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Show 11: Paul Brewbaker discussion on Maui


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Intro The following is a paid program and does not necessarily reflect the opinions of the staff or management of visionary-related entertainment.
Clint Hansen This is Clint Hansen with Maui Luxury Real Estate [here] over here with Maui Real Estate Radio. You can visit us at mauirealestateradio.com or go to our real estate website- mauirealestate.net. We're broadcasting on 11:10 AM, 97.6 FM, 98.7 FM, KAOI Radio Group. Today, we have two wonderful speakers and myself, Clint Hansen. Bob Hansen again is in the house with us and Paul Brubaker. He just came from our little Maui Real Estate group meeting at the GMM and had a nice little discussion- economic forum and the state of economics in Maui more specifically but really Hawaii in general. In one, care to introduce yourself a little bit Paul. Paul Brewbaker Well, I'm a recovering Commercial Bank Economist and been an independent consultant for about 10 years. Focus on the Hawaii economy seems to be where my strength is and been a good ride so.
Clint Yeah. And you travel everywhere. That's for sure.
Paul Well, I travel as much as I can but not everywhere. Clint And Bob, he actually is a banker as well. Bob Hansen Yeah, I'm a recovering banker. I was the president of a bank in San Francisco. Excuse me. And now, I'm in real estate and I said, What took me so long because I do love real estate.
Clint You know, I do too. I've been working with actually, Bob and Donna, my mom and dad. We've been working together for about as long as I've been alive. They actually say the first time I sold, you know, property I was about six months old or something along those lines. But I've been working with them for almost 19 years now and I've had my broker's license for the last five and dad's had his for 35 years and my mom's had her license for over 40 and we're a really good team. I mean we work together well and we've seen the economic trends of Maui. And I mean I remember when we, you know, when I was starting to first be conscious of the real estate market when I was about you know 13, 14 years old and they're like, Oh man, this is crazy you know houses are selling for 500,000, 450,000. This is ridiculous. And nowadays, I mean you find a teardown house for 515,000 you know in the middle of Wailuku and it's definitely a big change but there definitely seems to be some restrictions on the market. And I mean everybody has their pitfalls I mean obviously they don't want rampant expansion and but there tends to be this double-edged sword to it. So as today's meeting goes and you know the state of the economy the big question nobody everybody has is hey where are we at, where are we going. And as you see the numbers and followed the historics of it. I mean how do you see us with both housing numbers but just the economy in general.
Paul If we limit the focus to Maui to start--.
Clint Yeah, please do.
Paul --it's important to nest what we're talking about which is you know in the 10th or 11th year now 11th year of the longest economic expansion ever. That's different. It's important to nest that in this context you referred to just a second ago maybe the less the arc of the last 40 or even 50 years here on Maui because Maui prior to 1970 was not a growth economy. And it seems as if the political pendulums shift swung to an opposite extreme. In the 1970s, people were moving here. There's a relatively high birth rate at the time and so the population was growing very rapidly. And but I calculate roughly 5% per annum if you're annualizing over the middle of 1970s you know a time period. In the late 2010s, it's 0.5% and the political pendulum has swung in a decidedly anti-growth direction. So that context is important because we're at a point in the current economic expansion after 10 years and that's as I say the longest ever where ordinarily by now we would have either already had a recession and would be reflecting on it being over or we'd be talking more about the risk of a recession yet to occur. And my sense is that there's more of that kind of talk now that there are concerns about what's going on outside the economy--.
Clint Always.
Paul --particularly with respect to trade policy and the trade wars and what's that's doing to global [crosstalk].
Clint While the external economic pressures are one of the big concerns, what's going to be the trigger point?
Paul Absolutely. But then the flip side is that we just actually had this bizarre event locally which was the volcanic eruption last year of Kilauea which seem to have gotten into people's heads and really adversely affected tourism so from--.
Clint Surprisingly.
Paul --surprisingly. Given for example that Kilauea is not on Maui.
Clint And it's a shield volcano too. Most people don't realize shield volcanoes are non-explosive. They are slow. They're bubbling.
Paul They don't really blow up. They started ooze.
Clint Yeah exactly.
Paul Exactly. Yeah.
Clint And we're not in a danger zone. But it does say. It does say [because it's Maui].
Paul So Maui went from about a two and a half billion dollar tourism business you know export sector. Six years ago, I want to say 2014 maybe to a 3.1 billion export sector in the year that ended June 2018. And this you know once we get the June numbers, I'm guessing it'll be 3.0 billion. So what's a 100 million between friends.
Bob It's still a lot of money.
Paul There's a lot of money. We were supposed to be at 3.2 this year and we're at 3.0. So that has taken the wind out of the sails of the neighbor island economies. Generally, the neighbor island seem to be have been affected more by Kilauea after effect--.
Clint Absolutely.
Paul --and then Oahu And yeah, we would have been a different place. And so you begin to see a pattern now where other Maui economic indicators reflect that a little bit of you know either slowdown in terms of job growth actual decreases in the number of persons employed an increase in the unemployment rate. So a lot of [sig] a slowdown in the rate at which home prices are appreciating. They're rising three, three and a half percent. But six, seven years ago, they're rising you know high single-digit, double-digit rates coming out of the [crosstalk] bottom of the cycle. Sure. So all of that points to good reason for people investors and people just thinking about housing as an important part of their lifetime wealth accumulation strategies and whatnot. It's important for people to be thinking about the risk factors that are starting to loom you know on the horizon and could put an end to the expansion, could put a dent in your you know your business plan or your employment plan or you're--. I think it's starting to affect investor expectation. So you know all of those things are worth keeping an eye on right now.
Clint And I mean it really seems like you know Maui as an island or Hawaii in general. I mean we're a vehicle and there's a certain towing capacity, right? You know there's so much you know GDP that we could even possibly generate by us and our main import-export tourism. I mean there's only so many rooms. Obviously, you know that's always a fight between housing and rentals obviously. And then we have our hotel numbers but they're really limited. There's only so much hotel land available. There's only so many rooms and the timeline for building in the complexity association means we're really not going to see any new you know growth in that area. I mean there seems to be people that want to be here but the major limiting factors are of course their costs and personal budgets. And while Maui is always on top of [people mind]. I mean Maui No Ka Oi. I'm sorry. I know you're from another island but--.
Paul I know that.
Clint Yeah. Yeah.
Paul And that's certainly part of the perception and the traveling public's minds that Maui is like the number one destination.
Bob And I'm wondering too because I've been to a lot of the planning commission meetings and you know people are talking about. There's too many tourists and they're saying that we're not a tourist-driven economy and I'm all like, What, what what, what else is there? I mean there [crosstalk] are some things but it's pretty, pretty minuscule comparatively and I've heard some of the testifier saying that we're getting over that 33% threshold of 33% tourist compared to 67%. People that live here and then there's another guy that comes up that knows the numbers--.
Clint Until one for one.
Bob --and think and he says, It's not up to 33% yet. It's less. And he quoted all these numbers. I don't know. And then the community plan it says that Maui should be no more than 33% tourist at any one time. I don't know what the truth is.
Paul Or whose grass they pulled that number out. [laughter]
Bob Exactly.
Paul You mean it's not 31. [laughter] No, it's 37.70.
Bob No.
Paul I don't know.
Bob We don't know.
Paul There's two separate issues whenever I hear these kinds of numbers. One is why are they even numbers, who came up with the numbers, where did those come from. But there's a deeper issue which is you know what, so what can we handle and what is striking to somebody that comes from a smaller island with way more people. When you come to a place like Maui, the Big Island that cracks me up when I hear these conversations on the Big Island because like I'll be saying, I'll be the guy in the room going, Wait, there's not enough room on an island that's so big. All the other Hawaiian Islands fit into the Big Island with land left over. What are we talking about? So I get a little that you said something a second ago Clint about the capacity, right? Is that we've got these--.
Clint Well, of more infrastructure than actual physical [crosstalk].
Paul Well, that's part of it. But I'm literally talking about the physical, spatial dimensions of the resort areas that we've designated in you know whatever rule book of rules there are that govern this. And by the way, this is all done about 50 years ago. But you say you look there's a footprint of Wailea There's a footprint of Kaanapali whatever. You can't tell me flying around in an airplane looking down at the island of Maui that you couldn't double or triple that particular footprint and still have zillions of acres of land left over. So a lot of this-- a lot of the constraints that we face and you're right infras-- you know how many lane or how much bandwidth is there right? That's an issue. In some sense, we've made these up and the extreme version is that let's say 33%. Somebody made that number up. But the more general issue is do we really not have that space. I mean is if you look around of-- give you another example, I walk around Wailuku town. It's an old town. It's a town, right? It's not a suburb. It's an old town. Before there were even suburbs, there were towns. And Wailuku was one of them by which I mean there were multi-story buildings. That's what happens in towns in an era. Before affordable motor vehicular transportation arrived, people had to walk to work so they lived in debt, relatively high-density conurbations and everything was nearby: the ramen shop, you know the supermarket, and you know, Longs Drugs, the government office that which they work, the Maui Memorial Hospital. That's Wailuku. When I look around Wailuku now, I'm like why aren't there more tall buil-- I mean not--.
Clint Higher density. Yeah.
Paul Not 40 story buildings. I'm just saying six stories. And well, we ruled that out. We got to a point in about 1974 and we said, thou shalt not build anymore six-story buildings and I was like, Who came up with that? So we could have more of what we're talking about, more capacity if we did it intelligently in places that make sense. It makes sense in a place that's already a resort area to have more resort capacity. It's already a resort, right? Been there done that.
Clint You're talking crazy. Come on.
Paul And.
Bob Only I'm talking about the resorts. I mean the grand Wailea is expanding--.
Clint Well.
Bob --by about--.
Clint Two lands to expand.
Bob --225 hotel rooms on a beach that's already crowded is all getting out.
Paul Yeah. Yeah. Yeah, sure.
Bob I just don't know what the answer is. You know God bless them. You know if they want to do that and pay for it and hope for the best. But I don't know I'm kind of tossed up about it.
Paul I'm reminded of David Cole you know before he-- at the time, he was put in charge of Maui Land & Pine and I'm not sure that worked out that well but he had some good ideas. And David Cole once said to me, "The thing about Maui, man, every seat in the house has a good view." And I was like, Well, what do you mean? It's like you can just keep moving Mauka. You know I mean and you have these wonderful views. So to some extent, the constraints we put in place are artificial. They're artifices. We made them up. On the other hand, there's plenty to preserve and protect. My sense of it as I say just sort of looking at it from 30,000 feet out of an airplane window is that we're in no danger of paving over the island of Maui as far as I can tell from afar but--.
Clint Until [crosstalk] design comes into play though. I mean you want to make a community that people want to live in while not overburdening people with traffic. I mean to me I don't mind more people being here. And the fact that our population what's have been dropping from my understanding.
Paul Well, actually, I was surprised to find looking at the data that more people, more residents have been leaving Maui. So for three years, resident net migration has been negative. Yeah, that's the weird thing.
Clint And it's the workforce. That's the worst part.
Bob They're moving to the ninth island.
Paul Oh, I don't know where they're moving.
Bob Las Vegas.
Paul But they're not moving to Maui. Now, some people will be happy. They're sitting listening to this radio show. We succeeded. Well, you know wait 20 years and see how that works out.
Clint Usually, those are the people actually moving out though because of the other opportunities. I mean you can basically find a cheaper cost of living in another location like Oregon, Washington--.
Paul Yeah, sure.
Clint Vegas with the same job opportunities, same pay except you know fractional cost of living.
Paul So let's get this one thing out of the way really quickly. The expensive places are the cool places.
Clint Yeah, right. Maui is one of the [crosstalk].
Paul That's why I hate to say it but it's never going to be cheap.
Clint Maui is No Ka Oi. It's also very expensive.
Paul There you go. And you know, I'm sure Oklahoma City is a great place but there's a reason it's cheaper than you know.
Clint Six months of reasons.
Paul And people and it's even more important to understand that one of the things that makes this country great is the mobility that we do have. So a lot of people worry about the brain drain. And my experience living a few places in the country is that every place in America worries about the brain drain. I lived in the upper Midwest for seven or eight years. I went to graduate school, taught college there and every place I live people were talking about all the Southern Wisconsinites, all the young kids moving to Chicago. Boo hoo and I'm like, it's Chicago. Why would you not move there from Oconomowoc, you know? So there's some sense in which the nature of this country if you're young and you have an opportunity and it's advantageous for you to go somewhere else, we should encourage that, right? Being free to move around the aircraft you know is a good thing.
Bob That's a good point. I never really thought about it that way.
Paul And if you get to come back, bully for you. It's not going to be as cheap as Akron, Ohio. But you know I moved back and I don't really have that many regrets except that now I realize all my kids are living on the mainland. So we'll have to reconsider.
Clint How are you going to get them back, right?
Paul Well, you know I feel like once there are grandkids in the picture, I am definitely going to have to move.
Clint Right.
Paul But my point is that I don't lament that. The way when I was younger I worried about that and I sort of got sucked into this- the brain drain thing and then the two things I realized were number one: wait, what would you mean brain drain. I mean all of books for [local] guys state over here and all the smart guys left because wait a minute. But more importantly, this mobility is really a great thing for this country. It enhances our productivity and what we're really concerned about is creating opportunity for people to exercise their choice.
Clint And the best thing we can do is diversify the economy. But that's next to impossible with production limitations and being in the middle of the ocean.
Paul You know, we can do a whole another radio show about that. And about that. I would say as I learned about brain drain in Madison, Wisconsin. I also learned about diversification. There are three things in Madison, Wisconsin. Let me tell you: Oscar Meyer Weiner, the State Capital and the University of Wisconsin. That's the entire list, right? So I'm sure there are people--.
Clint Making up like 60% of the employment.
Paul Yeah, like everybody where one of those three things. And so it is in every place on the planet, we look at a large economy like the United States and of course, it's diverse because every place in the United States is not. Every place in the US does one good thing and then it trades with other places to get the other stuff. So we probably worry a little too much. Here let me put that differently because when we do tourism on Maui, we kill it. We don't have to do that. We wake up in the morning and people want to come here. That's like the low hanging fruit of free money. So you would of course you would always do that. It gives you the opportunity to try something else but do I advocate diversification for its own sake. No, not really.
Clint There is opportunities but it really has to be up to the people. You can give them something to pick at or do. But at the end of the day, you know there's a whole number of you know issues people come up with from tax incentives for filming here you know to tech opportunities and I mean Maui Brewing is actually one of the big industries on the island that's starting to grow up here. But I mean if you compare it to the economy as a whole, it's a very small percentage.
Paul The trap I see however it's interesting that you list the companies or industries that you did list because on the spectrum of you know in the circle of life or whatever. There's the tourism guys that just make money the old fashioned way profitably, right? And then there's the guys at the other opposite end of the spectrum there are the wannabes. They're trying. They got a great idea. And our attitude is [chansom] bro. You're trapped. And then there's these guys in the middle and they're all successful because they have a subsidy and there I have to stop for a second to say, Wait a minute. Nobody's paying 30% of my production costs that my Simon noodle shop you know I mean but I'm getting a 30% production tax credit for what? So yeah that--.
Clint Well, that's free advertising really. When it comes down to when you see some of these production companies come out here. But really--.
Paul I understand that.
Clint I get that.
Paul Would you pay for it? Because I wouldn't. But I'm just saying.
Clint But technically, I'm not paying for it.
Bob I think they're [crosstalk].
Clint They're not paying for it either.
Paul Let's just pick on the film industry for a second. I would be much happier with it because I know that the tax credits are actually the-- if you look at their financing stack, the tax credits are the equity in the film. Nobody actually puts their own money in. They've got a 20% production tax credit. So I'm thinking if we the people you know gave the tax credit then we should get the equity-like the equity in the movie.
Clint That 20% stake in the movie. Oh, that would be so fantastic.
Paul So, yeah, then that makes sense to me. I'm down with that but just giving them 20%. I'm like you know it's like I say I think we need the Paul Brewbaker20% tax credit. Anybody that gives money to Paul Brewbakergets to take 20% of it off there or maybe Brubaker should take, anyway.
Clint Yeah, [crosstalk] a 20% stake. Yeah.
Paul Yeah, I'm happy with encouraging new industries. I'm concerned when after 20 years we're still giving them tax credits because they're not infant industries or whatever argument you might have had at one point.
Clint And it's one of those things that follows the film industry regardless of where you're looking other than Hollywood. I mean wherever that you see filming across the United States is looking for those opportunities.
Paul Or the world.
Clint And they can [crosstalk] force. Yeah.
Paul And actually--.
Clint And warehouse space is huge where people are renting [crosstalk].
Paul We're done a little side street here wherein [towards] the end of the cul de sac. But I'll just make this one point. What you get is, unfortunately, you get into a jurisdictional competition or the jurisdictional Alabama's or Georgia's got a 30% tax credit and then everybody gets into these tax credit arms races. And I actually have a colleague who's written some literature on this with you know manufacturing facilities and there's a famous case on the-- is it Michigan and Ohio border where the plant was supposed to be on one side of the-- in one state but it went to the other state and there is a you know my colleague argued that that in the court trial in the 6th Circuit or something that it was a violation, a per se violation of the Interstate Commerce Clause of the Constitution that if you're distorting the allocation of capital by offering tax credits in a jurisdiction and not in another then you're actually undermining the Commerce Clause which says, Goods, labor--.
Clint And free flow of [crosstalk].
Paul --services, information, capital should flow to wherever it's going to be most [preempt]. We enable that because of the [prototip] you get from it. So I mean anyway, we could go round and around on these issues. I'm not going to-- I don't want to reign on anybody's parade but--.
Clint And I mean I think Maui specifically it makes sense or Hawaii in general because really we're selling ourselves. So I mean it comes down to a beautiful place and it's been worked very well for you know when filming of The Lord of the Rings happened in New Zealand, it really created a lot of industry and destination tourism there you know and very much bolster their economy. I don't think really Maui has to do that but given people already know the Maui name. I mean lots of product labels carrying it from Maui Brewing and chips and you name it. And it sells specifically because it has that Maui name but it does make sense on another beneficial aspect more than I would say Ohio or something along those lines.
Paul Yeah, well Ohio probably needs to market itself in a way that Maui doesn't. But that's-- again, I shouldn't pick on them because they've had a rough you know 30 years.
Clint You're right though. Diversification of the economy is kind of a funny thing to do considering we have such low hanging fruit if tourism industry.
Paul If you had to redefine the objective rather than establish the objective. So we have one large export sector tourism which is so successful, it gives us an opportunity to try other things out. My argument would be that rather than attempting to achieve diversification for its own sake that is we will only measurably have succeeded when we've created three other sectors as large in you know as material is tourism but [crosstalk] that's going to happen. My argument would be we should have as an objective making clear the pathway for all these other guys to chance it. I'm not talking about giving them money. I'm saying you got to make your own money. Your play lunch has to pay for itself. But if you can make the best plate lunch bro. Knock yourself out. And my sense is that we haven't actually we, in the name, in trying to achieve diversification, we've done a lot of sort of-- we've done this sort of backwards justification. Well, we got the advertising benefit out of being the place that they filmed the movie. It's like, yeah, but would you have paid for the advertising? Whereas if you just made a pathway for people to you know succeed entrepreneurially or build homes or whatever it is within the boundaries and the guardrails and those you know things we set up to make things happen in an appropriate way then I think we might be better off.
Clint And I mean just overall I mean and you know we discussed this earlier before the radio station half that you know we got in here to communicate a little bit but as regulations go and as incentives go in different financial tools, it tends to muddy up the waters. But you know as you know with the current housing crisis I feel that you know being a realtor is not without some sense of guilt due to my [profession]. You know demands that I get the highest price for a home that I'm selling furthering the problem. The truth is I actually you know work both sides of the equation. And I also do try to get the best deal for my buyers and I realize that in my profession I'm just really facilitating the best practices of the industry. I see daily struggle. You know people go through the high cost of living really bleeds away people's Aloha for the less fortunate. So for the last 19 years, I've tried to think of a way to like maintain the freedoms of people in the market while providing a means for them to you know maintain some level of affordability. Taxes and regulations directly infringe on those people in the market and the freedoms you know we witnessed only to make things harder for you know people to seek a balanced life. Not that I'm advocating rampant growth and deregulation you know as the answer would-- it would offer a reprieve for sure to you know deregulate but it creates its own monsters and issues. Our island you know does have this massive untapped potential to create great wealth by renting homes. You know the homes that we all live in to visitors but doing this directly pushes you know against the affordability you know to impossible levels. I really applaud the county's efforts to limit vacation rentals and you know their efforts. Good luck putting the genie back in the bottle with you know VRBO and B&B but Airbnb. But I like that they are starting to advocate and give people more the ability to continue to do bet their own bed and breakfast because you know putting it in the people's hands you know in issuing license to people who live and work here really you know these B&Bs add accountability and the personality of Maui's people into the visitor industry while directly putting the ability to make a living in the hands of local people as opposed to hotels and whatnot. So I mean I really liked the idea of a B&B. I'm not sure if somebody wants to do it but it usually fills an economic hole in their life. There is this huge gap between those who can afford homes and those who cannot. This you know result of several factors: the desirability of Maui, the high cost of labor, the inefficiencies of the regulations, and you know the cost of building around here from what I understand like 23 cents to the dollar for just entitlement and you know holding costs and things of that nature. So further taxes and regulations are just going to make the issues worse. But I'm wondering if we like created a tool that uses Maui's largest resource- the visitor industry and if we could funnel those dollars from the visitors to help the island's people flourish, to make things more affordable. So you know if developers and builders had this tool that you know allowed them to vacation rent new developments for like a three-year period, they would limit the sales and the cost of the building to the visitor industry to that three-year period so that it wouldn't you know become a continued issue to come and would lower the cost of building means you'd have to actually regulate the people who go to. There'd be sales price of each project would be based on a number of factors related to size and available to people of like Native Hawaiian heritage, Kama'aina, people born in Maui and specialty positions like doctors and you know our limited resources that we have trouble hiring locally because we have like a 200 person or 200 doctor shortfall on the island. And you know, if we could keep the price of let's just say a studio at a 125,000 you know and have a you know 400 square foot minimum or a two-bedroom would be locked in a 215,000 you know at 700 square feet. Maybe if we were to go up to single-family homes 0.16 of an acre, 1,500 square foot homes really cap it out at $550,000. I mean I think that could really help the people of Maui because right now we have they say, It's like a 14,000 shortfall of homes but you know I think the real number is at least you know 7, 8, 9,000 people that are in desperate need of affordable housing and it's just it doesn't exist and even at those prices there are a lot higher than the rest the nation.
Bob I think that's a partial answer. I mean I think it's not just one answer. I mean there is you know the free economy works and if you want to get affordable housing, there's all kinds of ways to do it and all kinds of developers and all kinds of investors and all kinds of civic-minded people do all kinds of different things. For instance--.
Clint Na Hale O Maui.
Bob Yeah, we started you know this friend and I started and I put that you know $20,000 seed money into Na Hale O Maui and we now have 31 homes affordable in perpetuity and we got another 12 homes coming down the pike. It's in perpetuity because Na Hale O Maui ends up owning the land and it's--.
Clint Turning the property leasehold.
Bob --yeah, and the people can share in the profit going forward.
Clint Most importantly, most of those people convert into you know the normal marketplace later.
Bob 70% in the first five years convert to the regular market because they are required to take classes which we teach about how to get your credit report up and how to save money and then it works.
Clint And I like this idea to as another option because you know it really puts a lot of money in the hands of the people who are buying these you know drastically reduced properties because let's say in 10 years, they have the ability to sell or whatever and they, you know, get that benefit while yes that money that in that time reduces the cost of building the property to have a specific rate of return you know be created a lot more just a safer net for the developers because the profits are razor-thin. I mean I see a lot of these properties, these affordable projects just deciding not to build. I mean they spent you know upwards of a decade 14 years and the cost of building is so ridiculously high. They just can't do it. And there just seems to be a need to have another tool there so.
Paul Well, I didn't follow all the specifics so I'm not going to be able to comment on any of them individually or even as a collection. But a couple ideas come to mind that I think are important to remember just in the backdrop. The first is the idea that new ideas like yours or that take what we've already had and give it a new twist they're really important to have out there in the discussion and to have the policymakers thinking about these things and whatnot. So I think it's really good that we have new ideas out there. And one of the things that you touched upon gives us a reason to do this. This thing with vacation rentals, that genie's out of the bottle. Something happened with the apps and it started about 10 years ago and I really picked up steam about five years ago and we're-- it's done. It's over. It's just like Uber. You're not going to put Uber back in the bottle and I'm pretty sure. I mean you talked a little bit about this distinction between B&Bs and you know vacation rentals where you're not an onsite host. Maybe that was a distinction you had in mind.
Clint Yeah, B&Bs really helped more specifically the people who live and work on Maui, you know.
Paul Yeah, but I mean. Okay, so say I mean suppose you live in Pukalani and you own a house in West Maui and you're saying you have to live in the house and be a host to have it as a vacation house.
Clint And says it sits right about now.
Paul So--.
Clint That's why you own the property for five years.
Paul That's right and so whatever happened to you know don't effing tell me what to do with my property. [laughter]
Clint That's the free flow of the economy, right?
Paul That's my house bro. Get the hell out of here so my point is we're thrashing through there right now. We're not at a point of resolution.
Clint Or balanced, you know.
Paul The jurisdictions think they've made some you know they've achieved something but on Oahu, they've got this. You know we got this number 1,715.
Clint That's all the [crosstalk].
Paul Remember that. It's not 1,716. You sure. I was thinking it was 1,728. But [inaudible]. No, no, no. 15-- 1,715. And you know it's just stupid. I mean there's a thousand vacation rentals in my hometown in Kailua census state-designated place. I've got data on 993 vacation rental units. And guess what? Are they an affordable housing problem? No, because they're all beachfront which is not affordable. So we're just at the beginning of dealing with this and I think it's important for all these good ideas to go out there and into the blender and everyday and mash through them. I've had this exact conversation with a former hotel executive friend of mine who rents. You know Keith [Theory] rents Starwood Hotels for a long time and he and I were in a public television show talking about vacation rentals and he was talking about the same thing. But you know my aunties, cou-- you know, it's the usual story- my brothers bosses, sister-in-laws, you know second cousin has a little cottage in Waimanalo. And he had a great tenant in there and then the tenant moved out. So he said he had been [chansomless] to see vacation rental and all of a sudden instead of 1,500 a month, he's making 4,500 dollars a month. So then we got into this whole debate about-- well with Keith made this argument. You just made on. Here it's a really popular argument that if you're a host, if you're living in the house then that's okay and I said, "So what if you live in Kaneohe. But you own the house in Waimanalo. Do you have to like move from Kaneohe?". I mean and here's the problem. We think we're clarifying by creating all these little buckets and these little boundaries and rules and stuff. And my sense is that it's very difficult to actually get that correct and as soon as you think you've got it pinned down, you've got this situation that does not fit into any box, breaks all the rules. You know so what if you're renting? I mean what's the rule on Maui for short term rental, 180 days? Something like that?
Clint It's actually six months.
Paul Six months.
Clint Yeah, 180.
Paul Okay, so I have friends who are traveling nurses. This is what they do. There are ends. They go-- they've spent years in their careers. They go places for three months. So you're telling me if they come to Maui and they want to rent a place for three months, it's illegal. So there is a box. We set up the box. We put the dimensions of the box. It's 180 days. 181 is fine. 179, get the hell out of here. And yeah and so I think that more flexibility is probably going to have to be required. The reason we call these things black markets is because we think we set up the parameters of the market just right. And then we realize everybody going back a little over here and selling it, right? And I see-- you saw this with ridesharing. We're seeing it now with home-sharing and it's this tension between what we aspire to as a community you know in that we want to manage the shape of the community and its impacts and positive and negative. And on the other hand, this imperative is kind of an American thing for you know individual responsibility and our personal assets are something that nobody should really be in a position to tell us what to do. You know unless it's something really profoundly important to the [community]. Otherwise, don't tell me what color to paint my house.
Clint Unless you're buying into a specific neighborhood bar, right?
Paul Well, I'm just saying. We see these tensions all the time and it's not surprising to me that now that somebody created an app with at which algorithmically puts people together with the places they want to stay and enables on the supply side of the market people who you know they had a cottage in which [Tutu] was living but now [Tutu] died. So now, they have an opportunity to do something else with their assets.
Clint Have you heard about Turo?
Paul Oh, I'm sorry.
Clint Turo.
Paul No.
Clint So Turo is you know a new paradigm on ride-sharing. So as opposed to you know having somebody pick you up, you basically have a vehicle ready to rent. So you instead of going through budget or whatnot you go through Turo. They check the insurance. They have a background check. They're making sure that people doesn't have a DUI on their record. The usual kind of things. Make sure they're properly insured. And then they're renting your car. So you know say, you're going to go on a vacation for three weeks and you know the whole thing is all. I want to rent on my house. That's where Airbnb came from, right?
Paul Yep, exactly.
Clint Well and then it ballooned into just hey, I'm going to make a whole lot of money because I don't want to live in my own house. I rather make the money off of it. And Turo's actually you know much the same way for an individual's car. They can rent it for you know 60, 65 bucks you know, 120 depending on what kind of vehicle it is per day and of course, it's you know it's changing things up. This is new shared economy that we're moving towards.
Paul There are two themes that come out of this and in different situations. One is this theme of now I forgot it. Search and matching cost. So it used to be really costly to find the place that wasn't down, that wasn't the Grand Wailea, that was going to be a great place for you to take your family because anybody with a family and small kids knows that it's a waste of money to spend it. That's the Grand Wailea if you've got kids. It's like no, let's get out of here.
Clint What are you saying a $14 shake is not you know a good deal?
Paul No, Grand Wailea is great. Take or take your wife to, you know. But not the whole family. So I shouldn't pick on Grand Wailea. It's a fantastic property and a thousand rooms. But if you don't want that experience, right?
Clint More individual especially--.
Paul And you have to-- it's hard to find it. It's costly to find it. And the apps have reduced the search and matching costs. They're doing that with cars, with houses--.
Clint And there's a lot of different people renting too like you said with the traveling nurses.
Paul Well, exactly.
Clint That's just one of many examples.
Paul Well--.
Clint I mean there's you know people coming into town for business. There's family visiting--.
Paul Absolutely. Yeah.
Clint You know, there's a hundred different puzzle pieces to it.
Paul Exactly.
Clint And find that rare match.
Paul And how you define the boundaries of permissible economic activity while still allowing this flexibility and individual optimization and so on, so forth. That's the challenge. The constant challenge the economy's always changing where you've got new stuff, better ways to do things. And we're always trying to reshape those parameters to both create the benefits that come from this innovation and to mitigate you know modulate the costs that sometimes are created as [really] well.
Clint I mean like I said earlier I'm really a big proponent of the free [--] form and movement of the economy and deregulating as much as possible. But I'd actually say I'm really happy with the way that the state is currently regulated. It definitely has met a lot of people have missed out on opportunities to do transient vacation rentals. But I think that you know allowing people who live and you know in their home should have that opportunity because I mean I live next to a vacation rental and I've maybe had a fortunate time but I've had that same home been long term rented and it was much easier to live next to a vacation rental you know because people were in and they were falling asleep early. They weren't jumping in the pool late at night you know. They were done and especially you know being B&Bs, I haven't had the opportunity to live next home but I've have friends and family that I've run them and I think they're just phenomenal because you know people are culpable, responsible and they know the people that are living in their homes or on their property and you know, more importantly, they're getting that direct financial benefit to their--.
Paul I worry about two things that we've conflated here that are really important and equally important. One is this idea that so because somebody is not from where you're from, we should have some rule [--].
Clint Tribalism.
Paul Yeah, dude. So I'm pretty sure that's why we have anti-discrimination laws and housing. And by the way, lodging so and in whereas we thrash out these battles--.
Clint Technically, you can discriminate on almost any basis if you live in the home. You just messed up. It's not okay, but you know--.
Paul I hear a lot [crosstalk] and I'll be sitting across the table from people and they're going, Yes, it's some-- it's disrupting the fabric of the community, right? It's changing the character of the community. I love that one. And I go, Dude, is that what white people said about black people in suburban Chicago in 1958? So you've got to be really careful about understanding when we've sort of crossed the line and it's turned into as you say the tribalism of locals only or whatever. And by the way with housing and lodging, we have laws about that. The second thing I think it's important to recognize is that it's important not to conflate the side effects--.
Clint [crosstalk] and noise and all that. Yeah.
Paul Exactly. If there's a loud occupant, a rude occupant, somebody who is littering, then that's a problem of a loud occupant, a rude occupant, and somebody just littering.
Clint And that's one of those better matching skills that the algorithms layout because you know--.
Paul Information.
Clint --Airbnb now has the ability to review and you know say, Hey, I'm giving this guest a five-star review because you know, hey, the place is relatively spotless compared to it was rented for two and 20 people showed up and they completely trashed it so.
Paul But the point is that rather than presumptively assuming that if they're from another place they must be loud, rude and--.
Clint Well, you're telling me [crosstalk] that's not true.
Bob And it's more of a rarity that they are loud and rude. But the good news is they'll be gone in a week.
Paul Even if they are. Oh, I have a friend who has a, you know-- he lives on a street down and kind of a beach that has a lot of vacation rentals on it. And she says, You can always tell when the local people come down for their staycation because they're loud rude and they leave beer bottles [--]. [laughter]
Clint Oh, men.
Paul Yeah. It's a work in progress. I think it's a sort of a false moment of achievement that some of the jurisdictions now have set out a bunch of caps essentially and I feel like there's like dusting off their hands and going, Okay, we're done with it and I'm pretty sure we're just at the beginning.
Clint No, yeah absolutely. I mean it's going to be a long time before we find that perfect cup of tea.
Paul Well, of course, I guess it's the whole process that's--, right? We're always doing this. To come back to an earlier subject, the focus on housing itself, I think we sort of went too far in one direction you know prior to say 1975 or whenever we invented you know environmentalism. We kind of let people do whatever they-- right? This is a frontier economy. Go knock yourself out.
Clint We do.
Paul Go wherever you want [crosstalk]. And that actually doesn't matter. I mean there is a point in history where there's so few people and it's such a big island that you literally could do whatever you wanted and nobody would ever know about it. But that's not the world we live in anymore. And so what we've done though as you observed by most reasonable measures, there's a shortfall of substantial proportions between what--.
Clint Substantial.
Paul Substantial.
Clint Absolutely.
Paul --between what could reasonably be identified as the need for housing and where we're at. And my concern about that is that the, you know, the moat, the decades, the moment may have passed, the decades that have gone by during which we've allowed this regulatory apparatus to suppress housing formation, capital formation has left an entire generation. Dude, they bailed. They're not living at home at their parents house waiting for somebody to solve their affordable housing problem. They moved and they're gone and that's the real tragedy here. So we're-- and it turns out we're in a different moment in history now as we go into the 2020s where you know none of us have made enough babies for the population to grow. And the old buggers, I'm never going to die. You know, evidently, the baby boomers is going to stick around and annoy everybody for another 50 years.
Bob That's what's Clint's telling me.
Paul And so there's a hole there-- so the number, the way the population will be full of angry old people that actually vote -right?- is a big change from the society that even we grew up with where it seemed like everybody was in elementary school when I was in elementary school. And it's a completely different kind of a housing need associated with that kind of population. So we should probably be rotating our conversation. I mean I'm not. I'm no longer. I'm over it. We didn't build enough houses.
Clint Yeah, right. Yeah.
Paul My kids went to the mainland. Okay--. What comes next?
Clint So I mean for the economy as a whole though. I mean as we're speaking I mean we can talk about all the regulations and impose and we've kind of missed the boat a long time ago unless all of a sudden they're going to decide to build a couple of more towns.
Paul I mean we could chance but--. Yeah, sure.
Clint Yeah, nobody's going to agree to build a couple of more towns here. Small town Olowalu. I don't know if you're familiar with the project that they tried to do out there but there was a couple of things that they missed on the process. I mean a lot of the builders didn't even really know what was on there and one of them was like, Oh, okay, they accounted for X amount of traffic but they didn't account for the Ohanas. That was like a big sticking point you know. Oh, it's another car. So that's a 15% increase. And then you know that and there was like one micro-hotel that somehow got worked in there that literally they didn't even know about. And 250 people showed up very angry about small-town Olowalu. Something they spent 3.4 million. You know like it's millions of dollars doing it. And we would-- let me just continue on. And the funny thing is it had a lot of local community support--.
Paul Support.
Clint --right there in that specific area. But you know, from the outside forces, they didn't want to see it happen. And you know and I totally understand that. I mean honestly, nobody wants to see you know Maui change, become overpopulated. My bigger issue is traffic you know and getting from point A to B. That frustrates the hell out of me. But at the same time, I see an absolute desperate need for housing. Get it done you know and especially on West Maui, it's just ridiculous. The cost of living is like a $100,000 higher for a single-family home out there of equivalent bill. So I mean I don't think people are going to be happy if it's in the middle of Maui. You know.
Bob Well, there was two fast track housing projects that were done that were presented to the council with the County Council.
Paul Oh, recently. The new one. Yeah.
Bob Yeah, very recently.
Paul I think I was involved in one of those.
Bob And they, you know, they could either do nothing or they could turn it down and they just turn it both down.
Paul Did they really?
Bob [crosstalk] Not my neighborhood thing.
Paul I wrote testimony for that one. Yeah, I was like, Why do you have two decisions to make. It was a weird thing. Anyway, [crosstalk] I wrote testimony that basically said, Of course, you should build more housing.
Bob Yeah, that's right.
Paul It was 50% workforce housing.
Bob Yeah, exactly.
Clint 50% and they got turned down.
Paul Yeah, so we're not going to do that. Yeah, it doesn't make any sense to me.
Clint I wonder why.
Bob Well, it's not in my neighborhood.
Paul We're talking about the weeds now. We should probably come [crosstalk].
Clint Sorry.
Paul And take a look at the forest. But yeah, I mean West Maui is kind of its own private Idaho in the sense that really there's two lanes going in there and I mean one lane going in, one lane going out. So right there is a big problem. But second, if the whole thing is a resort area. So that's challenging you know what I mean. You've got that tension between. A resort is a higher value to use that land so there's always going to be you know a challenge there.
Clint And people want to see lower density which increases the cost. Really higher density is the only option to [crosstalk].
Paul You wanted to do favor for low-income households and poor people build medium-density housing near the urban area where they can walk their [work].
Clint Oh, in the 1970s, a three-bedroom house was 1,100 square feet you know one bath. I mean that's how you were able to afford your first home and is so in today, you do see a three-bedroom, one bathhouse. It's just doesn't exist.
Paul In the 1925 edition of the [Lures and Cook] limited,--.
Clint Oh, you're so [crosstalk].
Paul Home catalog. It's that they sold a 352 square foot house with two bedrooms one bath a kitchen living area and a porch. And the average size of a house. I've looked that building permit data for Honolulu in the 1920s. The average size of a house, a new house was about 850 square feet. Average occupancy was five persons per household. Today, it's three. So we used to get by with less. I don't understand quite why we have to have these gigantic footprints. There's a hole.
Clint Even people think like a 1,500 square foot home is too small and you know.
Paul Yeah, it was kind of like remember when you had the one grill hibachi and you put your Teriyaki sticks on there. And now, you've got to have a freaking Ford F350 to drive around your gas grill to the beach so you can grill. Yeah, it's sort of.
Clint So this is again Clint Hansen with KAOI Radio Group, Maui Real Estate Radio. You can go to mauirealestateradio.com and mauirealestate.net for real estate. We are here with Paul Brubaker. Is there something you want to say in kind of your closing statements about our discussion today and the state economy. You know really a housing has been the main focus of the conversation.
Paul Sure. Sure. Yeah. You know short term I would say keep your eyes open. There are things going on out there in the economy that are raising sort of the risk environment somewhat. Medium to longer-term. I think it's important for Maui to understand the next 20 to 30 to 50 years will be completely different from the last. We went through an amazing arc 50 years of from 1970 through 2020 let's say where Maui was a high growth economy and now has transition to a very low growth economy. The demographics are changing and Maui has some decisions to make you know. Negative growth which is called decline is not obviously a good outcome and people are going to have to make some choices.
Clint The opposite of growth and dad, Bob Hansen.
Bob Well, I just have to say I've known Paul Brewbaker for many, many years. I first met him when he was with the Bank of Hawaii and he is regarded as the most renowned, most accurate economist in the State of Hawaii. And it's true [crosstalk].
Clint That's right.
Paul The only economist.
Bob Whether it's true or not, people think it.
Paul The real economist. Oh, you work in their office.
Bob Yeah and I just think that this radio program is pretty-- Clint, you're doing a wonderful job and I just really appreciate it and a lot of my friends are listening to it.
Clint And Paul, thank you so much for coming today.
Paul Oh, my pleasure.
Clint It's been fantastic.
Paul That we're we've been trying to do this [crosstalk]. I'm glad it worked out.
Clint Yeah, right. Mahalo and again this is Clint Hansen with mauirealestateradio.com. Aloha.

List of Shows to Date:


Show 1: Mortgage vs. Rent
Show 2: Leasehold, affordable ownership and Na Hale O Maui.
Show 3: Developments and affordability
Show 4: Inspections with Beau Petrone
Show 5: 1031 Exchange
Show 6: Hospital
Show 7: Insurance with State Farm agent Kit Okazaki
Show 8: Understanding the escrow process with Pam Teal of Fidelity National Title
Show 9: Everything you need to know about solar on Maui as of 06/17/2019
Show 10: The Hansen's a family tradition in Real Estate
Show 11: Paul Brewbaker discussion on Maui