HOUSING IN HAWAII
Hawaii has the dubious honor of having some of the highest average costs for housing in the United States. Our prices can be quite a shock for someone relocating here from other areas of the U.S.
In addition to high prices, we also have two types of property ownership, “Fee simple” and “Leasehold”, as well as different construction methods.
Fee Simple (Freehold) ownership is the same as in most areas of the country. When you purchase a property, such as a single family home, you obtain title to the land as well as the improvements (structures).
Leasehold ownership is where you purchase the improvements, but rent the land. Land leases usually run 50 to 99 years. There is generally a fixed lease rent for a given number of years. The end of the fixed period is called the renegotiation date. At that time the owner of the land (lessor) and the owner of the home (lessee) would renegotiate the rent for the remaining period of the lease.
State law requires that the Seller, of a leasehold home/condo, give a copy of the lease and a lease disclosure, (document containing an outline of the pertinent facts of the lease; lease rent amounts, renegotiation date, lease end date, etc.) to the Buyer within 10 days of accepting an offer to purchase. The Buyer then has ten days to review the lease and decide to continue with the purchase contract or withdraw.
It is important to realize that a buyer could be making an offer on a property, which may be well into the lease period. This could affect the Buyers ability to mortgage the property or to resell it, as the end of the lease approaches. Also disposition of the property at the end of the lease would be of concern to the Buyer, in many cases the property and all improvements thereon, revert back to the landowner at the end of the lease.
There are some advantages to purchasing leasehold property. Leasehold property generally costs less than Fee Simple. This allows the first time buyer to get into the market place for less money. It also means you could buy more house for the same money.
Purchasing leasehold sounds frightening to some, but it can serve your purpose. For example, you may purchase a leasehold property with the expectation to re-sell it within 3 to 10 years, as long as the lease has sufficient time remaining (until it renegotiates and/or expires) to attract a new Buyer. In the meantime your ownership will generally allow you to build equity for your next purchase.
Beware of purchasing leases of less than 30 years. As leases get shorter, the property tends to depreciate rather than appreciate. As the lease approaches its end the value will go down to zero. You will also find it difficult to mortgage a short lease, so many short leases are bought in cash. An elderly person may choose to buy a leasehold property rather than rent, if they expect the lease to outlive them.
End of Lease
Many people ask, “what happens at the end of the lease?” Many incorrectly assume that the lease will be renegotiated at a new price. Each lease has different terms and most do not require the land owner to continue to lease the land to the tenants. Thus, most Owners of leasehold will have to leave the property and their investment behind, when the lease ends. Most leases do not require any compensation to the tenants, and all improvements on the property revert to the land owner.
Due to our tropical weather conditions, construction of many homes in Hawaii vary greatly from what you would see in colder climates. Our record low, on one cold winter night, was 49 degrees. Burr? Our days average 80 degrees plus or minus 5 degrees, year round, but 80 to 82 is most common. Therefore we lack the need to have storm windows, insulation and double wall construction. Indeed many homes in Hawaii, especially older ones, have single wall construction. It can sometimes be frustrating for a buyer to pay $400,000 to $700,000 for an average home, which doesn’t look like much more than a summer cottage. However in recent years Hawaii has adopted the nation wide building code, which does call for more substantial building construction.
A description of an average home would probably be a 3 bedroom, 2 bath home with single wall construction, jalousie windows, carport and 1500 square feet of living space, situated on 5000 to 7000 square feet of land. The average price would be about $450,000 Fee Simple. Increasing the interior to 1700 square feet and adding double wall construction, brings the average price up to approximately $560,000.
Property taxes are approximately $3.50 per thousand of appraised value, which is generally around the sale price, but not always. Therefore annual taxes on a home valued at $500,000 would be about $1750. For more info please see our page, Property Tax in Hawaii.
Below are some average rental price ranges for housing on Oahu. Rents vary depending on location, size, age and drive times. In Honolulu, rents run about $2.00 to $3.00 per square foot, per month
Type Average monthly rental
Single family homes $1800 to $4000
Townhomes $1500 to $3000
Studio Condo/Apt $800 to $1100
1 Bedroom Condos $900 to $4000
2 Bedroom Condos $1200 to $4000
3 Bedroom Condos $2500 to $6000
The cost of land is the major factor in determining the price of a home here. Our island of Oahu is the main island, where Honolulu, Waikiki and the International Airport are located. The Island is approximately 36 miles long and 18 miles wide. Approximately 600 square miles of land, much of which is mountains. The population of Hawaii is approximately 1,400,000 people. Approximately 75% to 80% of the population, business, arts, restaurants etc.. are located on Oahu.
As a rule of thumb, the further you travel from Honolulu, or from the ocean the less expensive the land. Vacant lots in town, when available, will run about $500,000 for 5000 square feet. The same size lot, 20 miles out, will run about $150,000.
Oceanfront properties, which average $1,000,000 to $8,000,000, start at approximately $800,000 and range $5 million to $20 million in prime areas close to town.
Commercial property is very expensive. Apartment houses under 20 units, average $150,000 to $250,000 per unit, for one bedroom units of approximately 500-700 square feet. We do not have Motels here. Hotels range between $20 million to $300 million, with the average being in the $100 to $200 million range.
Space runs from $1.50 to $12/square foot/month, plus CAM (Common Area Maintenance). Most commonly retail space works on a percentage lease, usually 8% to 12% of gross receipts, plus CAM.
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