As Hawaii prepares to implement its controversial Land Reform Act, designed to attack concentrated land holdings here, real estate analysts say it is unlikely the law will solve the state's serious land-related problems.
They say, however, that the legal principle that emerged from the battle to implement the 1967 law has given the state broader powers to enact more sweeping land reform in the future, land reform that could change the face of Hawaiian real estate.
Land in Hawaii is unusually concentrated, primarily because the tradition of land ownership as a privilege for the elite has remained intact since the time of Hawaiian monarchies. Government, federal and local, owns nearly 45 percent of the land in Hawaii and nine private landowners own close to 45 percent.
Sixty percent of all residential development in Hawaii is on land encumbered with ground leases. One Hawaiian real estate agent said that some parcels have up to six or seven subleases, a byzantine byproduct of development in a place where landowners are unwilling to sell lots.
Many of the houses built during the post-World War II building boom in and around Honolulu were constructed on leased land, and when sold to homeowners usually included 50-year ground leases. The rents for those leases, however, were often set for only 25 years, and in the mid-1960s pressure to break up the large land holdings began to build as tenants with leases coming up for renewals faced rates that jumped in some cases from $500 to $5,000 a year or more.
The land reform act was passed in an effort to release homeowners from such burdensome ground leases. After several amendments, the act allows any lessee living on a single-family residential lot of no more than two acres to apply to the state for purchase of his lot, if it is part of a subdivision of at least five acres and if he does not own residential property nearby.
If similar applications are filed by lessees of 25 lots or half the lots in a subdivision the state housing authority holds a hearing to determine if the sale will meet a valid public purpose and at what price the land should be sold. The state then acquires the land through eminent domain and sells it to the lessee.
One of the largest landowners in Hawaii, the estate of Hawaiian princess Bernice Pauahi Bishop, challenged the constitutionality of the law, specifically whether the state could use the power of eminent domain to take private land for the benefit of another private individual rather than using it for a public purpose.
The U.S. Supreme Court ruled, however, that the law was constitutional, and in doing so expanded the powers of all states to use eminent domain.
In an 8-to-0 opinion written by Justice Sandra Day O'Connor, the court ruled that state governments do not have to use property to justify taking it; that the purpose of the taking was what must pass scrutiny under the Fifth Amendment protection against a state's police powers, rather than the mechanics of the taking.
"Regulating oligopoly and the evils associated with it is a classic exercise of a state's police powers." O'Connor wrote. "We cannot disapprove of Hawaii's exercise of this power."
The case, Hawaiian Housing Authority v. Midkiff, is now pending before the Hawaiian Supreme Court, to test whether the law is valid under the state constitution. Sources here working on the case, however, say both sides expect the Hawaiian court to follow the Supreme Court's lead and several hearings to condemn land under the law are now scheduled for early next year.
Critics of the law say that because it affects only a small percentage of Hawaiian land and benefits only those already owning houses, it will neither break up the large estates nor make more land available for housing.
The scarcity and cost of residential land is one of the state's biggest problems. The average single-family house resold on Oahu last year cost $192,000, and the average condominium resold for $102,000.
Herbert Horita, who as president of Horita Realty Co. had handled over 75 percent of all real estate transactions on Oahu over the past five years, said that Hawaii could absorb 11,000 new housing units next year but that there are only 5,000 scheduled to come on the market. He also said that rental rates increased as much as 100 percent last year in some areas of Honolulu.
But most analysts here say that the problem isn't the concentration of land but the state's unwillingness to release agricultural land for residential development.
"The real problem here is that the vast majority of the land is tied up in agricultural production that is no longer competitive," said David Ramsour, vice president and chief economist for the Bank of Hawaii. "Residential land will not become available until the state's plantation economy is restructured."
Some critics of the act believe that land leases have "protected" Hawaiians from the true cost of land and housing and that in the future, with most new construction on fee-simple land, housing prices will rise sharply.
"The leaseholds worked as anti-speculation controls," said Rosemary T. Fazio, one of the lawyers representing the Bishop estate in the court case. "Without those controls the cost of land is just going to go up."
Ramsour and others said the true impact of the act is likely to flow from the broadened powers the Supreme Court decision gives states in using eminent domain.
"I think it's opened up a can of worms," said Ramsour. "There would be nothing now to stop the state legislature from passing a law that would allow takings of property, for instance, in neighborhoods that were not racially integrated, if that was seen as a worthy public purpose."
Representatives of the large estates say that it is the opening up of options for the state that truly worries them, rather than the land reform act itself.
"Any other condemning authority now has a green light," said Fazio. "Already people are talking about extending the act to include allowing condominium owners to buy the land under their buildings, and to the possibility of breaking up the agricultural lands."
Representatives of the homeowners who will benefit from the act say, however, that even if it is only a small step the precedent is important and could eventually lead to the breakup of the large estates.
"It is fair to say that the land reform act has not been successful so far," said Bernard Bayes, one of the lawyers who represented homeowners in the case against Bishop. "But the expansion of principle will help."