Mayor Kirk Caldwell made his pitch for more affordable housing and finishing the city’s troubled rail project at his fifth State of the City address Thursday evening.

“If we don’t change the course that we’ve been on for a long period of time, this island becomes a gated community, only affordable to an exclusive few,” Caldwell said before about 175 people at Honolulu Hale. “The fundamentals must absolutely change.”

Caldwell outlined a plan he said could add up to 800 affordable units in each of the next four years.

The mayor also emphasized the importance of finishing all 20 miles of the city’s rail line to Ala Moana Center, adding that he is “deeply troubled” by the escalating costs. The rail cost has ballooned from $5.26 billion in 2014 to nearly $10 billion now. Caldwell has been lobbying the state Legislature to extend Oahu’s general excise tax surcharge to pay for the cash-strapped transit system.

“This is a big game changer, rail and affordable housing,” said Caldwell, who is beginning the first year of his second term after winning re-election in November. “Combining transportation infrastructure with housing infrastructure … creates the strongest and longest-lasting foundation for our economy and for our children.”

Caldwell’s “inclusionary housing” strategy proposes requiring developers building near rail stations to reserve 15 percent of rental units for those earning up to 80 percent of the area median income, or AMI, and market 20 percent of the for-sale units to customers who earn up to 120 percent of AMI.

Current guidelines require that at least 30 percent of new housing units be offered to those earning up to 140 percent of AMI, which is $140,730 for a family of four, amounting to home prices of $833,000. Critics have contended that the threshold is too high for most families.

The way to address Oahu’s homeless crisis is to provide more affordable housing units, Caldwell said. According to last year’s point-in-time-count, there were 4,940 homeless people on Oahu, a slight increase from the 2015 total of 4,903.

For projects not near rail stations, Caldwell’s proposal calls for 5 percent of rental units to be reserved for those earning up to 80 percent of AMI and 10 percent of for-sale units to those with incomes at up to 120 percent of AMI.

The proposed regulations would apply to developers seeking building permits or land-use approvals for 10 or more housing units.

Caldwell also proposed that the units should remain affordable for at least 30 years instead of the 10 years currently required. The plan also offers an in-lieu fee option of $45 per square foot paid to the city for developers who choose not to build affordable units.

To encourage more affordable construction, developers would be offered incentives, including waivers from paying sewer hookup, building permit and plan review fees, he said. Developers would also not need to pay property taxes as long as the units stay affordable. Additionally, the city would create a rental housing financing program with more than $100 million annually in private activity bonds for developers to borrow funds at lower interest rates.

His administration has also identified several city-owned parcels that can be leased at nominal fees to developers to build affordable units, he said.

He said he expects to introduce bills on the plan to the City Council next month.

Council Chairman Ron Menor described Caldwell’s proposal as “a significant step forward” but said the Council might consider more aggressive policies, such as increasing the number of required affordable rental and for-sale units. Menor also expressed concern with the in-lieu fee option, pointing out that housing advocates have questioned whether the fee is sufficient to address affordable housing needs.

“The Council has recognized that there is no single panacea to addressing this issue. An effective action plan to develop more affordable housing needs to include a multifaceted and multipronged approach,” Menor said. “The Council will also take these proposals to public hearing and let the community have a chance to provide their input.”

Caldwell also asked the state, developers, nonprofits and others to help build more affordable units. Gov. David Ige said after Caldwell’s speech that the state has committed to build 10,000 affordable units by 2020.

“We are definitely committed to production (of affordable units),” Ige said. “It (city’s efforts) certainly sounds similar to what we want to do.”

During his 25-minute speech, Caldwell also touted several city initiatives that have improved Oahu’s roads, sewers and parks. Several bus routes that service residents across Oahu have been added in areas including the North Shore, Central Oahu and Kapolei, he said.

City crews have so far repaved about 1,300 lane miles across Oahu under his administration and will pave another 200 by the end of this summer, he said. As part of the E Paka Kakou initiative, which was unveiled during Caldwell’s 2015 address, 121 play courts and 44 comfort stations have been improved, and 46 playgrounds have been built or restored.

Staff writer Gordon Pang contributed to this report.