The median sale price of a new two-bedroom condominium in Hawai‘i is about $670,000, more than double the price in the average state. In this report, we try to determine why new condominiums are so expensive in Hawai‘i. We break down the costs involved in producing condominiums to better understand the causes of high prices.
2 thoughts on “Why are Condominiums so Expensive in Hawai‘i?”
Kudos to all who made this report possible. It was an eye opener for me. Curious to know why profit margin was not part of the evaluation.
With all the risk in construction what percentage is their profit margin scale do developers build into their project. The report pointed out that its margin is increased for possible adverse consequences. I noted that one of the most successful REIT’s in America, Agree Realty has investment property in every state but Hawaii. When asked why the CEO said Hawaii’s cost of real estate is too high and risky for them to make their projects worthwhile.
I read somewhere that of the total land mass in the State of Hawaii only 8 or 9 percent is available for housing. Not sure if this is correct. But why is so much of our land mass dedicated to conservation and removed from development. It it possible that “land banking” in Hawaii is another cause for the high cost of housing? Again my sincere thanks for this enlightening study on the cost of condo development in our state.
Thanks for your comment. The idea was to consider a perfectly competitive market where profits are pushed down to zero. In the current market, investors will demand a significant expected profit to compensate for risk. For completed projects, profits are significant, but these help subsidize all the failed projects. If profits were guaranteed in the production process, developers would flood in to capitalize until the profit opportunity disappeared.
Only 4% of land within the state is zoned for housing, and only 0.3% is zoned for multifamily housing. This is one of the main regulatory constraints that suppresses housing production.