Not Even Molten Lava Can Cool This Hot Housing Market
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Not Even Molten Lava Can Cool This Hot Housing Market

The eastern section of Hawaii’s Big Island continues to attract home buyers searching for a cheap piece of paradise

Sun, Jan 21, 2024 7:00amGrey Clock 5 min

PUNA, Hawaii—In 2018, a large volcanic eruption spewed lava, rock and ash into the middle of a subdivision here, gobbling up more than 700 homes and displacing thousands of residents in a slow-motion disaster. Today, it is Hawaii’s fastest-growing region.

Land in an active lava zone, it turns out, is relatively cheap. Lured by a shot at attainable homeownership in paradise, island dwellers and mainland transplants alike have been flocking to this area in the shadow of Kilauea, driving up prices in the Puna District. Still, the area remains one of the last affordable refuges on the cheapest island in Hawaii, America’s most expensive state.

“In terms of the last bastion of affordability, Puna is it,” said Jared C. Gates, a Realtor who was raised on Oahu and came to the Big Island for college in the 1990s. He purchased his first home in 2005, a modest fixer-upper in Puna, on his salary as a waiter.

Over the past few years, he has been getting more business in Leilani Estates, the neighbourhood where the 2018 eruption began.

None of the homes that were inundated by lava have been rebuilt. Many homeowners have sold their properties to neighbours or the county in a federally funded buyback program, but that land remains vacant for now. The land has been so transformed that it is hard for remaining owners to know even where their property begins and ends.

“It took out roughly a third of the subdivision; totally surreal,” Gates said last fall. “And houses are selling there again.”

Among Gates’s listings that day was a three-bedroom, two-bath home with lush landscaping, two blocks from the mile-wide lava field where heat and steam still radiate from vents in the petrified landscape. “It’s a beaut,” he said. “It will sell.”

Three weeks later it did, for $325,000, cash.

The story of how serene-looking slices of suburbia came to inhabit an active volcanic rift zone is well-known here. In the 1960s, land speculators—aided by a new county government hungry for tax revenue—bought thousands of acres and carved it into lots of an acre or more that were snapped up by investors.

There were virtually no requirements that developers pave roads, place utility lines or build other essential infrastructure. To this day, there is no wastewater treatment plant or hospital. Many of the district’s 51,000 residents rely on filtered rainwater and cesspools to dispose of sewage.

Early buyers included Native Hawaiians looking for an affordable place to call home and mainland hippies intent on off-grid living. As home prices rose in Hawaii and across the nation, however, more working families and mainland retirees went hunting for deals on the Big Island.

County Councilwoman Ashley Kierkiewicz, who represents Puna, said rush-hour traffic on the rural, two-lane highway that connects Puna to Hilo, the county seat roughly 20 miles away, is so bad that she leaves her home 1.5 hours early to get to work.

County officials say rules tied to federal funding bar local government from building affordable housing in lava zones 1 and 2, which are the riskiest and make up most of lower Puna. State law also prohibits them from spending most local money on private subdivisions, meaning that roads are largely maintained by owner associations.

Hawaii County Mayor Mitch Roth said that while the county has added a new firehouse, police station and park facilities there in recent years, the county has limited funds to make major investments in high-risk areas.

“Are we going to invest public money in a high-risk place…knowing that whatever you build could be taken out by lava at any time?” said Roth.

The lack of some modern conveniences has scarcely slowed the flow of newcomers.

Like many places in the U.S., an influx of remote workers during the pandemic has helped send the housing market here into overdrive.

Among the recent arrivals are David Booth and his partner, Juan Polanco. The former Phoenix residents had been brainstorming tropical locations where they could slash their living expenses and ease into retirement.

“The attraction to the Big Island was affordability,” said Booth, 61, who now works remotely. He and Polanco, 59, paid cash for a 1,500-square-foot home that had been split into three units with separate entrances. “You can’t have this on any other island for this price point.”

The property sits on a 1-acre lot in Hawaiian Paradise Park, a subdivision located in the less-risky lava zone 3. Homes with repeated sales in the neighbourhood have seen a nearly 800% appreciation in price since 2000, according to data from the University of Hawaii Economic Research Organization.

Properties in lava zones 1 and 2—some with sweeping oceanfront views—were far cheaper, Booth said. In the end, the risk of losing their nest egg to a natural disaster, and the difference in insurance rates, were deal breakers.

They are getting used to bringing in their drinking water and dealing with vicious fire ants. The slow-paced lifestyle and prospect of early retirement are worth it, he said.

They have listed the two other units as vacation rentals, and their first guests arrive next week.

“We are overwhelmed with the amount of beauty here and just how much more relaxed we feel,” said Booth. “We’re building a whole new life here.”

Three years ago, Travis Edwards, 48, was driving delivery trucks and living with his mother in Southern California’s Inland Empire.

He was sick of the traffic, wildfires and car thefts, he said. Upon retiring, his mother sold her house and paid cash for a 1-acre lot with two units in Leilani Estates, surrounded by avocado and citrus trees. Lava insurance rates in lava zone 1, the riskiest area that encompasses the entire subdivision, were so high that they simply stopped paying for it, he said.

He mostly shrugs off the dangers, reasoning that they would be reckoning with fires and earthquakes on top of a lower quality of life back in Southern California.

“It’s just paradise,” said Edwards, who now drives limousines part-time. “The rest of the world doesn’t exist when you’re here.”

Rising prices on the east side have left Puna native Chantel Takabayashi feeling stuck. A single mother of three, she works 16 hours a day as a state prison guard in Hilo. She would like to buy a home closer to work and better schools but has been priced out of most neighbourhoods she has considered.

“I make pretty decent money and I work long, endless hours, and I still can’t afford better housing,” she said.

A home in the Kalapana Gardens neighbourhood.

Liz Fusco, who manages more than 100 rental properties for Hilo Bay Realty in Pahoa, said that during the pandemic, she saw three-bedroom homes in parts of Puna that once fetched $1,500 a month rent for as much as $2,300.

Most of the applicants were mainlanders, she said, with stellar rental histories, plenty of income and pristine credit. Units that would typically take more than a month to rent were getting leased in three days.

Tina Garber, who has lived in the Puna area for 21 years, has been displaced twice in the past 18 months after the homes she was renting went up for sale.

Currently, she is paying $750 a month—three-quarters of her monthly income as a housecleaner—for a 400-square-foot studio surrounded on three sides by cooled lava. Her landlord just told her it will be listed for sale in April.

“People that come over here with money, they do not realise that it is so hard to make it here,” Garber said. “They think, ‘Oh, a good deal in Hawaii.’ But it puts a lot of pain and suffering on local folks.”


Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts

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Only 5% of U.S. Foundations Invest for Impact, Study Finds
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Few of the U.S.’s philanthropic foundations invest their endowment assets—totalling an estimated US$1.1 trillion—to create positive social and environmental change in addition to high returns, potentially limiting or even counteracting the good such organisations do.

Exactly how few isn’t precisely known. But Bridgespan Social Impact, a subsidiary of the New York-based Bridgespan Group along with the Capricorn Investment Group, a Palo Alto, Calif.-based investment firm founded by Jeff Skoll , the first president of eBay, and the Skoll Foundation, also in Palo Alto, attempted to “get the conservation started,” with a study of 65 foundations with a total of about US$89 billion in assets, according to Mandira Reddy, director at Capricorn Investment Group.

The top-line conclusion: 5% of the primarily U.S.-based foundations surveyed invest their assets for impact. Most surprising is that 92% of these organisations, which have assets ranging from US$11 million to US$16 billion, are active members of impact investing groups, such as the Global Impact Investing Network and Mission Investors Exchange.

“If there’s any pool of capital that is best suited for impact investing, it would be this pool of capital along with family office money,” Reddy says.

The study was also conducted “to draw attention to the opportunity,” she said.

“We want to redefine what philanthropy can achieve. There is massive potential here just given the scale of capital.”

Foundations are required by the U.S. Internal Revenue Service to grant 5% of their assets each year to charity; in practice they have granted slightly more in the last 10 years—an average of 7% of their assets, according to Delaware-based FoundationMark, which tracks the investment performance of about 97% of all foundation assets.

The remaining assets of these foundations are invested with the intention of earning the “highest-possible risk-adjusted financial returns,” the report said. Those investments allow these organizations to grant funds often in perpetuity.

Capricorn and Bridgespan argue that more foundations, however, need to “align their capital with their missions,” and that they can do so while still achieving high returns.

“Why wait to distribute resources far into the future when there are numerous urgent issues facing the planet and communities today,” argue the authors of a report on the research, which is titled, “Can Foundation Endowments Achieve Greater Impact.”

The fact most of the foundations surveyed are very familiar with impact investing and yet haven’t taken the leap “highlights the persistently untapped opportunity,” the report said. It details some of the barriers foundations can face in shifting to impact, and how and why to overcome them.

Hurdles to making a shift can include “beginner’s dilemma”—simply not knowing where to start—and a misperception on the part of large foundations that impact investing is “too niche,” offering opportunities that are too small for the amount of capital they need to allocate. Other foundations are too stretched and don’t have the resources to add capabilities for making impact investments, the report said.

One of the biggest concerns is financial performance. Some foundation leaders, for instance, worry impact investments lead to so-called concessionary returns, where a market rate of return is sacrificed to achieve a social or environmental benefit. Those investments exist, but there are also plenty of options that offer financial returns.

The authors make a case for foundations to “go big,” into impact to realize the best outcomes, and to take a portfolio approach, meaning integrating impact principles into how they approach all investments. To make this happen, foundations need to incorporate impact into their investment policy statements, which determine how they allocate assets.

It will be difficult for foundations that want to shift their assets to impact to pull out of investments such as private-equity or venture-capital funds that can have holdings periods of a decade. But with a policy statement in place, a foundation’s investment team can reinvest this long-term capital once it is returned into impact investing options, she says.

“The transition doesn’t happen overnight,” Reddy says. “Even if there is a commitment for an established foundation that is already fully invested, it takes several years to get there.”

The Skoll Foundation, established in 1999, revised its investment policy statement in 2006 to incorporate impact. According to the report, the foundation initially divested of investments that were not in sync with its values, and then gradually, working with Capricorn Investment, began exploring impact opportunities mostly in early-stage companies developing solutions to climate change.

“As the team gained more knowledge and experience in this work, and as more investment opportunities arose, the impact-aligned portfolio expanded across different asset classes, issue areas, and fund managers,” the report said.

As of 2022, 70% of the Skoll Foundation’s assets are in impact investments addressing climate change, inclusive capitalism, health and wellness, and sustainable markets.

Capricorn, which manages US$9 billion for foundations and institutional investors through impact investments, constructs portfolios across asset classes. In private markets, this can include venture, private equity, private credit, real estate, and infrastructure. There are also impact options in the public markets, in both stocks and bonds.

“Across the spectrum there are opportunities available now to do this in an authentic manner while preserving financial goals,” Reddy says.

Of the foundations surveyed, about 15, including Skoll, have 50% or more of their assets invested for impact. Others include the Lora & Martin Kelley Foundation, the Nathan Cummings Foundation, the Russell Family Foundation, and the Winthrop Rockefeller Foundation.

Though not part of the study, the California Endowment just announced it was going “all in” on impact. The organisation has US$4 billion in assets under management, which likely makes it the largest foundation to undergo the shift, according to Mission Investors Exchange.

Although the researchers looked at a fairly small sample set of foundations, Reddy says it provides data “that is indicative of what the foundation universe” might look like.

“We cannot tell foundations how to invest and that’s not the intent, but we do want to spread the message that it is quite possible to align their assets to impact,” she says. “The idea is that this becomes a boardroom conversation.”


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