Hawaii Economists Say New Housing Construction Unlocks Affordable Units Across the Market
Why It Matters
Hawaii’s housing affordability crisis has long centered on the challenge of building enough new units to meet demand. But researchers at the University of Hawaii Economic Research Organization (UHERO) are now arguing that the state may be focusing on the wrong part of the equation — overlooking how new construction creates a ripple effect that opens up lower-cost housing throughout the existing market.
The findings carry significant implications for state housing policy, particularly as high housing costs continue to force Hawaii residents into difficult financial decisions and lawmakers weigh how to allocate limited resources for affordable housing programs.
What Happened
UHERO economists Carl Bonham, Steven Bond-Smith, and Justin Tyndall recently discussed their latest housing research, including a detailed case study of The Central, a 512-unit condominium development in the Ala Moana area of Honolulu. The building, one of the tallest in the state, was constructed under Hawaii’s 201H Development Assistance program, which sets aside a share of units for income-restricted buyers.
Tyndall’s research examined what economists call “housing filtering” — the process by which new construction indirectly creates vacancies in older, more affordable units as residents move up the housing chain. The study used a national address-history dataset to track where residents of The Central lived before moving in, and what happened to the homes they left behind.
By the Numbers
- 512 units were built at The Central under the 201H program, with 60% set aside for income-restricted buyers at up to 140% of Area Median Income (AMI) — meaning a household earning up to roughly $140,000 annually could qualify.
- 80% of residents who moved into The Central relocated from other Hawaii addresses, while approximately 20% came from mainland locations, with California most represented.
- ~500 local addresses were vacated within the first three years after The Central opened, as a direct result of residents moving into the new building or into homes freed up by those who did.
- Only 3% of Hawaii’s existing housing stock has been built since 2010, meaning the vast majority of residents — particularly lower-income households — circulate through the older, used housing market.
- 40% cheaper on average: the vacated units left behind by residents who moved into The Central were priced substantially below the new condo’s units, including its income-restricted offerings.
The Filtering Effect
Tyndall emphasized that most lower-income households will never occupy a newly constructed unit, regardless of affordability set-asides. The policy leverage, he argued, lies in understanding what new construction does to the broader market rather than focusing solely on what gets built.
“Most people circulate through the used housing market,” Tyndall noted in remarks at a recent UHERO briefing. When a higher-income or move-up buyer occupies a new unit, the home they vacate becomes available to someone else — and that chain reaction continues down the price ladder.
The research found the number of vacated units created through this filtering process actually exceeded the count of new units at The Central itself over the study period, with researchers expecting that tally to grow further over time.
UHERO director Bonham noted that a recent closed-door gathering of the organization’s academic staff and state political leaders — including mayors and the governor — generated unusually animated discussion around Tyndall’s filtering findings, with broad interest in distributing the research more widely as an educational resource for policymakers.
Zoom Out
The filtering concept is not unique to Hawaii — urban economists across the country have debated its effectiveness for decades. But the findings take on added weight in Hawaii given the state’s exceptionally constrained land supply, strict height limits, and lengthy permitting processes. UHERO’s earlier work has focused on quantifying the economic costs of regulatory barriers to new construction; this latest study shifts the lens toward what benefits actually materialize when those barriers are cleared and building does occur.
The conclusions arrive as Hawaii also grapples with related pressures. Homeless counts on neighbor islands have shown recent declines, though underlying conditions remain a concern for housing and social services officials statewide.
UHERO also released a broader economic forecast noting that Hawaii faces “a new wave of uncertainty,” as rising global oil prices driven by conflict involving Iran are pushing up consumer costs, increasing travel expenses, and dampening growth in the visitor sector that underpins the state’s economy.
What’s Next
UHERO researchers indicated they plan to continue expanding the filtering study beyond the initial three-year window to capture longer-term vacancy chains. Policymakers are expected to weigh the findings as the state legislature and county governments consider future amendments to housing permitting rules, density limits, and the structure of income-restriction programs tied to development approvals.