 co-host of today's episode of Talking Tax. I hope you're having a great day. I hope we have a good show here for you, my co-host. Really the main man here is Tom Yamachika, president of the Tax Foundation of Hawaii. And we do have a special guest here today, Paul Brubaker, economist with TZ Economics and it's a private consulting firm. And we're gonna talk today about monster homes or really some bills that would be applied to monster homes to try to pluralize them and keep them in line to the extent that they are being built. In particular, we're gonna riff off of a column that Tom wrote last week, published in his papers throughout the state and also on the Tax Foundation website titled Aiming a Sledge Hammer at Monster Homes. And he was talking in particular about Bill 52, which is being considered by the Honolulu City Council that seeks to increase the daily fine for violations of the zoning codes that sort of enable the monster homes from $250 a day up to $25,000 a day. And if I understood what Tom was writing correctly, I think he felt that, I think he thought that the fine, he didn't seem to be disputing the fine or more rather that it could be aimed at things that have nothing to do, homes that have nothing to do with being monster homes. Is that right, Tom? Well, let's first talk about, what exactly is a monster home? What are these things that we are irked about? One developer has attempted to define a monster home as large houses built in land zone for single family homes tend to take up more than 75% of the lot space and can have as many as 20 plus bedrooms. And this is built in the residential district. Actually, we have a picture of one. And here we go. This is a cartoon that was penned before the Grasswood Institute, which Mark is from and by a little cartoonist, Dave Swan. So that's what a monster home looks like. And you see some of these in like Kayamaki and Kalihi and a few other places around town. Neighbors tend to be irritated to say the least because if they had a view before, they don't have one now. And I think when they moved in, they weren't thinking that there's gonna be a hotel next to them or something similar. Yeah, in defense of that cartoon, that was an exaggeration of what a monster home really looks like. That was almost like a small apartment building and the plot, which is a little more extreme than, but I guess it's a little more extreme than but I guess to the neighbor, it might look like that in their mind. They're pretty huge as far as close to the lot line as they can go. And I think in your column, you had a three-story home that went along with the article that you wrote. And it's true that around the neighborhoods, they're quite large and out of keeping with the traditional look in most neighborhoods. Although we could talk about that a little bit too, whether that's a reason we'll assume that neighborhoods are museums that should never change. So anyway, continue, sir. Okay, so the question is, okay, given that we think monster homes are a problem, what do we do about it? And one approach that was kind of embodied in Biddle 52 in our current city council year was it drastically tinkered with the fines for building something that's out of code. The current maximum penalty in the ordinance is $250 per day of violation with a maximum of $2,000. And DPP, the Department of Planning and Permitting says, with I think some justification, that that amount is far too small to be in effect for deterrent. So they said, okay, so here's what we're gonna do. Instead of this 250 bucks thing, we're gonna add a couple zeros. So the initial fine is gonna be $25,000 plus $10,000 per day with no upper limit. But the thing that concerned me was what triggers the enhanced fines is that any violation of the development standards in a particular ordinance which relates to maximum height, height setbacks, maximum floor area ratio, maximum number of wet bars, maximum laundry rooms, maximum bathrooms, minimum sizes of yards, among other things. So yes, a monster home would violate one, two, maybe several of those, but the same fine structure can be applied to something that violates only one of them and you know, by a little amount, like if the, for example, if the yard is a little bit too small and somebody calculates the yard size after everything's built, which may or may not be what was planned for and oh, the yard's a little bit too small. So wham, big fines come down, is that what we're trying to do here? Well, so I think there's one more problem with that, Bill, in looking at it, there's also, well, there's also a category, there's also a section that says that inspectors should be allowed to come around for any time during two years after the permit is authorized to inspect to make sure that there's been no deviation and the bill itself talks about giving reasonable notice and I thought, okay, well, reasonable notice, I suppose that's okay, maybe not, even maybe even that's not adequate, but building industry of association submitted testimony saying, no, it should be unannounced visits and I thought, my goodness, now we're talking about something else that's possibly unconstitutional. I say unconstitutional because the $25,000 initial fine that you mentioned and $10,000 a day could be violating the, could be, you could construe it as being violating the excessive fines clause of the Constitution, whereby the penalty has to bear some proportional relationship to the violation, the penalty has to bear a relationship to the violation, so I mean, is it really, is it really worth $10,000 a day plus the $25,000 to impose these fines? I have a problem with that right there, what do you think? You think the amount's too large, you don't seem to be arguing that the amount is too large, you're just worried that it's a materiality factor that you talked about. Well, yeah, let's get Paul's take on this as well, and since he was nice enough to join us today for our discussion, the tack that I took in my article is you need some kind of materiality threshold before you can start whacking the advanced fines in there, because really the bill is written, it doesn't work as advertised, what do you think Paul? Yeah, I'm hearing a lot of legalese, which I understand is important because we're talking about ordinances and enforcement and so on, and the lawyers have to help us write the language down so that it makes the kind of sense that we intend when we change the rules of the game, and so these notions of materiality and cruel and unusual punishment, are important to codify. I tend, as an economist, I kind of tend to step back and think of these things in the abstract. So for example, the question of, is the amount right? $25,000, the median single-family home price on Oahu is 1.2 million, if you're actually talking about a single-family house, 20 bedrooms is an apartment, so, and that's why this discussion is occurring, but even more abstractly than that, there's this tension between enforcement and inducements. What we want to see, the community wants to see, is a pattern of urbanization, and that includes urban redevelopment, to go to Mark's illusion earlier, right? Cities change, a pattern of urban development and redevelopment that fits in some sense within the confines of the community's sense of itself and its evolution. I mean, it doesn't go too far, but as Mark said, it doesn't relegate every neighborhood to being a museum, and then how you get there, as an old, I'm a recovering commercial bank economist, as they say, so in the banking industry, where you see these kinds of problems, they're called information asymmetry problems, right? Somebody has to drive by your house, if somebody has to preserve the right to drive by your house over a two-year period, because they don't actually know what's going on, you know what's going on, they don't. The way those kinds of problems are solved, for example, in mortgage lending, right, is that you have to, we try not to select that adversely from the pool of borrowers, in this case, try not to select that adversely from the pool of contractors or home builders, right, get reputable people, admit reputable people, and then on the other side, mitigating morally hazardous behavior, people who once they're given permission to build, go off and build something that is materially not, you know, within the boundaries of the guidance that the city gives, and in loan covenants, for example, there are requirements for monitoring and so on, or if you're in a business credit relationship with the financial institution, they want to see your financial status and so on. So this tension between enforcement on the one hand and abusement, goes to the heart of this matter. I mean, as I see these monster homes popping up, and there are apartment buildings, so let's just be clear about that, if you don't have to make it any more complicated than that, building an apartment building, which we're replacing this on for single-family detached dwellings, can't possibly be legal, but at the same time, we don't have the resources to go out and enforce everything, although seems to be a drone could fly by the house once every two years, and not have to deploy human resources. So let's kind of go back and kind of get at what you said, and that is, you know, do we have a structure within the current law that is adequate to take care of, you know, the problem, the perceived problem, and that is that monster homes don't belong in a residential neighborhood, and I think the solution that you're thinking is appropriate, which I kind of agree with, is, well, you know, reclassify the damn things as apartments, and then, you know, proceed against the builder or the contractor, wherever, on that theory, i.e., you're allowed to build a residential home, you're not allowed to build an apartment, but an apartment's what you built. Yeah, it's two things, really. On the one hand, the city needs to be positioning the community in a forward-looking way, relying on community input, for sure, but identifying where it can grow, where density, where densification is admissible, because density's proximity and proximity is mobility. I mean, it's just the way cities evolve, but at the flip side is the enforcement question, right? You want the enforcement to be credible so that you don't actually have to go to the trouble of enforcing, and I have no particular, you know, insight into what the right, you know, is the $25,000 adjusted for, you know, appreciation of single-tally homes, or what are you, you know, $25,000 30 years ago is not the same thing as $25,000 today, that kind of thing. So, between credible enforcement, but also a path forward where the city allows densification, allows greater urban density, and people know where that's going to be, where the developers know where they should be focusing their attention rather than trying to get away with it in neighborhoods. That's where it's inappropriate. So, that sounds more like, you know, a zoning discussion. Yeah, in a straight up. I think that's exactly the problem, or, you know, the core issue. What we have here is a potentially bad law that is trying to fix the results of earlier bad laws, and rather than going back to the original bad laws which locked in single-family neighborhoods to a certain kind of a whole regime, you know, like liberalizing zoning, adding, reducing minimum lot sizes, reducing parking minimums, increasing setbacks, whatever. You see these jurisdictions down in California, for example, which basically Hawaii follows California when it comes to zoning and housing regulation. You see these jurisdictions where they've just banned single-family zoning. It's just that we're not gonna allow it anymore. They've lifted it all, and now you can build duplexes and... And I don't know about your neighborhood, but in my neighborhood, before we had illegal Ohana units, and now we have legal accessory dwelling units. We just changed their name, but people pop up a second floor and they build an Ohana unit in the back for Tutu, and, you know, eventually Tutu's not gonna be with us, and then what do you do with the accessory dwelling unit? You rent it to your son or daughter's classmate who's graduated and starting out a new career. Right, and I think that applies. That's the normal way cities evolve. I think that applies to the so-called master homes as well. I think most of them, correct me if I'm wrong, I tried to find some figures before this show about, I don't know that anyone's keeping track, really, of how many master homes there really are and how many violations have there been. How many people are living in these homes? We have a housing crisis. People need places to live. If you just go by, I got the numbers on about four homes, and that was about well over 20, you know, 30, 40 people. 20, 25, I don't have the numbers there, are they? Anyway, we're probably looking at at least hundreds of people that have a place to live now, probably mostly single folks, but also maybe small families. And I assume they're all, they're mostly all rentals. So they are, you know, they're, it's a place where your older son can move into when he moves out of the house, you know, they're affordable, they don't have parking necessarily or some of the other amenities like garages, you know, they don't have garages, most of them. But anyway, my point was that these are being built mostly legally. They're following the building codes. And that's why they're, they exist. They, they're plan- No harm, no foul, if that's the case, right? Their plans were approved. And what the, it's sort of like the case against short-term rentals. We're trying to pass overly broad laws that affect just a few people that are abusing, you know, the short-term rental. Well, this brings us back to Tom's original point was you have to be careful about changing the law in a way in which spills over and bleeds outside the territory, the zone we originally intended the enforcement to have an impact and doesn't catch up other property owners, this, you know, one or two minor instructions. Well, in the homes that are being built due to, so there's actually another bill before the council right now, bill 44 and that bill, you might have heard about it, seeks to penalize people who make false statements to city officials and, and it doesn't say which city officials and it includes verbal, written, you know, everything, any, anything on your document, anything you might say to the clerk at the window and whatever. Remember that's the thing I would certainly support. I mean, you don't go around trying to get a building permit by lying to the city official. Well, yeah. We're giving out that not on the fake plans. Well, yes, of course, you, if you're, if you're lying on your permit, but then there's the issue of like knowingly lying versus, you know, unintentionally quote lying and also what is the city official or what are you supposed to be under oath every time you, that's a lot of, that's actually a, a constitutional issue at the federal level where people get indicted and convicted for lying to an FBI agent when they're not really even under oath. You know, so when does it matter that you're under oath or you're not? But if you're filling out a document for the government about, you know, your house is gonna be this large and then you build something much larger. Yeah, I think that's actionable, no doubt. But still, still we're, we're, our focus is on suppression of bad behavior, which is not necessarily a bad thing for society to do. Right. Whereas the market is clearly saying, there's not enough housing and this is how people are doing whatever they can do to get it. So maybe we ought to work equally on this question of how do we make it possible, right? How do we enforce the rules, I guess, doing things with untoward outcomes while at the same time making it possible. Let me give you a statistic. At the time of statehood, 60% of households in Hawaii were married families with children, right? Who lived in a single family home in the suburbs. Today it's 20%, 60%, 20%. And the number of households comprising individuals living by themselves in at the time of statehood was one eighth of the population. Today it's one quarter, one quarter of the population comprises people who live on their own and they're not all young, many are old. The point is that the whole structure of society changed which require people, half of all marriages and a divorce, right? There's, even if the population hadn't changed, there's a greater need for housing. But of course the population grew. So we're, on the one hand, we're not solving the problem of housing shortfall. We need to do that while we solve the problem, pre-empting the bad outcomes. Well, there's gotta be a way down the middle where we solve the housing problem and get exactly what it is we're trying to achieve. Well, Tom, in addition to wanting to have greater fines for these homes, a lot of people, a few people anyway, it'd then be fostered in civil bead rowdy column, the list of fact, and there was some testimony before the council that demolition is really what they should be doing. You know, if a home is in gross violation of the law, they ought to tear it down. What do you think about that? Well, I mean, you talk about excessive fines or punishments, you know, having somebody's house torn down and making them homeless by definition, that's kind of a severe penalty, I think. And you really should have some, you know, very good cause before you can let government do that, I think. Well, yeah, I remember they tried to shave the top off of that Buddhist temple in the back of below the valley. I don't remember what happened to that, but in the Gen B fostered article, there was a clipping from like back in 19, when John Whalen was the DPP guy, department of planning permitting figures, I think that was his title. Anyway, he made a big show for the media about how they were actually gonna tear down some property in Kahala or something like that, that had exceeded building permit codes. But yeah, I think that would probably be going too far, unless they do it before the people move in, but I still think probably modification would be in order if you're gonna go to all that trouble to build something that you could renovate and still have around for people to live in. But to the extent that a home meets the code, do we really have a problem? I know in a lot, if you go through some neighborhoods, like Kahala Key, for example, you'll see all the older homes from the 20s and 30s and 40s that were single family, it's all single family neighborhood, but they were one-story homes, generally smaller, two-bedroom, maybe three, and they were really nice, double wall construction. But then in the 60s, they started coming up with the single-wall homes, and they all started going two-stories. Now, I would imagine back in those days, those were considered monster homes. They looked awful, and if you lived right next to one, you suddenly, your beer's gone, and there's more people living next door. I don't know how many, if that was really, they weren't turning them into apartment buildings, but anyway, they might have offended the sensibility, but they were legal. So the neighborhoods have evolved, and now you have a lot of two-storey homes in these neighborhoods, and now these so-called monster homes, if they're conforming to code, it seems to me that it's just something people gotta learn to live with. Although, like Paul said, it's clearly a manifestation of the ultimate problem, which is we don't have enough homes, and if those were being... Now, going back, there's another bill called Bill 7 that presumably, they did get passed into law, and it allowed some form of small apartment buildings in neighborhoods. There was a lot of opposition to that. Oh, we don't want neighborhoods in our communities. We don't want apartment buildings in our neighborhoods, which is actually a quote from some guy in some neighborhood that I saw. And then they did a study a few years later, well, how many apartment buildings have been built, none of them, none had been built. And why? Well, because it's too damn difficult, pardon me, to build a home in Hawaii. You know, it's just really, really hard to build housing in Hawaii, and we're kind of paying the fruits of, we're kind of paying the piper for what we've caused many years ago with this locking it into single-family housing. I think that's the ultimate solution here. So it looks like we have many different levels of problems that we're trying to attack here. We have, okay, the greater problem of what do we do about housing generally? Okay, we have urban planning, which is what kind of houses, if any, and where do you allow them? Which raises questions about the adequacy of our zoning laws, and whether we should be putting in new classifications or changing the requirements of the classifications that we now have to better align with the times, perhaps. And then, what then happens when people try to, take the law into their own hands and either lie to DPP or get an approved plans and have something built that's way different from the approved plans, which also happens. Yeah, I think this, as I said earlier, there's a fundamental tension between the issue that brings us together, which is how do we get a credible threat of enforcement in place without having it spill over and catch up people? You know, the rules were intended to snag while at the same time enabling the city to grow. Cities grow except when they don't, when they go into decline. You pick which one you want. Well, the other trend right now is adaptive reuse, which would free up the downtown areas, the old office buildings that are no longer occupied. Those could be converted to residential and that's another, and mixed use, we could have greater mail. Yeah, what happened to mixed use? I mean, what happened to the Simon noodle shop on the ground floor and the apartment upstairs? I mean, why is that illegal? I don't understand that at all. So it's really frustrating that we have to talk about the bad law, you know, potential problems with laws that are intended to fix legitimate problems, but ultimately, you know, I think it's a bigger story. Tom, last talk, last comments. Well, you know, we have, you know, lots of interesting issues around housing. We're trying to kind of evaluate the laws that are, you know, being brought up by our legislative body to see, you know, what the problems are in these proposed bits of legislation and I think the thoughts that were expressed in today's show really, I think should be some food for thought, for lawmakers on how they should be looking to aim and craft legislation. You know, certainly the bill that we were talking about, you know, bill 52 that has drafted by DPP does do it and they need a different approach and we've talked today about the different kinds of approaches that may be available, you know, legislatively. Well, I know we're kind of running short on time here. What last words from you? As Tom said, I think we need to be careful. I'll rewrite the laws, but I, you know, my sense of the balance is that where we've done off track is by not allowing enough urban development to evolve in its own sort of organic manner. Great demand. Well, thank you very much. And I forgot to mention that you're a proud graduate of Mount of Willie Elementary. Yeah. So anyway, on that happy note, thank you very much, everybody for tuning in today. We'll be back in a few weeks, a couple of weeks with more exciting conversation on Talking Tax with Tanya Machika and myself, Mark Coleman. Aloha.