Is Hawaiʻi’s military presence pricing local residents out of the housing market?

Housing demand is exceeding the supply more than ever, and high housing allowances may give military an edge.

Manjari Fergusson

It’s easy to feel the military’s presence in Hawaiʻi. Besides its significant land holdings, the military is one of the two largest industries in the state (the other being tourism). A 2011 study by the RAND Corporation showed that military spending in Hawaiʻi was linked to 18 percent of the state’s economy, and direct military and civilian jobs made up 16 percent of the state’s workers (about 101,000 jobs).

What’s less talked about is the effect military presence has on the cost of living, which has historically been high. The median price for a single family home reached a staggering $700,000 this year, and is projected to keep climbing. What effect, if any, does the military presence and their generous compensation package have on housing?

The Figures

Hawaiʻi has one of the largest United States military populations in the world, with 50,088 servicemen and women stationed here. Hawaii has the second highest amount of active duty military personnel; Japan has 50,631. Hawaiʻi also has 64,408 military dependents, while Japan has less than 5,000.

The base pay of an E-6 enlisted individual (a petty officer in the navy or a sergeant in the army) with two dependents and not living in the barracks is $37,152. They are also provided with an annual $35,424 (in Honolulu County) housing allowance and more than $1,000 a month as a “cost of living allowance,” as Hawaiʻi is considered an overseas site.

This brings total income to $84,672, without taking into account the heavily subsidized or free health care under the Tricare program and tax-free grocery and department stores such as the Navy Exchange in Aiea.

The base pay of an O-2 officer (lieutenant) with two dependents, not living in the barracks and having served for eight years is $55,584, with a housing allowance of $35,352. The cost of living allowance is slightly higher, at $1,122 a month, bringing annual income to $104,400.

Under Hawaiʻi law, nonresident military personnel do not pay Hawaiʻi state taxes.


According to U.S. Census data, the median household income in Honolulu is $72,292, and the average rent within 10 miles of Honolulu for a two-bedroom aparment is 25,932 a year, or $2,161 a month.

Non-military income, after subtracting annual average rent costs, leaves $46,360 to cover healthcare, utilities and cost of living.

Assuming the $25,932 rent cost, an E-6 combatant has $58,740 left over, and the O-2 combatant has 78,468, giving them a 27 percent and 69 percent greater leftover income than a local non-military resident, respectively.

For comparisons sake, a teacher employed at the Hawaii Department of Education for the 2013-2014 school year had a salary ranging from $33,169 to $58,042, depending on their level of education and experience. This would leave $7,237 and $32,110, clearly not enough to live on.

This could also be calculated by looking at the median rent in Honolulu in 2012, which was $1,483. This comes out to $17,796 for the year, giving the E-6 combatant $66,876 leftover and the O-2 combatant $86,604.

The teacher on the bottom rung of the pay scale would still only have $15,373 left and the highest earning teacher would have $40,246, less than half the O-2 officer.

What does it mean?

Hawaiʻi economist Paul Brewbaker said it’s inarguable that military have an edge in the housing market. However, he states that, “I would say that their numbers are insufficient to represent a per se distorting influence on home prices or rents in general.”

Brewbaker notes that it’s just not clear what military personnel’s material impact is on the island housing market, but said military retirees may have a greater influence on costs, due to their large numbers and generous benefits. Veterans can buy homes without a down payment, through the Veterans Affairs Home Loans, while for many non-military families the cost of the downpayment is a contributing factor to what prevents them from buying. For Honolulu, the loan limit is $721,050.

A recent study from the Joint Center on Housing Studies found that only 9.7 percent of renters aged 25-34 could afford to own their own home in Honolulu.

Hawaiʻi also has the highest housing wage in the nation, at $31.54, according to the National Low Income Housing Coalition. A housing wage is calculated as the hourly wage a person working full-time would have to earn in order to afford a two bedroom home and not spend more than 30 percent of their wages on housing costs.

Brewbaker ultimately believes the main issue is the housing supply, or lack thereof.

“The fact is that simply providing greater housing supply … would completely negate whatever adverse impact we might allege as a consequence of [the military’s] presence,” Brewbaker said.

“The surest way of preventing ‘excessive’ demand from having an undue influence in one or another segment of the market is to ensure that supply is adequate.”

It is well documented in the islands that the demand for housing far outweighs the supply, something that will always keep prices up in home sales and rentals.

Land development in the state, particularly on Oʻahu with the recent Kakaʻako, Koa Ridge and Hoʻopili land development deals, has been controversial at best. Political pundits say it could be one of the main reasons Governor Neil Abercrombie lost his bid for reelection this month.

Data from the Hawaiʻi Department of Business, Economic Development and Tourism (DBEDT) in February found that Hawaiʻi’s population will grow by about 85,000 people by 2020. In order to keep up with population growth, at least 5,500 new housing units are needed annually, which as Brewbaker pointed out, is essentially a new Koa Ridge each year.

However, in the past five years only about 3,400 new units have been built each year, contributing to the high housing prices.

According to the 2012 American Community Survey, there are 339,422 housing units in Honolulu County, with 31,500 of those vacant. Of those vacancies, 6,922 were for rent. Homeowners occupied 167,503 housing units, while 140,569 were renter-occupied. The vacancy rate for rentals in Honolulu is 4.6. Statewide, the vacancy rate is 9.1

A third of the houses that are listed as vacant are used as vacation homes.

Last year, the University of Hawaiʻi Economic Research Organization (UHERO) examined the median family income on Oʻahu in the context of the real estate market.

Assuming a down payment of 20 percent and spending less than 30 percent of income on housing, UHERO used the following figures: a home of $630,000 (the median price in May 2013) and a condo at $315,000. They assumed the mortgage rate was 4 percent.

That would mean a $126,000 downpayment for the house, with a $96,000 income, and monthly payments of $2,400. For the condo, the down payment would be $63,000 with an income of $48,000 and a mortgage of $1,200.

The conclusion? With the median family income, a family would not be able to afford the median-priced home; UHERO found that only rates below 3 percent would make them affordable.

DBEDT’s report noted that the increase in military forces in Hawaiʻi, due to the military’s decision to shift forces from the Atlantic to the Pacific, has been a factor in the increased demand for off-base housing.

In essence, while the islands high military presence undoubtedly has wide ranging effects, including on the housing market, ultimately the small supply of housing is the real issue.

“The county and state governments aren’t allowing or enabling enough of it to be built fast enough,” Brewbaker said. “The federal government, the Department of Defense through a massive base-housing privatization initiative, did their part. It’s on the county and state,” he said. “It’s as simple as that.”

Ikaika Ramones contributed to this report.

Additional resources of interest

PBS Insights: UH economist Sumner Lacroix talks about housing costs as it pertains to the middle class.

Hawaii Appleseed Center for Law and Economic Justice: A report from this year, “The High Cost of Our Affordable Housing Shortfall.”