A recent report from the University of Hawaiʻi Economic Research Organization (UHERO) highlights how increasing construction defect litigation in Hawaiʻi’s already strained housing market is contributing to rising costs and a decline in homeownership opportunities. The study, prepared for the Hawaiʻi Homeownership Center, explores how the growing number of lawsuits has created financial uncertainty, leading to higher costs for developers, insurers, and homebuyers alike.

According to the report, construction defect lawsuits have surged over the past 25 years, affecting nearly 1,000 housing units annually. These cases represent a significant portion of the 5,000 homes built each year in Hawaiʻi. Settlements have reached tens to hundreds of millions of dollars, with 30% to 40% of these funds allocated to legal fees and taxes. The surge in litigation has caused insurance premiums for builders to skyrocket by up to 500%, further driving up the cost of development and homeownership.

“Housing affordability in Hawaiʻi is already a serious challenge,” said Trey Gordner, lead author of the report and policy researcher at UHERO. “As lawsuits become more frequent and larger in scale, they add financial uncertainty for developers, insurers, and homebuyers alike.”

A major impact of the lawsuits is the difficulty in securing homebuyer financing. Homes involved in litigation are often excluded from government-backed loan programs, such as Federal Housing Administration and Veterans Affairs loans, making financing more costly and harder to obtain, particularly for first-time buyers and lower-income households.

Additionally, lenders often raise mortgage rates by 0.25% to 0.5% for homes under litigation, which increases monthly payments by approximately $100 or adds up to an additional $36,000 over the life of a 30-year mortgage on a $1 million home.

The report also suggests that developers, wary of litigation risks and rising insurance costs, may shift away from for-sale condominiums, which have traditionally served as a key entry point for homeownership, in favor of rental housing. This shift could limit the supply of new homes available for purchase.

While the report acknowledges the critical role that construction lawsuits play in addressing serious safety and building issues, it suggests that reforming Hawaiʻi's legal environment—such as through alternative dispute resolution and more streamlined settlement processes—could help reduce the negative impact on the housing market and make homeownership more accessible.

To read the full report, titled “Construction Defect Litigation, Housing Affordability, and Homeownership in Hawaiʻi,” visit the University of Hawaiʻi Economic Research Organization website.

Originally reported by Kauai Now News.