Construction in Hawaii for quarter two of 2016 was much stronger than quarter one. Monthly “New Privately Owned Housing Units Authorized” data from the US Census Bureau shows April through June units totaled 1,318. That’s a 98.5% increase over quarter one’s 664. Year over year, Q2 of 2016 was 2.5% stronger than Q2 of 2015.
This is welcome news following Hawaii’s disappointing quarter one numbers. Compared to Q1 of 2015, Q1 of 2016 saw a significant drop in multi-family unit permits, and a slight drop in single family unit permits.
In total, there was a 55.5% decrease in total private residential building permits in Q1 of 2016 compared to Q1 of 2015, but single family units only decreased 8.9% – 50 less units in total. In real numbers, there were 1,410 permits taken out in Q1 of 2015 versus 627 in Q1 of this year*.
So what’s changed? In short, the number of multi-family unit building permits. Total multi-family unit permits for 2015 numbered 2,868 – the most since 3,070 in 2004, and the fourth most since 1982, with the high water mark of 4,803 set in 1991. Quarter one of 2015 saw 846 of these multi-family unit permits compared to only 113 in quarter one pf 2016. This difference accounts for the majority of the decrease in total numbers.
Building Permits for Private Residential Single Family Units in quarter one of 2016 accounted for 514 of the total 627 permits. That’s 82% of the total private residential building permits for the quarter. Compare that to 564 in first quarter 2015. Those 564 single family unit building permits accounted for only 40% of the 1,410 total private residential permits.
Looking through quarterly statistics dating back to 1982, the only thing consistent about multi-family unit permits is that their numbers vary widely from quarter to quarter. It’s not uncommon for one quarter to account for nearly 50% of a yearly multi-unit permit total. A contributing factor to this volatility is the consolidation of many units together in large condos and apartments which are permitted together. For example, only 21 structures accounted for 806 of Q1 2015’s permitted units. With such a small number of projects accounting for a large portion of total quarterly permits, it’s important to note that year over year totals are a better indicator of trends, because of the volatility caused by small sample sizes.
So what does it mean? First of all, 2015 was a very strong year for construction in Hawaii. Total Private Residential Building Permits numbered 5,248. While not a record setting year – the high in recent memory was 9,706 in 2005 and further back 1989 saw a peak of 9,795 – the 2015 total soars above the 3,085 average number of permits taken out per year between 2009 and 2014.
Hawaii is ranked 40th in the US in population, with around 70% of the population living on Oahu. Because Oahu is only 597 square miles it severely limits new home construction. Because of all that, as a state we have a small sample size and looking at the US data as whole is necessary to see overall construction trends. For the US as a whole, Q1 2015 to Q1 2016 saw an increase of 6.15% in new privately owned housing units, while Q2 2015 to Q2 2016 saw an 8.77% decrease.
A major factor in new construction is consumer confidence. Between December 29 and February 11, the Dow Jones Industrial Average lost a staggering 11.63% of its value amidst concerns over the health of China’s economy and the negative effects of low global oil prices on the jobs of workers in the US energy sector, while the S&P 500 lost 11.99% of its value. Consumer confidence and new construction have a strong connection, and economic uncertainty directly impacts new housing starts. Since February, new construction permits in Hawaii have been on an upward trend as quarter two results show. However, June 21 saw the Brexit vote which was a shock to the economic system. Quarter two results, which take data from April, May, and June, won’t truly show the effects Brexit may be having. Despite Brexit, since February 11, the DJIA is up 18.4% and the S&P 500 is up 19.34% – reaching an all time high.
What we are waiting for in Q3 is to see is if the Brexit vote was another shock to this upward progress, or just a hiccup.
All statistics come from Hawaii’s Department of Business, Economic Development & Tourism, and the US Census Bureau.
* There is a discrepancy in numbers between the US Census Bureau dataset and Hawaii’s Department of Business, Economic Development & Tourism’s data.
Building an ADU (Accessory Dwelling Unit) in Honolulu County, Hawaii can have several benefits, both to homeowners and the community. If you’re a homeowner with a lot over 5,000 square feet and your property meets the minimum requirements of Honolulu City Council Bill 20, you can build a separate living unit, either attached to your home or detached, up to 800 square feet. If your lot is between 3,500 to 4,999, the ADU can be up to 400 square feet, while a lot less than 3,500 is not eligible for an ADU. The ordinance also states that as an alternative to building an entirely new structure, it is possible to partition an already standing structure into both a primary and accessory dwelling.
This ordinance passed in 2015 with the intention of adding additional affordable rental units to Oahu, while maintaining the character of neighborhoods. In theory, if hundreds or even thousands of ADUs are built, the increased supply of rental units should help alleviate some of the housing shortage and reduce upward pressure on rental prices. This proposed solution to the short supply of housing was chosen to try to avoid leveling neighborhoods to make way for condos and apartment units, while also creating additional income sources for homeowners.
The ADU ordinance also helps address a gray-area rental market that rose up in the years following the 1990 “Housing-Ohana dwellings” Ordinance of Honolulu. This previous bill stated that “one ohana dwelling unit may be located on a lot zoned for residential, country, or agricultural use, with the following limitations:… The ohana dwelling unit shall be occupied by persons who are related by blood, marriage or adoption to the family residing in the first dwelling. Notwithstanding this provision, ohana dwelling units for which a building permit was obtained before September 10, 1992 are not subject to this restriction and their occupancy by persons other than family members is permitted.” The ADU ordinance allows for this second dwelling unit to be rented to non-related parties. However, language in Bill 20 emphasizes that the primary unit on the lot should be occupied by the property owner, owner’s family, or a designated authorized representative, which the bill clarifies “For purposes of this section, ‘designated authorized representative(s)’ means the person or persons designated by the property owner or owners to the department of planning and permitting, who are responsible for managing the property.” In addition, the bill states that if either primary dwelling or the accessory dwelling is rented out, they must be for long term rentals (At least a 6 month long initial lease which can be followed by month-to-month for an existing tenant) and not bed & breakfast or transient vacation rentals.
In order to apply for an ADU, “the applicant shall first obtain written confirmation from the responsible agencies that wastewater treatment and disposal, water supply, and access roadways are adequate to accommodate the accessory dwelling unit.”
Bill 20 goes further to detail the path for previously built structures to become ADUs:
“An existing, legally established, accessory structure constructed prior to the effective date of this ordinance in the country or residential district may be converted to an accessory dwelling unit and allowed to exceed the maximum floor area established by Section 21-5. and/or be exempted from the off-street parking requirement established by Section 21- 5. (c)(4) and contained in Table 21-6.1 subject to the following conditions: Provided the director finds that viable constraints do not allow the reduction of the floor area of the existing accessory structure. Provided that the director finds that no feasible alternative off-street parking site exists due to the placement of structures on, and/or the topography of, the zoning lot.”
The most important limitations of the bill are that homeowners must have a lot at least 3,500 square feet large, not in a planned community, or part of an association, and the separate living area must include a kitchen, bathroom, and bedroom, have a parking space, and appropriate water and wastewater access.
Eight Hundred square feet is enough to build a comfortable two bedroom rental and even if construction of the ADU is financed, income generated at current rental rates would provide a good passive income source to contribute to the mortgage on the primary dwelling or to help retirees pay for living costs.
While not for everyone, ADUs are a viable option not just for existing homes, but for brand new constructions as well.
If you’re remodeling a kitchen, bathroom, replacing the flooring in your home, or building a new house, natural stone is a beautiful material choice. Part of the charm is the subtle variation in color and patterns from stone to stone. Unlike something artificial made in a factory, no one has 100% control over stone taken from a quarry. This idea that the stone in your house can be completely unique from everyone else’s is extremely appealing. It makes your home one of a kind – no one can copy it even if they try.
At the same time, this variability creates uncertainty in the building process. The most common approach to picking stone is to view samples in a show room. This is super convenient compared with traveling to another part of the country, or even the other side of the world to see the newest blocks of stone in person. However, picking samples in a show room creates a couple hidden issues. First, how long has that sample been there? At a quarry, every chunk of stone taken out is gone forever and there can be huge variation in color and pattern from one section of the quarry to the next. The older the samples, the greater the chance of you receiving stone that doesn’t match up the same. Another related issue is that stone suppliers are often wholesalers. This allows them to offer a wide variety of colors and choices, but it means they may not have significant supplies of that stone to meet your square footage needs. In this case, once a stone is selected the wholesaler will ask for the pictures and/or samples of the latest slabs coming out of the quarry. These new samples are then reviewed to make sure the order will match the desired appearance of the selection and then the order is placed with the quarry and the stone is reserved. On higher end purchases, traveling to view the stone in person to make selections can remove part of the uncertainty. If you’re planning on using thousands of square feet of stone, that extra travel expense can make sense. A couple thousand dollars in travel expenses can save you the headache of ordering 5 or 6 figures worth of stone only to find out the quarry no longer has stone that’s a good match for old samples.
In this equation, distance equals time. Due to the nature of this process, the farther away the material is from you the longer the timeline becomes. Cutting, packing, and shipping stone across the ocean can take up to three months. If the stone is available close by, that speeds up the process immensely. It doesn’t always happen, but from time to time samples get out dated and what is actually available from the quarry can look significantly different. While your deposit should be recoverable in this situation because this second sample needs to be approved before the stone is purchased and reserved, you have lost time which can push back the finish date of your project. If you can find an alternative stone available locally you might be able to make up for lost time, but continuing down the path of an international stone purchase will add additional time. The process can be the same with locally available stone – you review samples at a showroom, then updated images or samples from the actual slabs you will be ordering are made available for your approval before the order is placed and money is fully committed. The one big advantage here is the time it takes for each step is significantly less. You could review, reject, ask for new samples, and repeat several times with local stone in less time than it might take for an international stone to go through one cycle.
Despite these challenges, natural stone is a long lasting, beautiful material for all parts of the home.
At the end of May we found out that we made Pacific Business News‘ top 25 list of General Contractors as ranked by 2015 Hawaii Gross Billings. We feel honored to be the youngest company on the list. Nearly half of the companies on the list were established more than 40 years ago, so we are excited to share their company. We are also proud that our efficiency has allowed us to be among the top 25 while being the smallest business by number of employees. We look forward to a strong 2016 continuing on our success of building custom homes that make us proud.
Things are really starting to take shape at the new home we’re building in Kailua. Though we enjoy working on a wide range of projects, from small remodels and renovations to large new design, there is a certain amount of excitement involved in building an entire house from the ground up. At this point the plumbing, concrete, framing, and roofing are in place and from here on out things are going to move quickly. Once the drywall is up and the exterior of the house is painted to protect from the sun, flooring, cabinets, beautiful custom doors, electrical and plumbing fixtures, and appliances will transform this shell into a beautiful home. We look forward to posting more updates as the project progesses!