Pace of isle construction to accelerate this year, UHERO predicts

There are cranes seemingly all over Kakaako, but the state’s overall construction activity didn’t live up to its hype in 2014 amid a decline in residential building permits and a meager 1.7 percent gain in jobs throughout the building sector.

This year’s pace of construction, though, should ramp up as Kakaako condo building intensifies and new tourism-related projects such as the former Ihilani Resort and Spa renovation are added to the mix, according to a report scheduled for release Friday by a group of University of Hawaii economists.

Construction spending is forecast to rise 9.4 percent this year to $7.6 billion, the University of Hawaii Economic Research Organization said.

Still, the state’s construction expansion is on an uneven path as a diminished building schedule for the Hono­lulu Rail Transit Project and lagging single-family home development are seen generating a lower and later peak to the current cycle, UHERO said.

"This is shaping up to be a very different kind of expansion than we saw last time around," UHERO’s economists wrote. "In the 2000s, building was strongest in single-family home construction, and centered on the neighbor islands. This time, the growth is in commercial construction and high-rise housing, and it is focused heavily on Oahu. The different composition of the cycle is creating clearly different patterns of permitting and job creation. And rail on Oahu adds a whole new dimension to the mix."

UHERO said Kakaako condo construction is driving the early stages of a residential building upturn in Hawaii, "although you would never know it from the statistics."

Statewide permitting for new residential construction declined last year after two years of expansion, with multifamily approvals falling to their lowest levels in years. On Oahu, combined permits for single-family and condo development fell to fewer than 1,600 units, down more than 35 percent from 2013.

"The disconnect between the visible evidence of building in Hono­lulu and the decline in permitting appears to reflect the long permit processing times for new residential condominium projects, rather than a collapse of construction activity," UHERO said.

But the flatter profile of the current construction expansion is not all bad news, UHERO said.

"While the industry and workers would probably appreciate even stronger demand, less peakiness may mean more staying power, without the excesses that developed during the housing bubble period of the last decade," UHERO said. "The question remains whether entitlement and related issues will be resolved in a way that permits enough building to meet the housing needs of Hawaii’s growing population."

UHERO, which in an October report projected the Oahu median price for single-family homes to rise 10.6 percent this year to $758,500, now expects the median to increase just 5 percent to $709,600. UHERO is then forecasting an 8.8 percent increase in 2016 to $772,200 and a 5.8 percent gain in 2017 to $816,800.

Condominium prices are seen rising 4.2 percent this year to $365,000. That is down from UHERO’s October forecast of an 11.1 percent increase to $398,900 in 2015. UHERO then sees the median condo price rising 8.1 percent in 2016 to $394,700 and 8.4 percent in 2017 to $428,000.

Construction spending, following the projected 9.4 percent increase this year, is forecast to rise 12.1 percent to $8.5 billion in 2016 and 7.4 percent to $9.1 billion in 2017.

Building permits, a precursor of future construction activity, are expected to rise 6.9 percent in 2015 before jumping 11.2 percent in 2016 and then edging up 1.6 percent in 2017. The construction job count, which lags permitting, is forecast to grow 5.1 percent this year to 33,200 workers, 6.6 percent in 2016 to 35,400 workers and 5.5 percent in 2017 to 37,300 workers. It rose just 1.7 percent in 2014 to 31,600 workers.