Government Success Story?

Ka La’i Ola is Maui’s largest interim housing community for the victims of the 2023 Lahaina fire.  The project, which has been universally celebrated as a huge success, came with a huge cost.  For its scale, speed, and impact, the Hawaii Society of Professional Engineers Maui Chapter named Ka La‘i Ola the 2025 Project of the Year.  Let’s examine the good and bad and determine if it’s appropriate to put this project into the win column.

 

 

Ka La’i Ola cost $187 million to make 450 units available for a maximum of 1,500 people to live in.  The homes are available for residents affected by the Lahaina fire who don’t meet income or background qualifications for FEMA housing.

 

 

Before we dive into the nuts and bolts of the project and its costs, let’s all agree that those affected by the fire need public help to get their lives back on track.  If there’s one thing society as a whole can do, is to help its citizens in time of need.

 

While the advocates for Ka La’i Ola boast of the “low” $187 million cost to develop, that’s not the true cost.  The project avoided over $106 million in costs to the taxpayers because of donations from various groups.  Hawaii’s building industry contributed over $8 million in discounted labor and supplies.  Over $42 million was received as grants and donations.  They saved $24 million by a process called Value Engineering.  For this project, value engineering meant to engineer for minimal cost – such as overhead power lines and using surface swales versus having underground drainage.  Almost $31 million was saved because of an emergency order by Governor Green that exempted the project from general excise taxes and costly regulations other projects must adhere to.  Even if you stick with the $187 million to build these 450 units, the cost seems really high.  The math comes out to more than $415,000 for each unit.

 

I’ll point to the elephant in the room – the units are ugly.  They lack any connection to Hawaii and our sense of place.  With floor to ceiling glass, the units lack privacy and require air conditioning (another cost).  The style of these units do fit right in with another modern addition to west Maui’s landscape – windmills.  I could easily see one of these modular units situated next to a giant windmill.  The match is perfect.

 

I’m all for saving money and “value engineering” projects, but when are our leaders going to look to the future when developing today?  We love to tell the world Hawaii is the most beautiful place in the world, yet we still allow for overhead utilities?  This project, as I explained above, lacks storm drains.  Let’s see what happens when we have some heavy rain this winter.

 

This project is not a permanent development either.  In 2029, a short 4 years from now, the 1,500 tenants must leave.  The project is being transferred to the Dept. of Hawaiian Home Lands (DHHL).  What DHHL will do with the structures is unknown.  Even the manufacturer of these modular fishtank units has no clue how long they will last in the hot Maui climate.  They were designed for a less tropical (mainland) application.

 

What upsets me the most is a lack of long-term planning.  Did our political leaders conceive this project to house people for 5 years while Lahaina rebuilds?  If so, why not put the money towards expediting the rebuilding of Lahaina itself?  As noted earlier, $187 million for 450 housing units equates to over $415,000 per unit.  For those 1,500 people, that’s almost $125,000 per person for those 5 years – roughly $2,000 per month for the 60 months.  That additional income could have been used to qualify for a construction loan.  What if instead of building Ka La’i Ola, a Lahaina homeowner in the process of wanting to rebuild were to receive a grant of $415,000 to build an ADU or incorporate an additional 586 square feet of living space into their rebuild? The homeowner in exchange would be required to keep that portion a rental for a minimum of 5 years.

 

It just seems like they threw money at a problem without thinking of the best way to spend our money.  For the people now living at Ka La’i Ola, I am sure they are happy to have a place to live.  A place is better than no place.  But the solution to rebuilding Lahaina is…to rebuild Lahaina.

 

 

 

 

And now the week’s economic news…….

 

Government Shutdown

Rather than the usual scheduled first week of the month packed with major economic data, the government shutdown left investors mostly in the dark, as several key reports were not released.  The latest economic data collected by private companies caused little reaction.  As a result, mortgage rates ended the week down slightly, near their lowest levels of the year.

 

Friday would have been a big day for the bond market.  The release of the monthly jobs report from the BLS is one of the biggest market moving reports issued.  This report covering jobs for the month of September was highly anticipated because of all the controversy surrounding prior reports with major revisions (all lower).  With so many Fed members recently giving speeches that the outlook for employment is stable, investors really needed something to grasp onto for direction of the economy.

 

What we got this week was the non-government issued report by ADP on Wednesday.  ADP is a private payroll processing company that issues checks to 25 million employees working for 500,000 companies.  That is not a small dataset.  In the past ADP and the BLS report have had instances were their data was vastly different, in a longer look of data over years, the two reports do sync up.  ADP’s report shows the economy lost 32,000 jobs in September.  That follows a small loss in August.  Unlike the government’s BLS report which is based on algorithms and at the mercy of businesses answering a survey, ADP is in the trenches processing actual paychecks.  If there ever was a good way to count how many people have a job, the company that processes their payroll checks seems like a great source.  ADP does have its limitations.  They don’t process payroll for all companies – although 25 million is a good representation.  ADP doesn’t process payroll for government workers.  Also, ADP captures a smaller percentage of small business data.

 

 

 

 

Two significant economic reports released this week by the Institute of Supply Management revealed mixed results.  The ISM national services sector index unexpectedly fell to 50.0, the lowest level since May, and the national manufacturing index increased to 49.1.  Readings above 50 indicate an expansion in the sectors and below 50 a contraction.  Service companies continue to outperform, but higher tariffs on foreign goods may provide a boost to manufacturing companies over time.

 

The latest report on consumer confidence published by the Conference Board revealed that consumers remain concerned about the impact of higher tariffs and the government shutdown.  The index dropped sharply in June to 94.2, well below the consensus forecast of 96.0, and the lowest level since April.  The decline was seen across nearly all age and income groups.  In particular, the outlook for the labor market weakened.  The share of consumers viewing jobs as plentiful fell for the ninth straight month to the lowest level since February 2021.

 

 

 

 

Next Week

Looking ahead, investors will continue to watch for additional information about tariffs and monitor comments from Fed officials for hints about monetary policy later in the year.  For economic reports, it was already going to be a very light week.  With the government shutdown, there may not be any significant economic data released next week.  The Trade Deficit is scheduled to come out on Tuesday.

 

 

Until next week….

 

*** Please note that Freddie Mac publishes their weekly rate report on Wednesday mornings from data received Monday and Tuesday. 

The graph above is intended to shown rate trends, and not “today’s current rate”. ***

 

 

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