A new study, "The Downmarket Impact of New Multifamily Housing: Evidence from a Honolulu Condo Tower," examining the ripple effects of new residential construction in Honolulu, offers valuable insights for Hawaii's real estate sector. The research, which tracks vacancy chains initiated by a new 512-unit condominium, indicates that new construction can ease supply constraints and expand affordability in the local housing market. The findings, published on UHERO's website, have significant implications for entrepreneurs, investors, and professionals in the real estate and development industries.
The study focuses on the concept of "vacancy chains," where new housing construction prompts existing residents to move, creating vacancies that are then filled by others. This chain reaction can lead to a broader distribution of housing options. Researchers tracked households who moved into a newly built condominium in Honolulu, analyzing their prior addresses and subsequent moves. The vacated homes were substantially cheaper than the new units, spanning diverse locations and housing types. This process suggests that new construction can free up more affordable housing options within the market.
The research also highlights a key distinction between market-rate and income-restricted units within the building. While both types of units generated local vacancies, market-rate units produced relatively more vacancies. The study finds that the homes vacated by those moving into the new condo tower were about 40% less expensive than the new units themselves. This data is consistent with prior research. A related study, featured on NYU's Urban Lab, found that new suburban housing supply has a limited impact on urban housing affordability, showing the importance of considering the local context.
These findings are particularly significant in Honolulu, where high demand and limited supply have driven up housing costs. The median residential unit is valued at $873,000, placing the county in the top 1% nationally . Understanding how new construction can contribute to a more affordable housing market is crucial for developers and investors. The study suggests that building new housing, even at higher price points, creates a cascade effect that can benefit a wider range of residents.
For entrepreneurs and investors, the study provides a more optimistic outlook on the impact of new construction. While concerns often arise that new, high-end developments exacerbate affordability challenges, this research suggests that properly planned projects can, in fact, help alleviate them. The focus should be on finding the right mix of developments and using policies such as inclusionary zoning to promote further downmarket effects.
