It costs more to buy Hawaii real estate than it does on the mainland. This isn’t a new phenomenon, which is why there was a 1992 book titled “The Price of Paradise”. The need to pay to bring in almost everything into the state is a well known fact. Lack of space is part of that reason.
When the only available land consists of volcanic islands, much of which is too steep for construction, there is only so much Hawaii real estate that can be built on. You can’t build out without building artificial islands. Another large chunk of Hawaiian real estate is zoned only for agriculture. The only solutions remaining solutions are to live shoulder to shoulder, pay a premium for space or build upward. And all of these factors drive up the prices for Hawaii real estate.
Hawaii Real Estate Averages
The median home for sale in Hawaii cost $547,600 in 2015. This is a dramatic rise from the $349,000 price tag for a single family home in Hawaii in 1992. That price tag today will get you an average condominium, as long as it doesn’t have a view of the ocean and isn’t in walking distance of the beach. The average condo for sale in 2015 in Hawaii cost around $385,000.
Hawaii real estate prices went up 5.2% over 2014 prices; on most islands, prices haven’t yet hit their pre-recession highs but have certainly recovered. Hawaii’s real estates are buoyed by out of state and international buyers who aren’t bound by the state’s below average median income. In fact, until 2008, housing prices were driven up almost entirely by retirees buying retirement homes, speculators buying homes as investments and Japanese buyers.
The high price of real estate isn’t limited to home purchases. Hawaii rental rates also went up, hitting $2,350 per month by mid-2015. Hawaii rental rates almost doubled between 1993 and 2013.
However, Hawaii’s rental market is skewed upward by its seven million tourists as well as its leasehold system. About 20% of the real estate in Hawaii is owned by private individuals and families. Residents tend to sign long term leases with terms of up to 99 years; these leases inflate the values of the properties, prevent land from being turned into real estate for sale on the broad market and drive up monthly rates because of the limited supply of leased property.
The confluence of all these factors is that while Hawaii homes for sale are very expensive compared to mainland real estate prices, the monthly mortgage payment for a home in Hawaii is close to the average rental payment in most Hawaiian real estate markets.
Oahu contains some of Hawaii’s most expensive real estate. It is the state capital and home to many schools and offices. The military takes up a large amount of real estate on Oahu, from the Bellows Air Force Station to Pearl Harbor to the Schofield Barracks. The military’s presence in the area provides jobs but also drives up demand for real estate while constraining the available land on which it could be built. Almost half of all land in Hawaii is managed by the state or the federal government, but this problem is more severe on Oahu because of the high population relative to the limited amount of space.
The high demand for real estate on Oahu is why it home prices there had rebounded to 2011 highs by 2014. The median sale price for a single family home in Oahu reached a record high in October, 2015 of $730,000. This is a 7.6% increase over the prior year, following several years with 5% or higher price increases. This is a dramatic increase over the 2005 prices, where a single family home cost just under $600,000. Today, $600,000 is a bargain on Oahu. The University of Hawaii Economic Research Organization expects Oahu homes for sale to hit $875,000 by the end of 2016.
Demand for housing boosted more than home prices. The median sales price of a condo on Oahu hit $366,000 in fall, 2015. This was a 5.5% increase over September, 2014 condo prices. For the state as a whole, condo prices were expected to rise 2.5%.
Oahu’s market is theoretically weak, due to high prices, but prices remain high due to the limited inventory. And the addition of many more condos to the market won’t put a much of a dent in the price paid for single family homes, unless the military bases are nearly depopulated.
Maui is home to some of the most expensive real estate in Hawaii. The resorts in Lahaina and Wailea provide jobs that draw people there to work while taking up land on which people might otherwise live. However, Maui and every island other than Oahu suffered more severe property value declines than Oahu and have yet to hit their pre-recession highs. The median price of a single family home in Maui was $435,000, according to a 2012 article by the Maui News. According to Zillow.com, Maui home prices had reached $538,200 by the fall of 2015, a 2.3% increase over 2014 values. Prices were highest in Paia at nearly $600,000, while the median price of a home in Kuanakai was only $222,100.
Maui condos cost around $461,000 as of 2015. This is still below the fall 2006 high average price over $600,000. However, it is well above the late 2011 $335,000 cost of a Maui condo.
Kauai actually exceeded Maui’s single family home median price in 2006, hitting $595,000 for the median priced home for sale before falling. Kauai’s real estate prices fell during the 2007 to 2010 Great Recession. They’ve started to climb back up, increasing 6.9% to $504,400 in October, 2015 according to Zillow. Kauai has more homes delinquent on their mortgage, 14.2%, so the greater rate of distressed home sales help keep prices down.
Kaui condo prices hit a 2011 low of $324,000 but have risen to $445,000 in 2015. This is still well below the 2006 highs of almost $550,000 for a Kauai condo.
The Hawaiian Big Island of Hawaii is
The big island’s economy focuses on agriculture and ranching, not tourism. For this reason, the Big Island has had the lowest average price for a home and held that record for a long time. However, Kona had an average sale price of $1,073,977 in 2015, according to Realtor.com. This was much higher than the average home price of $635,000 for the state. The real estate website Trulia said the Kona market has 5.5% appreciation in 2015.