Hawaii County Civil Defense Agency reported Monday that 657 homes have been destroyed by the massive volcanic flow that began May 3 in Lower Puna and has since covered 6,164 acres with lava.
That toll will add to the nearly $372 million in real estate market losses that Hawaii County real property tax administrator Lisa Miura reported Friday when the number of destroyed or inaccessible homes was estimated at 614.
More losses are expected. The Hawaiian Volcano Observatory reported Monday that fissure 8 still is erupting and lava is flowing to the ocean at Kapoho. According to the observatory, gas emissions remain high at the fissure eruption and where “laze” plumes surround the lava’s ocean entry.
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Such real estate ruin also could strain Hawaii island’s housing supply, especially for those looking for a Puna price point. Realtor.com reports that the losses are the equivalent of more than one-quarter of Hawaii island’s for-sale housing inventory. Replacing that much lost inventory could prove challenging given historic barriers to new housing development, the high percentage of vacation rental inventory cutting into longer-term rentals and the fact that Puna pricing tends to run 10 to 15 percent less than the rest of the island.
“It’s a pretty sizable number of homes that have been affected, and it’s a pretty catastrophic loss for a lot of owners,” said Danielle Hale, chief economist for Realtor.com.
Among the 503 homes that Realtor.com calculated were in the lava flow path as of June 11, Hale said between 335 and 375 of them likely were occupied by year-round residents. While housing these displaced residents could cause a temporary surge in housing demand, Hale said that the “price difference could make it challenging for displaced residents to find new homes.”
According to Realtor.com, the median value of affected homes was $325,000, significantly lower than the median listing price for Hawaii island as a whole, $499,050.
“It’s also my understanding that a lot of these homes were not insured, and that will limit people’s ability to adapt to the scenario,” Hale said.
Hale said normally when inventory drops, prices would be expected to rise if demand stayed the same. However, in this scenario where housing outside of Lower Puna is typically more expensive, displaced residents might chose to rent rather than buy.
“The potential drop-off means that prices could stay the same or actually decline,” she said. “If demand does go down in relation to this, it will tend to cause prices to soften as a whole. That may help those displaced by the volcano to better afford some real estate, but I don’t think that prices will soften enough. It’s really just too early to tell.”
Arabel Camblor, principal broker of Arabel L. Camblor Realty and the 2015 president of the Hawaii Association of Realtors, said there’s been a recent rise in near-term demand for properties in Upper Puna in lava zone 3, where there is a reduced risk of lava inundation and buyers can get mortgages.
“There’s been an uptick in displaced primary homeowners or second homeowners who are looking for homes in areas like Hawaiian Acres, Fern Acres and Hawaiian Paradise Park,” Camblor said. “I’m hearing from agents who say that people interested a week before are now under contract. They know that there’s not enough inventory and interest rates are rising.”
Camblor said finding replacement rentals also is challenging. Some rental inventory is being used by vacation rentals, some of it is too expensive, especially for those on rental subsidies, and some of it is substandard and doesn’t meet county requirements, she said.
Local real estate analyst Stephany Sofos said she thinks that they’ll be some softening of real estate in Lower Puna’s median $325,000 range but expects the greater impacts will be felt in the rental market.
“Many people who owned properties in lava zones 1 and 2, where you can’t get bank mortgages and it’s difficult to get insurance, paid cash. When they say that they lost everything, they really did,” Sofos said. “Many of these people won’t be able to buy, and if they all rent, that market is going to go up in cost.”
Paul Brewbaker, principal of TZ Economics, said his takeaway is that future discussion about Hawaii island real estate must focus on supply rather than demand.
“We need at least 300 homes for owner occupants and at least 600 to replicate what’s been lost, and there will probably be more,” he said.
Brewbaker said state and county officials must discuss how to create quicker pathways to recovery, such as identifying affordable replacement land and addressing permitting impediments. At the same time, Brewbaker said, they should review how to mitigate catastrophic risk exposure.
In the case of Lower Puna, Brewbaker said the state and county knew based on history that “something bad would happen” and that some households “would face gargantuan costs.”
Brewbaker said lava zone investors rebuilt Kapoho following the 1960 eruption of Kilauea, and there’s been a whole generation of new buyers in Puna despite the continuing 1983 Puu Oo-Kupaianaha eruption. He speculates that the counterculture movement of the 1970s drew to the neighbor islands more adventuresome residents, who were more willing to face potential risks.
“Surely people had to know what they were getting into. But for the fact of this rift exposure those Lower Puna prices would have been higher. They were heavily discounted because of the exposure, ” he said. “My impression is that there’s a sort of stoic resignation. We cast our lot with the fates, and this is the way things worked out.”
Brewbaker said when that portion of the Hawaii island market comes back, he’s pretty sure “the next wave of investors will be people from within the Pahoa and Puna communities.”
Eventually, Brewbaker said “the investor from Seattle who wants to live off the grid will say, ‘Hey let’s chance it.’”
“Memories fade. People forget,” Brewbaker said. “That’s why this is the moment for thinking outside of every box that is constraining us from being adaptive.”
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