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

Home

The monthly mortgage payment may be easier to manage. About 54 percent of potential buyers say they can afford to pay $2,000 or more each month. Among current homeowners, 57 percent are already paying more than $1,700 a month in mortgage and utilities. Many renters who want to buy will have to increase their monthly shelter payment substantially when they move up to home ownership. Only 38 percent of them are paying more than $1,700 a month for shelter now. MODELING HOUSING FUTURES, DEVELOPING HOUSING POLICY In each last three Hawaii Housing Policy Studies, the Hawaii Housing Model was reconstructed and updated. The model was developed to estimate long -range changes in the affordability, price, supply, and demand for housing units in Hawaii. In the past, the Housing Model has been a time series model based on a simple combination of population growth and housing production. Over time, it has become a key piece of the Housing Policy Study. It summarizes the most important findings of a mammoth data collection effort to give policymakers a long - range view of housing and an understanding of how the housing market works. Improvements to the 2006 Model In 2006, the Hawaii Housing Model was completely redesigned. The amount of baseline information used to develop the model was greatly expanded, as were the types of information generated from the model. The structure of the model was redesigned as a supply and demand model. The population and housing inventory elements have remained as central factors in the model, and major components have been added to drive the affordability estimation procedure. Interested readers can refer to the Technical Report for a more detailed explanation of the structure and function of the Hawaii Housing Model. Functionally, the new Housing Model depends to a greater extent on the affordability curve. The affordability ratio is defined as the ratio of the affordable housing price to the median home price in Hawaii. 14 Affordability increases when household income grows at a faster rate than housing prices. It decreases when housing prices rise swiftly ahead of household income. In 2006, affordability was the lowest it has been in 25 years. Housing prices in Hawaii are very unaffordable right now for households at all income levels and it may be many years before housing is affordable again. Past performance of the Hawaii housing market following a price run -up suggests 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 prices affordable to a median income household 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. 14 That is, affordability is equal to the estimated price of a housing unit that can be purchased with conventional financing by a household with median income, to the median price of the same type of unit, calculated annually over time. Hawaii Housing Policy Study, 2006 Page 23 © SMS, Inc. February, 2007