2011 Housing Planning Study - Technical Report

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Important Calculations Several important variables from the Hawaii Housing Model are calculated internally and checked against external sources. The procedure provides for smooth and reliable forecasts. The newly calculated variables include: ➢ Affordability Ratios: The ratio of the housing price affordable to a household with a median family income to the median sales price in a given year. ➢ Population and Households: Estimates are now for the housed population only, and for the empirical number of households in the State. In the past, the number of households was calculated by dividing population by the average household size. The new estimate is a more accurate indication of household formation. ➢ Vacancy Rates: Vacancy rates for past models were a blanket estimate of five percent per year. The new model uses empirical estimates of vacancies in each county. ➢ Household Income: Household income is a new addition to the model. ➢ Prices and Sales: Formerly, housing prices and sales were gathered for separate sources. New Model Structure Before 2006 the Hawaii Housing Model was a relatively straightforward population model. It assumed that the demand for new housing units was a linear function of the number of people in Hawaii and the number of housing units. Modules were developed to estimate the number of households from raw population estimates and the number of housing units available to the resident market from housing inventories and estimated numbers of units withheld from the market. The different between the two was calculated as a surplus or deficit in housing units available to the resident housing market. The redevelopment accomplished in 2006 produced a supply and demand model. It simulates the effects of income and affordability on supply and demand and on prices, rents, etc., based on past market performance. The model is driven by affordability ratios that change in response to supply (the availability of units affordable to buyers in different income categories) and demand (the change in number of households and household income). Functionality The Hawaii Housing Model is a dynamic model that allows for several types of what-if analysis. The model was designed to be user-friendly, and allows the user to customize numerous parameters. Safeguards are built into the model to assure that important data are not compromised by user manipulations. Three types or levels of user manipulations are available. 1. Parameters Changes: The model features an easy-to-use set of interactive drop-down menus for conducting what-if analysis by changing the values of model parameters such as income growth rates, population growth rates, interest rates, and new construction. Users may change one or more parameters and re-estimate the model. The Hawaii Housing Planning Study,2011: Technical Report Page 13 0 SMS, Inc. November,2011