Renters left out of the loop

By Andrew Gomes
Advertiser Staff Writer

Each time home prices ratchet higher in Hawai'i, property owners are building equity or cashing in on it, but price increases that are up twofold this year over last year are putting the financial screws to renters.

Domos Feher and Malia Otto, with daughter Julia, used to pay $1,640 a month for a two-bedroom unit in student housing and feel lucky to find this one-bedroom apartment in McCully for $750. Deborah Booker • The Honolulu Advertiser

Lower-income renters are being particularly affected, but challenges are growing across the board.

"A lot of families are paying 50 percent of their income for what is considered substandard housing, and working two or three jobs to do it," said Lehua Rosa Malott, a counselor who helps renters become owners at the nonprofit Hawai'i HomeOwnership Center.

Malia Otto, a recent transplant from Germany attending the University of Hawai'i with her husband, found herself in a common renter's bind after arriving in July.

Otto, who also has a 23-month-old daughter, stayed in a hotel for about two weeks during an initial search for a rental, then reluctantly tapped $2,300 in family savings to stay one month in a condo until cheaper campus housing came available.

Student housing, even at $1,640 a month for a two-bedroom unit with a kitchen, wasn't ideal for a family of three. Otto said living there was like living outside a bar because of the routine late-night partying by other residents, but she felt fortunate.

"I normally wouldn't choose to raise my child in a bar, but even at $1,640 a month ... we are still counting our blessings to have a roof," she said in September. "This living situation has been difficult on our marriage becauseÊat a price of $1,640 a month, we can only afford one pair of earplugs."

Otto went back to the rental market and finally beat out two competitors earlier this month to rent a one-bedroom unit in McCully for $750 a month.

"I can't express how truly lucky I feel for getting this place," she said. "It is so small, but we are so grateful.Ê(I) didn't think we'd get it at all."

Otto's frequent moves in search of a good deal is a common story among Hawai'i renters. Some are looking for landlords who don't hike the rent just because they know they can find someone willing to pay more. Others seek out long-term leases.

North Shore resident Mark Mercado said he was happy renting a Hale'iwa beach house with his wife and envisioned renting there for the rest of his life, but he bought a Waialua home in August for $425,000 because of the opportunity to own.

Like Mercado, many longtime renters have been able to take advantage of low interest rates to buy property, but some industry observers believe prices could be getting high enough to extinguish the state's four-year trend of rising homeownership.

"If you don't already own your own home or condo, getting into one will be harder," said Leroy Laney, an economics and finance professor at Hawai'i Pacific University.

For those stuck in the rental market, the squeeze put on by rising rents and competition for the most attractive rentals is getting worse.

Wendy Burkholder, executive director for Consumer Credit Counseling Service of Hawai'i, said more clients are having to pay higher rent, and she expects to start seeing clients needing help because they overextended their credit to keep up with rising housing costs.

"I think it's going to be a big issue for a lot of people," Burkholder said.

Rents on O'ahu have been rising since 2001 after a five-year slump that mirrored the state's depressed economy and weak real estate market in the mid- to late 1990s.

In the first part of this year, average rent for an O'ahu apartment was $1,461 — up 56 percent from the 1997 low of $935, according to local market researcher Ricky Cassiday, who said the year-end figure is sure to be significantly higher given rising home prices.

The median price for a single-family home on O'ahu jumped from $400,000 in January to roughly $480,000 in the last few months. For condominiums, the median, which is a point where half the sales were for less and half for more, rose more modestly from near $190,000 in January to around $215,000 in the last few months.

The last time there was a dramatic run-up in Hawai'i home prices — in the late '80s and early '90s during the Japanese real estate investment bubble — an erosion of homeownership rates followed.

Census estimates show Hawai'i's homeownership rate rose to about 55 percent in 1990 and 1991, then gradually fell to 50 percent where it stayed for three years until 1998.

Laney said the decline in the '90s was in part due to job and home losses that hit many residents during the state's economic slump. The local economy today is strong and growing, but high prices could cause last year's 58 percent homeownership rate to stall, he said.

"That is a big concern for people, and not just for lower income people but for young professionals as well," Laney said.

Hawai'i residents who prefer renting or have given up buying a home for now are likely finding fewer options in the rental market.

According to a state-commissioned housing policy study, between 2000 and 2003 the number of available rentals dropped despite strong demand.

That's because demand and financial returns are better for developing single-family homes, high-rise condos and townhouse complexes built for sale mostly to owner-occupants.

An up-to-date rental inventory is difficult to estimate, according to rental agents, because the market is in such ebb and flow, with hundreds of units becoming available and rented each month.

Many investors are buying homes to rent out, but owners of rental properties are also capitalizing on rising prices by selling units to owner-occupants.

Ryker Wada, an attorney with the Legal Aid Society, said he's noticed a rise in calls from renters frustrated that they have to move out because their landlord is selling their unit.

"Most people aren't buying to rent," he said.

Wada said rising rental rates disproportionately affect low-income residents who are less able to find a cheaper place because they are already renting at the bottom of the market.

Kendell Hirai, executive director of the Hawai'i HomeOwnership Center, said some clients have reported rent increases of $500 or, in some cases, a doubling of rent.

To address what is estimated to be an affordable housing shortage of 30,000 units, Gov. Linda Lingle is urging the Legislature to increase by $100 million the borrowing authority of the Housing and Community Development Corporation of Hawai'i, a state developer and manager of affordable housing.

Several private developers also have affordable housing projects in the works.

Still, for many in the market, ownership is out of reach.

LeAnne Maupin recently moved to Hawai'i from California with her husband and son to help care for her parents. She said she would have liked to buy a house, but needs to find a job.

Like others in the rental market, Maupin feels as if she missed capitalizing on the run-up in real estate prices and home equity because of her timing in moving to Hawai'i.

But she believes she got a relative good value on the three-bedroom, two-bath Waikele single-family home that her family recently rented for $2,000 a month, a sum she said is a few hundred dollars less than comparable rentals in the Bay Area where the family moved from.

"For us, it was not outrageous," she said. "Of course I hoped it would be less, but I understand that the current market demand has pushed the prices up."

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.