Flush Japanese buyers ignite Hawaii's housing market. Political debate on rising costs, taxes is cooling, though

Hawaii's housing prices are expected to keep rising, but the high-decibel debate over who is responsible for the trend appears to be quieting down. In the past month local business and political leaders have urged a calm reassessment of what some Hawaiians say is ``speculation'' by Japanese buyers. Widespread concern about rising prices and property taxes, these leaders say, should be put in perspective - and not tied solely to recent acquisitions by Japanese buyers.

Escalating prices are a ``symptom, not a cause of Hawaii's housing problem,'' argues Michael Sklarz, research director for a Honolulu real estate firm. ``Serious lack of infrastructure, restrictive land-use policies, and rapidly growing population and demand'' since the 1970s have contributed to the phenomenon, Dr. Sklarz says.

Claudia Shay, who heads a community housing development group, agrees that foreign investment only ``exacerbates a problem we already have.''

But as Japanese investors ride the wave of the strong yen, Hawaiians are sharply divided over whether to swim with the tide or try to stem it. According to a report by the Los Angeles accounting firm of Kenneth Leventhal & Co., Japanese investors spent a record $12.7 billion on American real estate in 1987 - 70 percent more than the previous year. Purchases in Hawaii topped the list, at $3.3 billion, followed by $2.98 billion in California and $2.34 billion in New York.

Many Hawaiians - including Honolulu Mayor Frank Fasi - see a direct link between Japanese buying, higher housing values, and larger property-tax assessments. The mayor has proposed that real estate sales to foreigners be limited.

Hawaii Gov. John Waihee has expressed concern that if such sentiment builds, his plans for state economic growth might remain just that - plans. Mr. Waihee and business leaders say a negative environment might drive away legitimate Japanese investors and tourists.

But of the recent interest by Japanese buyers in residential property in Hawaii, Nancy Fedder, a homeowner in a middle-class neighborhood on Oahu, says, ``Local people will be priced out [and] rents will be astronomical.''

Many Hawaii homeowners are alarmed by the trend. And yet, having faced a relatively depressed market for seven years starting in 1980, they are tantalized by the prospects of turning a big profit.

Charlie Auld, a retiree whose single-story home looks out over aptly named Enchanted Lake, worries that future generations of Hawaiians will not be able to afford to buy homes. Yet, he acknowledges, he turned down a $215,000 offer from Japanese billionaire Genshiro Kawamoto, mainly because it was too low.

Stories abound about huge prices paid for houses in the ocean-front areas of Diamond Head and Kahala; of residents receiving unsolicited offers from agents eager to make a deal; of buyers making bids without seeing the interiors of houses.

But, most of all, stories abound about Mr. Kawamoto, who, in past months, has cruised Oahu's better neighborhoods with his entourage, sometimes knocking on doors or leaning over front-yard fences to make on-the-spot offers to surprised residents.

A somewhat aggrieved Kawamoto, quoted on the front page of a local paper last month, says he doesn't see what all the fuss is about. He has bought ``only 160'' homes and condominiums since last August, he says. Local reports put his purchases so far at $80 million - about half on a single large estate, apparently for his own use.

Even Governor Waihee, tactfully refusing to name names, concedes that when a single person buys up more than 150 properties within a few months, it ``smells of speculation.''

And speculation is what worries residents. If homes are bought and resold rapidly, commanding higher prices each time, these residents say, entire neighborhoods will be hit by hikes in property taxes, which are based on average values.

While acknowledging the seriousness of Hawaii's housing crunch, both Waihee and Sklarz lash out at ``demagoguery'' and ``sudden hysteria'' that would pin the blame on any particular group. ``There are always two parties to a transaction, a buyer and a seller,'' Waihee points out.

In a widely quoted quarterly report for his company, Locations Inc., Sklarz writes: ``With the political season upon us, it is not surprising that some of the candidates have chosen to grab onto such an emotional issue and use it to their advantage.''

Opponents of Honolulu's mayor condemn his position.

Democratic mayoral hopeful Patsy Mink labels Fasi's call for a sales ban an attempt ``to grab headlines and make a sensational pitch.'' If the mayor is concerned about residents' facing higher property taxes, she says, he could easily lower the rate (currently about $6.25 per $1,000 value of the home) and still earn enough revenue.

Meanwhile, she offers her solution: a ``one-year moratorium'' on residential sales to foreigners, which will give lawmakers time to develop tighter laws and penalties for speculation.

Both Ms. Mink and Waihee propose higher conveyancing and capital-gains taxes to prevent heated bidding wars. Fedder agrees - with some reservations. A graduated capital-gains tax ``would be fine,'' she says, but blanket provisions on resale periods and profits will hurt those who have a ``genuine need'' to sell their homes.

Little immediate legislative action is expected. The main resolutions under consideration deal with efforts to ``study the impact of foreign investment'' on Hawaii's economy, develop ``recommendations to discourage speculation,'' and require disclosure of information on foreign purchases.

But if nothing else, says a 15-year resident of Honolulu, the debate has served to highlight that Hawaii - and the entire United States - had better start coming to terms with growing foreign investment.

``Hawaii is part of an international community,'' Sklarz says, and it must behave in a manner ``consistent and rational'' with that fact.