/series/PCEPI


19

Maui tourism performance steadily rising, bit of a push on pricing

▪ Maui arrivals, days, constant-dollar expenditures all expanding, less quickly, new highs

▪ Average length of stay boosted since early-2000s

1. Transition from duopoly to leader-follower oligopoly: less interisland lift

2. Aloha exit ultimately offset by new nonstop lift (majors, Hawaiian, Alaska)

3. Slight erosion since 2014—weaker CAN$, JPY; wedgie from higher room rates

▪ Hotel occupancy (capacity utilization) back to sweet zone: 75-80 percent

▪ Real Maui room rates pushing it; real revenue per available room night at record $250+

▪ Real 20-teens daily expenditure up, post-recession, slipping now to 5-10% below 2000s


20


Maui real macroeconomic indicators: employment and output (GDP)


21

Seasonally-adjusted Maui nonagricultural payroll employment

(occupied jobs) enjoyed a renewed surge over the last nine months

Monthly, thousands, s.a.

76

72

68

64

60

2004 2006 2008 2010 2012 2014 2016 2018

U.S. recession shaded Aloha Airlines shutdown

Reacceleration

76.1k

Deceleration

Source: Hawaii DLIR, Hawaii DBEDT; data through May 2017, seasonal adjustment by TZE


22

1

2

3

4

5

6

7

8

9

Percent, s.a.

1990 1995 2000 2005 2010 2015 2020

3.1%

At 3.1 percent, Maui unemployment rate essentially has returned to

full employment conditions over the 8 years since end of recession


9/11

Post-Iniki

Source: Hawaii DLIR, Hawaii DBEDT; data through May 2017, seasonal adjustment by TZE


23

Maui real GDP in 2013-2015: value-added—dated—just below peak of

prior cycle—Maui’s recovery essentially complete, looking for upside

Billion 2009$

7.2

6.8

6.4

6.0

5.6

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Source: Bureau of Economic Analysis (https://bea.gov/regional/index.htm)

U.S. recession shadedAre we here yet?

https://bea.gov/regional/index.htm


24

45

40

35

30

25

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Thousand 2016$ per person

Maui real per capita personal income (thousand 2016$), also dated:

income from all sources back to trend; employment polarization?

Growth of lower-skill jobs associated with lower levels of educational

attainment, if it outstrips growth of higher-skill jobs with higher

educational requirements, may limit growth of per capita real income if

technological progress is complementary to skills, substitute otherwise

Source: Bureau of Economic Analysis (https://bea.gov/regional/index.htm), Bureau of Labor Statistics (https://data.bls.gov/cgi-bin/surveymost?r9)



https://data.bls.gov/cgi-bin/surveymost?r9


25

Constant-dollar value-added by major Maui industry: strong tourism

recovery in 20-teens initially left construction behind; farming fading

0

200

400

600

800

1000

1200

Thousand constant 2009$

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Accommodation

Government

Construction

Food service

Farming




26

0

50

100

150

200

250

Thousand constant 2009$

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Constant-dollar value-added by other Maui industry: rise of the

outsourced admin service provider, health marches on, fading tech

Administrative Services

Other services

Professional, technical, and scientific services

Health




27

Maui job growth by industry: is construction equipment investment?

Admin. (business) services? Growth in lower wage areas than usual?

Federal

Information

Manuf.State Local

Wholesale OtherRetail Health

AccommodationBusiness

EducationalFinancial

Food ServicesArts, Ent. & Recr.

TransportationConstruction

-6

-4

-2

0

2

4

6

Annual average percent change, May 2010 – May 2017

Source: Hawaii DLIR, Hawaii DBEDT; growth estimates by TZE


28

2015 Maui average hourly occupational wages: much job growth is

benefiting lower-wage occupations (sales, food service), not higher

18.61

17.15

19.38

18.08

15.76

$25.59

23.82

0 5 10 15 20 25 dollars/hour

(ranked by U.S. averages)

Farming

Transportation

Production

Administrative

Sales

Maintenance

ConstructionMauiU.S.

Source: Hawaii DLIR, “Occupational Employment and Wages in Kahului-Wailuku-Lahaina — May 2015,” (https://www.hiwi.org/admin/gsipub/htmlarea/uploads/OES-2015-Maui-

BLS.pdf)

MauiU.S.

Maui workers earn premium over U.S.,

but Maui homebuilding at historic low

Another premium-paid occupation

characteristic of HC&S

Benefits from tourism, but underpaid

May be outsourcing construction

Agriculture: loss of higher-valued jobs

Tourism benefit, small wage premium

Not much of this to begin with, less now

https://www.hiwi.org/admin/gsipub/htmlarea/uploads/OES-2015-Maui-BLS.pdf


29

46

44

42

40

38

36

34

32

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Thousand 2016$ per person

Presumptive current range

Maui real per capita income: probably above trend presently, possible

burden of polarization—growth of high-skill and low-skill occupations



30

Definition of complexity: higher-skill/higher-wage jobs growing AND

lower-skill/wage jobs—hard to know which is winning out

▪ Reconciling job growth with low average rates of wage growth, low productivity growth

▪ Employment polarization refers to pattern: growth of both high-, low-skill jobs; not middle

1. High-skill jobs, higher educational attainment, complementary to technology

2. Lower-skill jobs, less educated, technology is substitute but not “outsource-able”

3. Fewer production jobs “in middle”: HC&S, seed industry, building materials (manuf.)

▪ Tourism growth in occupations with Maui wages not much higher than U.S. (e.g. sales)

▪ Construction job growth? not private building permits (appendix), not value-added (GDP)

1. Installing equipment on rooftops is not the same as building new multi-family housing

2. Obvious public projects—OGG—but never, ever more lanes to West Maui

▪ Notable loss of value-added (GDP) in professional, scientific, technical services since 2008

Mixed bag of gainers with some/no wage premium, losers with even bigger wage premiums


31


Monetary policy: inflation, interest rates, normalization


32

Consumer price inflation has risen back towards the 2.5 percent rate

consistent with the Fed’s 2.0 percent goal (PCE deflator measure)

-1

0

1

2

3

4

5

6%

1995 2000 2005 2010 2015 2020

Honolulu

U.S.

Honolulu

U.S.

2.5%

2.2%

Honolulu

U.S.

Oil

Oil

Source: U.S. Bureau of Labor Statistics (https://data.bls.gov/cgi-bin/surveymost?r9)


https://data.bls.gov/cgi-bin/surveymost?r9


33

-4

-2

0

2

4

2000 2005 2010 2015 2020 2025

How the Federal Reserve Open Market Committee sees real GDP

growth rates through the decade and into the longer-run

Percent change, year-over-year

Source: Federal Reserve Board, Federal Open Market Committee, June 14, 2017 (https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20170614.htm)

1.8%


https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20170614.htm


34

Annualized U.S. real GDP growth components: total factor productivity

growth subsided after 2006 despite 1996-2003 “dot.com” surge

Source: Table 2 from Stanley Fischer (August 21, 2016), “Remarks on the U.S. Economy,” at the Aspen Institute, Aspen, Colorado

(http://www.federalreserve.gov/newsevents/speech/fischer20160821a.htm)

0

1

2

3

4%

1949-2005 2006-2015 “dot.com”

1996-2003

Labor hours

Labor composition

Capital deepening

Tot. fact. productivity1.3%

0.3%

1.7%

http://www.federalreserve.gov/newsevents/speech/fischer20160821a.htm


35

0 5 10

0

1

2

3

4

0 5 10

0

1

2

3

4

0 5 10

0

1

2

3

4

0 5 10

0

1

2

3

4

2017 2018 2019 Long-run

Number of responses

Percent

1.375

2.227

2.7672.917

Total number of respondents: n = 16 (2019 and long-run, n = 15)

Source: Federal Reserve Board (https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20170614.htm and

https://www.federalreserve.gov/newsevents/pressreleases/monetary20170614b.htm)

Median forecasts for the federal funds rate of Federal Open Market

Committee (FOMC) participants, June 2017: gradual, low terminal rate


https://www.federalreserve.gov/newsevents/pressreleases/monetary20170614b.htm


36

0

1

2

3

4

5

2008 2010 2012 2014 2016 2018 2020

Treasury yields and FOMC fed funds projections, June 2017 meeting:

slower productivity growth, lower long-run “neutral” interest rate

FOMC fed funds rate

projections, June 2017Taper

Tantrum


2.92%

Source: Federal Reserve Board (https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20170614.htm); Selected Interest Rates H.15

(https://www.federalreserve.gov/releases/h15/)

Trump

Jump

10y

Percent


https://www.federalreserve.gov/releases/h15/


37

Addendum to FRB Policy Normalization Principles and Plans (June 2017)

▪ Gradually reduce the Federal Reserve's securities holdings by decreasing reinvestment of the

principal payments from securities

▪ Payments reinvested only to the extent that they exceed gradually rising caps

▪ For Treasury securities, the cap will be $6 billion per month initially, increase in steps of $6 billion

at three-month intervals over 12 months, [to] $30 billion per month

▪ For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially,

increase in steps of $4 billion at three-month intervals over 12 months, [to] $20 billion per month.

▪ Caps will remain in place once they reach their respective maximums so that the Federal

Reserve's securities holdings will continue to decline in a gradual and predictable manner

▪ Reducing the quantity of reserve balances to a level [that] will reflect the banking system's

demand for reserve balances and monetary policy

▪ Affirmation: target range for the federal funds rate is primary [instrument] of monetary policy

Sources: Federal Open Market Committee Press Release (June 14, 2017) (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170614c.htm)

https://www.federalreserve.gov/newsevents/pressreleases/monetary20170614c.htm


38

-5

-4

-3

-2

-1

0

1

2

3

4

5

2003 2005 2007 2009 2011 2013 2015 2017

Fed to “begin implementing a balance sheet normalization program this

year [2017], provided that the economy evolves broadly as anticipated”

Assets

Liabilities

U.S. Treasury securities

Mortgage-backed securities

Credit, liquidity facilities

Federal Reserve notes in circulation

Reserve deposits of depository institutions

Reverse reposLehman Brothers fails

Other liabilities

Sources: Monthly averages, Federal Reserve Board (Statistical Release H.4.1); compiled through June 7, 2017; Federal Reserve Governor Jerome H. Powell (June 01, 2017)

Thoughts on the Normalization of Monetary Policy, presented at the Economic Club of New York (https://www.federalreserve.gov/newsevents/speech/powell20170601a.htm)

Trilli

on d

olla

rs

Agency debtAgency debt

https://www.federalreserve.gov/newsevents/speech/powell20170601a.htm


39

-5

-4

-3

-2

-1

0

1

2

3

4

5

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023



Assets

Liabilities







Other liabilities

Sources: Monthly averages, Federal Reserve Board (Statistical Release H.4.1); compiled through June 7, 2017; FOMC (June 14, 2017) Addendum to the Policy Normalization

Principles and Plans (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170614c.htm) and (September 16, 2014) Policy Normalization Principles and

Plans (https://www.federalreserve.gov/monetarypolicy/files/FOMC_PolicyNormalization.pdf)

Trilli

on d

olla

rs

Agency debt


https://www.federalreserve.gov/monetarypolicy/files/FOMC_PolicyNormalization.pdf


40

-5

-4

-3

-2

-1

0

1

2

3

4

5

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023



Assets

Liabilities



Credit, liquidity facilities; agencies




Other liabilities

Trilli

on d

olla

rs

Assets

Liabilities







Other liabilities

Trilli

on d

olla

rs

Agency debt

Sources: Monthly averages, Federal Reserve Board (Statistical Release H.4.1); compiled through June 7, 2017; FOMC (June 14, 2017) Addendum to the Policy Normalization

Principles and Plans (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170614c.htm) and (September 16, 2014) Policy Normalization Principles and

Plans (https://www.federalreserve.gov/monetarypolicy/files/FOMC_PolicyNormalization.pdf)


https://www.federalreserve.gov/monetarypolicy/files/FOMC_PolicyNormalization.pdf


41

Summarizing recent Federal Reserve guidance

▪ Fed funds rate will remain primary instrument of monetary policy

▪ Fed balance sheet will mature off at predictable rate beginning (maybe) later this year

▪ Path of balance sheet should unwind extraordinary monetary policy impact by 2023-ish

▪ After that, circa 2023, economy is on its own again

▪ Contingent on economic conditions during the next five or six years

▪ Banks of England, Canada may follow the Fed sooner than Bank of Japan, ECB


42

A note about exchange rates



43

1.4

1.2

1.0

0.8

0.6

140

120

100

80

60 2002 2004 2006 2008 2010 2012 2014 2016 2018

Yen/dollar(right scale)

Euro/dollar(left scale)

Source: Federal Reserve Bank of St. Louis; data through July 2017 (http://research.stlouisfed.org/fred2/series/EXUSEU and http://research.stlouisfed.org/fred2/series/EXJPUS);

exchange rates noted are U.S. market closing prices

[$1.1377/€]−1

113.475 ¥/$

ECB†

BoJ*

*Prime Minister Abe re-elected December 16, 2012, initiates “Abenomics,” endorsing Quantitative Easing.

† QE widely anticipated in financial markets; announced by ECB President Draghi January 22, 2015.

Value of

dollar in

Euro

Value of

dollar in yen

Diverging monetary policy: QE depreciated Japanese yen and Euro

while U.S. FRB was moving towards interest rate normalization

http://research.stlouisfed.org/fred2/series/EXUSEU

http://research.stlouisfed.org/fred2/series/EXJPUS


44

160

120

100

80

60

40

20

1.1

1.0

0.9

0.8

0.7

0.6

2002 2004 2006 2008 2010 2012 2014 2016 2018

Crude petroleum

price (US$)(left scale)

Value of CAN$ (in US$)(right scale)

Canada recession shaded

Source: CD Howe Institute (https://www.cdhowe.org/pdf/Commentary_366.pdf), Federal Reserve Bank of St. Louis; data through July 2017 (monthly averages of daily data)

(http://research.stlouisfed.org/fred2/series/EXCAUS and http://research.stlouisfed.org/fred2/series/MCOILWTICO/)

Lehman

Brothers

Falling global oil prices: you had to see this coming—higher oil prices

led to discovery (Canada, Dakotas), oil glut undermined Loonie (CAN$)

https://www.cdhowe.org/pdf/Commentary_366.pdf

http://research.stlouisfed.org/fred2/series/EXCAUS

http://research.stlouisfed.org/fred2/series/MCOILWTICO/


45

Local, mainland, and foreign buying of Hawaii (statewide) and Maui

residential real estate, 2008-2015: for Maui, mainland and Canada

0

25

50

75

100

0 25 50 75 100

Maui share of statewide sales to those investors (%)

Percent of all

Maui sales to

foreigners

attributable to

each country’s

investors

Canada (1,352 sales)

Japan (36)

Australia (21)

Other foreign (67)

Hong Kong, Singapore (8 each)

Resident Mainland Foreign

Statewide 104,927 33,680 5,775

share (%) 72.7 23.3 4.0

Maui 10,325 9,545 1,494

share (%) 48.3 44.7 7.0

Home sales 2008-2015

S. Korea,

China (1 each)

Source: Hawaii DBEDT (May 2016), Residential Home Sales in Hawaii (http://dbedt.hawaii.gov/economic/reports_studies/residential-home-sales-in-hawaii-trends-and-

characteristics/), based on Bureau of Conveyances data compiled by Title Guaranty

http://dbedt.hawaii.gov/economic/reports_studies/residential-home-sales-in-hawaii-trends-and-characteristics/


46

Looking beneath median house prices: densities and dynamics



47

Looking beneath median house prices: densities and dynamics

▪ Median prices often characterize housing market (mid-point of underlying distribution)

▪ Median price movements mask underlying complexities

▪ Maui prices “higher” in 2014, but more sales at lower prices than 2012-13 and 2015-16

▪ 2016 Maui AMI-based “affordability” consistent with Maui home price distribution

▪ So why is there such a dearth of new homebuilding in Maui County?

▪ Chapter 2.96 regulation of new homebuilding must constrain developer flexibility

▪ Sales are unconstrained, but not production: former has grown, latter has not


48


700

600

500

400

300

200

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Monthly Maui existing home prices: valuation recovery since 2011

slightly above longer-period trend, deceptively simplistic path

c. 6-8% p.a.

2011-2017c. 4.5-5.5% p.a.

1997-2017


Sources: Realtors Association of Maui; monthly data through May 2017, seasonal adjustment and Hodrick-Prescott filter trend extraction by TZE, trend appreciation rates are

retrieved from regressions of the natural logarithms of existing home prices on a constant and a time trend, exponentiated and annualized, for the intervals listed.

Condominium

Single-family


49

Complex price distributions: 2012-13 sales growth in lower ranges,

2014 push outward in tails replaced by resurgent middle 2015-16

0.0000

0.0005

0.0010

0.0015

0 500 1000 1500 2000 2500

2013

2014

2015

2016

2012Frequency

Thousand dollars

201420152016

Source: Realtors Association of Maui; empirical gamma distributions of existing home prices estimated by TZ Economics


50

.0000

.0002

.0004

.0006

.0008

.0010

.0012

.0014

250k 500 750 1.0mil 1.25 1.5 1.75 2.0m 2.25 2.5

$353.5k 530.2 618.6 (80%, 120%, 140% of AMI thresholds)

Thousand or million dollars, as noted

Defining “affordability” via AMI conflates income problem (not enough)

with housing problem (not enough): solution is more new housing

2016 Maui price ranges associated with 80-120% of AMI shaded

Source: Realtors Association of Maui, HHFDC (https://dbedt.hawaii.gov/hhfdc/files/2017/05/2017-HUD-Income-Limits-Maui.pdf); empirical gamma distribution of existing home prices

estimated by TZ Economics

Frequency

Median

https://dbedt.hawaii.gov/hhfdc/files/2017/05/2017-HUD-Income-Limits-Maui.pdf


51

Absorption is dynamically complex; quantiles of income distribution

need not systematically align with quantiles of home price distribution

0.0000

0.0005

0.0010

0.0015

0 500 1000 1500 2000 2500

Frequency

Thousand dollars

201420152016

Source: Realtors Association of Maui, HHFDC (https://dbedt.hawaii.gov/hhfdc/files/2017/05/2017-HUD-Income-Limits-Maui.pdf); empirical gamma distributions of existing home prices

estimated by TZ Economics

80 120 140

Do we know quantiles of the distribution of construction costs associated

with building permits for new Maui housing units? Does the county publish

them? Do we know quantiles of the distribution of residential rental rates?

No Data is not Big Data: inclusionary zoning policy is based on what?

https://dbedt.hawaii.gov/hhfdc/files/2017/05/2017-HUD-Income-Limits-Maui.pdf


52

Planners keep saying: inclusionary zoning “works” (Less is More)

▪ First problem: policy-makers keeping up with housing economics literature? (Appendix)

▪ Second problem: half of Maui people don’t want any more Maui people (admit it)

▪ Inclusionary zoning is an affordable housing solution that only sounds economics-ish

▪ NIMBYs agree*: “stick it on Evil Developers, on The Rich Guys, on the malihini”

▪ Democratic process: do good deed (regulate), get NIMBY votes, politicians happy

▪ Unambiguous outcome: less new housing and less affordable (the adjective) housing

▪ Chapter 2.96 an experiment Maui conducted on itself : how’s that working out?

*Eli Feinerman, Israel Finkelshtain, and Iddo Kan (2004), “On A Political Solution to the NIMBY Conflict,” American Economic Review, 94(1): 369-381

(https://www.aeaweb.org/articles?id=10.1257/000282804322970869, free copy at http://qed.econ.queensu.ca/pub/faculty/garvie/eer/feinermanfinkelshtainkan.pdf).

https://www.aeaweb.org/articles?id=10.1257/000282804322970869

http://qed.econ.queensu.ca/pub/faculty/garvie/eer/feinermanfinkelshtainkan.pdf


53

Thous., s.a.

800

400

280

200

120

80

40

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

How good is Maui homebuilding now in the 20-teens cycle? It’s so

good, it’s lower than the lowest of the last couple housing cycles


Production(new homes)

Sales(existing homes)

Source: Quarterly data on existing home sales and new housing units authorized by building permit published by Realtors Association of Maui, Prudential Locations, UHERO, Maui

County Building Department, Hawaii DBEDT; seasonal adjustment by TZ Economics

DBEDT housing “need” estimate

Pau!



55

Appendix 1: Maui private construction commitments—details



56

Monthly, million 2016$, s.a. (log scale)

100

80

60

40

30

20

10

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Maui private building permit values, adjusted for inflation, already

have begun to fade for the current cycle—momentary pause?

Source: Maui County building department, Hawaii DBEDT; data through May 2017, seasonal adjustment, deflation, and trend/cycle estimates by TZE


57

100

70

40

20

10

7

4

2

11975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Monthly, million May 2017 dollars, s.a., log scale

Job growth mystery: if Maui construction jobs are growing, why

aren’t Maui private building permit values? Government? PV?

Permits for

new buildings

Additions and alterations

Sources: Maui County Building Department, U.S. Bureau of the Census; data through May 2017, seasonal adjustment, deflation, cycle extraction using Hodrick-Prescott filter by TZE

New

Used


58


Appendix 2: bubbles, cycles, and longer-term trends


59

Annual in billion 2016$

10

8

6

4

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Hawaii real construction spending statewide: investment is cyclical,

not every cycle is a bubble—nothing going on now is bubblicious


1.6% p.a.

Sources: Hawaii Department of Taxation, U.S. Bureau of the Census, Bank of Hawaii (various) Construction in Hawaii; deflation, cycle extraction using Hodrick-Prescott filter, trend

regression by TZE

Japan

Bubble

Subprime

Bubble

Catch-A-Wave


60

400

200

160

120

80

60

40

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

As noted earlier: Maui real private building permit values (quarterly,

s.a., billion 2016$): investment cycle can’t be over yet…or can it?


Sources: Maui County Building Department, U.S. Bureau of the Census; seasonal adjustment, deflation, cycle extraction using Hodrick-Prescott by TZE

Subprime

Bubble

Japan

BubbleEnd-o-Wave


61

5.0

4.0

3.0

2.5

2.0

1.5

1.0

0.5

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Neighbor Island annual new housing units authorized by building

permit, 1961-2016, and projected need (including 1/6 “vacant” units)

DBEDT “need” estimate 2015-2025*

Sources: County Building Departments, Bank of Hawaii and, estimating Neighbor Island housing demand annually at 4,265 new units using a method of the Harvard Center for Housing

Studies, Hawaii DBEDT (March 2015), Measuring Housing Demand in Hawaii, 2015-2025 (http://files.hawaii.gov/dbedt/economic/reports/2015-05-housing-demand.pdf).

*Includes attribution to annual flow demand for 718 “vacant” units comprising demand for vacant for-sale properties, demand for vacant for-rent properties, and

demand for seasonal, second, and occasional-use homes.

Catch-A-WaveJapan

BubbleSubprime

Bubble

Thousand new units/year

http://files.hawaii.gov/dbedt/economic/reports/2015-05-housing-demand.pdf


62

Pau!
