Hawaii Real Estate
Hawaii Real Estate
When the Chips Were Down: Gambling on Tech. to Save Property Management
Today, we begin a special three-part Focus Piece on the untold history of power, technology, and the law in the residential real estate sector. At the center of this story is a relatively unknown organization that has nonetheless helped shape the landscape of residential leasing in America for the past 40 years.
When the Chips Were Down:
Gambling on Tech. to Save Property Management
© 2024 by Hawaiʻi Association of REALTORS®. All rights reserved.
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Honolulu, HI 96817
Phone: (808) 733-7060.
Email: har@hawaiirealtors.com
Introduction
E komo mai. Welcome to Hawaiʻi Real Estate, a podcast on the buying, selling, and leasing of property in Hawaiʻi. Each episode of our podcast consists of a Real Data Report, which analyzes Hawaiʻi’s most recent housing data, and a Focus Piece, which provides legal and other special insight into a matter of major and contemporary concern for Hawaiʻi real estate transactions.
Our episodes air the 15th of each month. Today is October 15, 2024. Welcome to Hawaiʻi Real Estate.
Real Data Report
U.S. Economy
Since we last spoke, the U.S. Federal Reserve cut interest rates by a half point. That was an aggressive move, and it reflected the Fed.’s outlook on the U.S. economy.
At a press conference held after the Fed.’s Open Market Committee decided to cut interest rates by a half point, Chair Jerome Powell described why the decision was made:
"The U.S. Economy is in good shape. It’s growing at a solid pace. Inflation is coming down. The labor market is in a strong pace [sic]. We want to keep it there."
Most expected a quarter-point cut. A half-point cut was almost dramatic.
Today, we explore what that half-point cut really means. Not just for economists or Wall Street traders. But for the everyday homebuyers, the REALTORS®, and the property managers shaping Hawaiʻi’s real estate landscape.
Let’s start with why the Federal Reserve took this step. Over the past year, the Fed has been balancing two priorities—bringing inflation down to its 2% target while keeping employment high.
When the Fed.’s Open Market Committee met in September to decide whether to lower interest rates, it noted that, leading up to that meeting, inflation had been making progress, edging lower, but still sitting just a little too high.
Job growth? Well, that was slowing down, but unemployment remained relatively low. So, the Fed had to make a move to signal that it understood that inflation was a comparatively lesser concern to job growth.
So how does the aggressive half-point cut affect Hawaiʻi’s real estate markets? With this half-point cut, we are turning toward greater affordability, but unique factors are at play in Hawaiʻi. So let’s look at Hawaiʻi’s inventory and prices, and let’s begin with Honolulu.
City and County of Honolulu
Honolulu is often seen as the bustling, heart of Hawaiʻi.
Average listing prices here show a consistent increase over the last few years. This past year, the average listing price for a Honolulu home was about $1.2 million, a solid reflection of demand for homes in one of the most desirable locations in the United States.
For those worried about affordability, look to the median listing price in Honolulu, which currently sits at about $700,000. This tells us that while luxury properties may be pulling up the averages, more affordable options do exist in Honolulu, especially for first-time homebuyers or those seeking investment opportunities at the median price level. So, in Honolulu, prices are strong within a wide range.
But how long does it take to sell a home here? Well, in terms of median days on market, homes here typically take around 60 days. This timeframe is fairly standard across the United States and indicates a relatively balanced market where buyers and sellers have room to negotiate. So, while prices in Honolulu are strong, homes don’t speed from listing to closing—yet they don’t linger for too long either.
Hawaii County
Now, let’s move to the Big Island—home to Hilo, Kona, and the expansive space in between.
With a median listing price of $600,000, the Big Island offers some of the more affordable housing options in the state and could be especially attractive to those seeking escape from urban congestion.
But homes on the Big Island do take longer to sell. Big Island homes remain on the market a median 86 days. Here, buyers have more negotiating power and room to be selective, and sellers might need to be patient.
If you look at these numbers in isolation, though, you miss the bigger picture. Go back five years and you can find homes on the Big Island for about $400,000--$200,000 less than today. So what’s happened these past five years?
After the pandemic, something changed. Buyers seeking space, peace, and a new way of life started to look at the Big Island. Not because it was the obvious choice, but precisely because it wasn’t. They wanted quiet; they wanted escape. And the Big Island offered that in abundance.
So prices on the Big Island over the past five years have risen dramatically. Who knows how high they’ll claim?
Kauaʻi County
Now let’s take a flight to Kauaʻi, the island of waterfalls and hidden beaches. Kauaʻi’s real estate market is unique, shaped by its small population and stunning natural beauty.
The average price here? About $2.5 million, the highest in the state.
And its median listing price is similarly astronomical. At about $1.5 million, its median listing price is also the highest in the state.
Kauaʻi is known for its luxury appeal. It is an exclusive market.
In fact, apart from its rising prices, Kauaʻi is perhaps most set apart from other housing markets by its shrinking supply. At one point in 2016, the island had 704 available homes for sale. Just over eight years later, in September 2024, there were only 300 available homes. There are less than half as many homes on the market in Kauaʻi now then there were a decade ago.
So, as you would expect with falling inventory, median listing periods in Kauaʻi are shortening. Sure, sometimes median listing periods will rise over a few months, but the general trajectory is clearly down.
Despite quick and significant interest rate changes, Kauaʻi’s home prices keep getting more expensive, scarce, and quicker to sell. Kauaʻi homes are largely immune to interest rate changes.
Maui County
Finally, we land on Maui, the Valley Isle.
Just over a year ago, Maui suffered a horrendous catastrophe. Wildfires in and around Lahaina destroyed over 2,000 structures, costing billions and leaving thousands homeless. The flames not only destroyed homes but also altered the psychological and financial landscape of the island.
What happens to a real estate market after a catastrophe like that? You might expect the reduced supply to trigger higher demand. But if you look at Maui’s housing data since the wildfires, you won’t see what you might expect.
Since the wildfires, the average home price on Maui has dropped 25%, and the median price has dropped 15%. This is more than a simple economic correction; it’s a puzzle.
When faced with a limited housing supply, conventional wisdom tells us prices should soar. Yet in Maui, the opposite is happening. So, what’s going on here?
Well, several factors could be at play.
First, the wildfires may have altered the perception of Maui as a safe haven, temporarily dampening demand from outside buyers. Outside buyers want a secondary or vacation home on Maui to experience true paradise. Obviously, devastating wildfires disabuse them of that notion, and their motivation for purchasing a secondary or vacation home on Maui has lessened.
But other similar locations have also suffered once-in-century level natural catastrophes recently without seeing their home values fall. Florida, for instance, was pummeled two years ago by Hurricane Ian. That storm destroyed about 8,000 homes and damaged about another 60,000 homes. It caused billions of dollars in damages, seriously threatening the state’s government- and private- insurance and reinsurance sectors. Why did Florida listing prices hold after Ian but Maui listing prices fall after the wildfires?
The answer may lie in how the fires altered buyer psychology. Florida’s history with natural disasters was a known risk—those who bought homes there, especially those who bought luxury homes on the beach, knew that Florida was threatened by hurricanes. Ian’s impact on Florida’s homes was devastating but it did not fundamentally alter people’s psychological perceptions of Florida’s housing market.
Maui, by contrast, was viewed by outside buyers before the wildfires as true paradise. The wildfires shook that perception. For many, the island was no longer the paradisiacal escape it once was; rather, it was a place of potential peril.
The data supports this. Since the wildfires, Maui’s average listing price has fallen 10% more than its median listing price. That’s exactly what you’d expect from a psychological-driven price drop.
Average prices are driven more by out-of-state buyers looking for secondary or vacation homes. Because their decision to buy is discretionary, it is more susceptible to psychological factors.
Median prices, by contrast, are driven by Kamaʻāina, local residents. Unlike out-of-state buyers who want to purchase a vacation or secondary home, Kamaʻāina residents want a primary home to house themselves or their family. Because they already live and work here, their decision to purchase housing here is less discretionary than those looking to purchase a vacation or secondary home.
Their decision to purchase is also driven more by practical necessity and on-the-ground realities than new psychological perceptions. So, if prices on Maui are falling in part due to psychological-driven perception shifts of the island following the wildfires, you’d expect to see that most clearly in Maui’s average list price data, which is driven by out-of-state buyers, who are more susceptible to that very kind of psychological-driven perception.
And that’s exactly what you see when you look at the data. Compared to the median listing price, the average listing price for a home on Maui since the wildfires is down 10%.
OK, then there’s the local economic shock from the fires. The fires caused job losses and business closures. The people most affected by the economic shock caused by the fires are those that drive the island’s non-luxury home market—its median listing price, basically. So, it makes sense that Maui’s median listing price would be down since the fires.
But intriguingly, as we’ve said, the sharpest price drops have occurred at the luxury end of the market, where one might assume economic uncertainty would have less sway. We’ve already identified the profound psychological shift in the perception of Maui as a contributing factor to the drop in Maui’s luxury home market, but can that psychological factor account for the full 25% drop in Maui’s average listing price since the fires?
Probably not. One other factor could be at play: the cost of insuring those luxury homes.
The risks associated with rebuilding or even maintaining properties in fire-prone areas have surged. The uber-wealthy may not be scared off by job loss or day-to-day economic shifts, but they do care about the potential loss of a multi-million-dollar home. And if the cost of insuring such homes rise to unsustainable levels, their value inevitably drops.
But, again, remember Florida. Florida's residential insurance and reinsurance markets have undergone significant changes and faced numerous challenges in the aftermath of Hurricane Ian in 2022. Why would Florida’s listing prices hold amidst an insurance crisis while Hawaiʻi’s fall?
Ian’s real-term economic impact on Florida’s housing industry was simply more severe. After Hurricane Ian, many insurance companies in Florida went insolvent. Other insurers left the state or placed moratoriums on writing new homeowner insurance policies in the state. Insurers that didn’t leave the state or go under jacked their policy premiums—an average annual homeowner insurance policy in Florida in the year after Ian was about $6,000 per year, or about four times the national average. Although the Maui wildfires have clearly impacted Hawaiʻi’s insurance and reinsurance markets, leading to significant payouts and market reassessments, Hurricane Ian’s impact on Florida’s insurance and reinsurance market was more severe. So, again, why would Hawaiʻi’s listing prices fall where Florida’s stood.
Some might point to Florida’s government-sponsored insurance and reinsurance companies. Hawaiʻi doesn’t have that. Perhaps if it did, changes to the state’s private insurance markets would affect home buyers less.
But if it were that simple, the median and average prices in Hawaiʻi would be affected similarly, and to the same extent, by changes to Hawaiʻi’s private insurance market. They aren’t.
Average prices are down more. Psychology explains that best. Changes to Hawaiʻi’s insurance and reinsurance markets affected buying decisions in Hawaiʻi more than in Florida because buyers and Hawaiʻi, unlike Florida, were not factoring in possible changes to Hawaiʻi’s insurance market.
What we’re seeing on Maui, then, is more than just a reaction to supply and demand; it’s a reflection of deeper forces—psychological, economic, and environmental—that shape how we value property in a world increasingly defined by climate change. Maui’s recovery presents a real-world case study in how disaster-prone areas will rebuild—not just their infrastructure, but their reputations.
As Maui rebuilds, it finds itself at the forefront of a broader conversation about how communities in disaster zones can balance the need for recovery with the growing challenge of affordability. How can these places not just rebuild but do so in a way that doesn’t exacerbate inequality or price out the very people who call those places home?
Focus Piece
Today, we begin a special three-part focus on the untold history of power, technology, and the law in the residential real estate sector. At the center of this story is a relatively unknown organization that has nonetheless helped shape the landscape of residential leasing in America for the past 40 years.
Oil Crisis
Our story begins in Dallas, 1988.
Dallas was at a crossroads. The city’s identity had been forged by oil money, real estate, and the sprawling, outsized myth of Texas itself.
Dallas had been riding high. Its skyline, full of gleaming towers, stood as a testament to the boundless ambition of a city that never thought it could fail.
But then came the crash. Oil busted in the mid-‘80s, and the skyscrapers that had once symbolized Dallas’s prosperity emptied and loomed over that city like tombstones.
But Dallas wasn’t done. It couldn’t be. Dallas was a city that knew how to reinvent itself.
And so, in the ‘80s, Dallas civic leaders started to dream big—Texas Big. They knew their city needed a new industry. Technology in the 1980s was on the rise. So, Dallas civic leaders aimed to make Dallas into America’s technology hub and replace all the jobs lost to the oil bust.
That’s not as insane as it sounds. I know we all think of Silicon Valley or Harvard and MIT as our country’s inevitable technology hubs, but at that time Dallas had a strong foundation in technology, thanks to the presence of major corporations like Texas Instruments, which was founded in Dallas in the 1950s. Texas Instruments, or “TI”, birthed so many small technology startups that it was referred to by those in the industry as the “Training Industry.” So the talent was in Dallas.
Also, both General Dynamics and Lockheed had major facilities in Dallas-Fort Worth, and its killing machines were becoming increasingly reliant on technology. So the need for technology and the money to pay for technology was also in Dallas.
Finally, and not for nothing, but just north of Dallas was something colloquially referred to in the region as the, “Telcom Corridor.” That’s where you would find companies like AT&T and Ericsson operating major facilities. So, just north of the place that was intended to become the country’s technology hub was a major gathering of leading telecommunications knowledge, experience, and capacity.
Maybe Dallas could replace the jobs it lost to the oil bust with new technology jobs after all.
Property Management Crisis
Like the oil industry, residential leasing in America during the 1980s was at a point of crisis.
Tenant-Rights Movements
Tenant rights movements had gained traction across the country throughout the 1960s and 1970s. In New York and San Francisco, rent strikes, protests, and legal battles pushed for protections against evictions, for higher property standards, and for measures to mitigate or prevent rent increases.
Inflation had been rising since the 1960s, but by the time the 1970s hit, it was in full swing. Rising oil prices, spurred by the OPEC oil embargo, contributed to the rising inflation, but so too did a tremendous rise in government spending on Vietnam and new domestic social programs like Medicare and Medicaid.
As inflation soared, so did interest rates. The Federal Reserve kept rising [sic] rates to fight that inflation, but by 1980s mortgage rates had skyrocketed to over 18%.
Think about that. 18%! That’s more than double the current rate. How could anyone buy a home? Why would anyone buy a home?
They couldn’t and they didn’t. As rising inflation and interest rates devoured the purchasing power of the average American family, homes became unaffordable for most.
And so many would-be home buyers moved to the rental market. That caused a seismic shift in the residential property management market that no one quite saw coming.
Flooded Rental Market & the Property Manager’s Dilemma
At first glance, this surge in renters might have seemed like a blessing for property managers. More tenants meant more business. But behind the scenes, it was chaos.
Property managers, many of whom were small operators managing just a handful of units, suddenly found themselves overwhelmed by a tidal wave of new renters. There weren’t enough hands to juggle the growing number of tenant maintenance requests and legal complexities.
Imagine being a property manager in 1978. You used to handle maybe 20 units—a manageable load. But with this sudden influx of renters, your portfolio balloons to 50, maybe even 100. Fee time, family time—that’s all gone—because you’re constantly putting out one crisis after another: a leaky roof here, a broken furnace there. You’re spending more time dealing with tenant disputes and chasing late rent payments than ever before. The workload has tripled, but the margins haven’t, and everything’s coming apart.
Plus, the law is changing—and significantly. As more Americans turn to renting, the political landscape begins to shift. Tenant advocacy groups gain traction, pushing for stronger rent control, more tenant protections, and a tightening of regulations. Maybe Reagan is in power, but his administration-led deregulation effort hasn’t trickled down to your state or county level landlord-tenant code. To the contrary, tenant rights movements can point to real progress in regulating your industry.
Property managers knew they were licked. They knew they had lost the war against stricter regulation, and they knew they were losing the battle to keep up with the growing volume and complexity of property management demands from an ever-growing class of renters.
Property managers need a solution to the regulatory assault and the increasing complexities of their jobs. Because their businesses were often small, independent, and disparate, though, it would be difficult for them to organize and develop solutions.
But a leader would emerge.
Ralph Tutor
Ralph Tutor, an early computer scientist, became fascinated in the 1980s with developing software to streamline residential property management. He knew the property management industry was straining under recently imposed regulatory burdens, and he believed that his software could help many property management firms survive.
After his company, Real Estate Software, Inc. developed the first major computer program for streamlining property management, he began barnstorming the country to promote it. Perhaps inadvertently (perhaps not), his barnstorming became a way to unite previously small, disparate independent property managers, who were previously isolated.
And so, Mr. Tutor, the software engineer, organized a meeting of these property managers in 1988, in a city with emptied-out office buildings offering low-cost meeting spaces and conference rooms next to a promising group of technological upstarts. In 1988, Mr. Tutor and a cavalcade of property managers from across the country descended on Dallas. Their meeting would result in the formation of the National Association of Residential Property Managers (NARPM), a still relatively unknown organization, by the way, that has nonetheless influenced residential property management for the past 40 years.
Legal Compliance
It was clear from the start that legal compliance was one of the most pressing issues facing property managers. With laws constantly evolving, property managers had to be at the cutting edge—or risk fines, lawsuits, or losing their livelihoods.
Helping property managers remain current was no easy task. I recently interviewed Karen Cardoza, a longtime member of NARPM’s Oahu Chapter, who described the size of the undertaking:
"Property management companies manage a significant portion of the nation’s rental housing. In 2024, the top 50 management firms control 4,726,000 units across the United States, according to the National Multifamily Housing Council’s 2024 Multifamily Lending Firms Report."
So, big group.
And the laws are constantly changing. One example is the Environmental Protection Agency’s lead-based paint regulations. By the time NARPM was formed, the dangers of lead were well-known, and property managers had to navigate increasingly stringent rules to ensure compliance. As Karen explained when I interviewed her:
"The EPA banned lead-based paint for residential use in the U.S. in 1978. It instituted the Renovation Repair and Painting Program or the RRP program in 2008 and amended it in 2010 and 2011."
NARPM didn’t just provide information. As Karen points out:
"NARPM has been monitoring and reporting to its members on EPA lead-based paint issues for years."
And according to Karen, NARPM has encouraged its members to become certified lead-based paint renovators.
"NARPM has, since 2022, urged their members to become renovator certified. This is to ensure that there is someone who would know how to properly assign the projects, notify owners and tenants, supervise vendors to such extent as to ensure the vendors are doing work in compliance with the RRP rules, and gather and keep documents to show the work was done proper [sic]."
But compliance was just one piece of the puzzle.
Setting a Standard for Property Management: Code of Ethics
From its earliest days, NARPM recognized that if the property management industry didn’t establish its own standards, it risked falling into a race to the bottom—a scenario that could expose property managers and their landlords to greater legal liabilities, while also encouraging wider tenant activism. NARPM's creation of the Code of Ethics was an effort to prevent this spiral.
. I spoke to Arlene Kim Kawamoto another long-time member of NARM’s Oahu chapter, who described NARPM’s mission:
"[T]heir mission has always been, umm, to, not only, umm, recognize the property management industry, but also to be able to, umm, invest in education, empower professionals to elevate property industry through professional development, advocacy, and community."
This was a deliberate choice—an effort to go beyond the law and set a higher standard. The goal wasn’t just compliance; it was, at least in part, to ensure quality housing and foster trust between landlords, tenants, and property managers alike.
What’s the benefit of that? Fewer new lawsuits. Fewer new regulations. An industry that can speak with authority on issues that matter the most to it.
"[A]s far as how we advertise, how we communicate, how we practice with the industry standards, uh, that has grown tremendously."
NARPM has existed for 40 years. Its leaders in Hawaiʻi are determined to see it continue and grow.
"So if you want to manage property in Hawaiʻi—you want to learn how to do that, you want to network to help yourself get into the industry—this would be the place to do it?"
"Oh, yes! "
"Yes?"
"By-far!"
In our next episode, we reveal a crisis that has grown NARPM’s influence. You might be surprised by where property management is going.
And in our last episode of our property management trilogy, we circle back to property management technology. Much has changed since Ralph Tutor’s days, and the United States Department of Justice isn’t happy with all of it.
Join us November and December 15th, right here, on the Hawaiʻi Real Estate podcast to hear it all.
Conclusion
And that’s our episode. Remember: today’s episode was the first episode in a special trilogy on residential leasing and property management.
In our next episode, we reveal a crisis that has grown the influence of residential property managers and partially redirected their industry. You might be surprised by where the industry’s opportunity is growing.
And in our last episode of our special trilogy, we circle back to property management technology. Much has changed since Ralph Tutor’s days. And the United States Department of Justice isn’t happy with all of it.
Join us November 15th and December 15th, right here, on Hawaiʻi Real Estate, to hear it all.
Finally, for those who have not liked, commented, or subscribed to our podcast—inconceivable!—please take out your phones right now and do us a solid. Liking, commenting, and subscribing helps others find our podcast.
Mahalo. A hui hou!
