2006 Housing Policy Study by SMS Research & Marketing Services, Inc.

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Renter Preferences: Among those who wanted to rent, 59 percent wanted single - family homes. About 33 percent preferred an apartment or condo. The 2006 renters, too, were more willing to accept smaller units than in the past. Nearly all potential renters needed fewer than three bedrooms and 80 percent said they could accept one - and -a -half baths. Thirteen percent of potential renters said they needed 1,500 or more square feet of space and 31% said they could get along with less than 1,000 square feet of space. FINANCIAL QUALIFICATIONS Several indicators of financial qualifications of Hawaii households are assembled in each iteration of the Hawaii Housing Policy Study. In 2006, we found that 59 percent of potential buyers own their homes and 61 percent have owned the unit for more than three years. This suggests that perhaps 36 percent of would -be buyers will have sufficient equity to buy another home. About 55 percent of them have at least $5,000 in savings or investments. But only 39 percent said they could gather $60,000 as a down payment. Among potential buyers, 38 percent had household incomes in excess of 140 percent of the County median. Seventeen percent of them felt their current indebtedness would cause problems with mortgage financing. Monthly mortgage payments may be easier to manage. About 43 percent of potential buyers said they could afford to pay $2,000 or more each month. Among current homeowners, 39 percent were already paying more than $1,700 a month. Among renters who wanted to buy, however, only 17 percent were paying more than $1,700 a month for shelter. MODELING HOUSING FUTURES, DEVELOPING HOUSING POLICY The new Hawaii Housing Model was developed to estimate long -range changes in affordability, price, supply, and demand for housing units in Hawaii. It is driven by affordability, the ratio the affordable housing price to the median home price in Hawaii. Some of the first -cut results from the model as presented below. Market Behavior: In 2006, affordability is lower than it has been for 25 years. The forecast predicts housing prices will be relatively flat for about 6 to 7 years, at which time they will start to increase at a modest rate. That assumes a fairly aggressive rate of increase in household income increase of 4.6 percent a year. Housing prices in Hawaii are unaffordable for households at all income levels and it may be many years before housing is affordable again. Past market performance after a price run -up shows that home prices remain stable for a while and decrease slowly thereafter. Household income rises at a fairly stable rate. After a short run -up, housing costs and affordable prices reach parity after a few years. The current run -up is the largest in history. The price /income adjustment needed to reach parity will take longer to achieve. Needed Units: The Housing Model includes a procedure for developing estimates of "needed units" based on the number of potential households that currently cannot obtain a housing unit in the current market. There is currently a need for 3,450 housing units in Hawaii County. This is up about 10 percent from 2003, the last time the Hawaii Housing Study was conducted. Hawaii Housing Policy Study, 2006 Page 4 © SMS, Inc. February, 2007