Hawaii developers are collecting credits that can be used to avoid building affordable housing under a controversial program that state lawmakers established in 2009 and last year extended to 2019.

The credit program was created to help the state Department of Hawaiian Home Lands produce homes for its Native Hawaiian beneficiaries, many of whom have waited decades for homesteads. Roughly 20,000 Native Hawaiians are on DHHL’s homestead waiting list.

Under the 2009 law, DHHL can claim affordable-housing credits from counties for “existing and future” homes, or in some instances for residential lots, it produces. DHHL, a state agency, can give its credits to developers that help it produce housing for Hawaiians, or it can sell credits to developers for cash that can help finance Hawaiian homestead projects.

Some county officials expressed concerns years ago that developers receiving and cashing in credits will reduce the number of affordable homes built for non-Hawaiians.

And now, that fear looks as though it is coming to pass.

In January, the owner of Makena Beach & Golf Resort on Maui noted in an environmental assessment that it planned to use unspecified credits to satisfy a county requirement to produce affordable housing at the resort.

The resort’s owner, ATC Makena Holdings LLC, plans to develop 148 homes priced from $3 million to $20 million each. Under county regulations, ATC is required to provide 40 workforce housing units. Instead, ATC plans to give the county credits.

ATC acquired its credits from Maui developer Everett Dowling, who previously owned the Makena resort and received the credits for helping DHHL build homes for beneficiaries on Maui.

Maui County’s Department of Housing and Human Concerns said Dowling received 372 credits from DHHL and has assigned 326 of those credits to other developers. The county refused to share the names of the developers and how many credits each has received.

Besides ATC, another development firm that received some of those credits is Alexander & Baldwin Inc., which said it acquired 38 DHHL housing credits from Dowling in 2010 but has not used them to satisfy any county workforce housing requirements. A&B has residential development projects on Maui subject to county workforce housing requirements.

Another local developer, Armstrong Cos., received 26 credits from DHHL for building homes on Maui for the agency’s beneficiaries. The company said it plans to use the credits to partially satisfy a Maui County workforce housing requirement tied to two luxury residential projects it is developing at Wailea Resort, Keala o Wailea and Makali‘i at Wailea.

So far, all the known credits held by private developers are for use on Maui. Overall though, most of the roughly 1,400 total credits issued to DHHL are tied to Oahu, where city officials fear their currency will undermine efforts to develop affordable housing around planned rail stations.

DHHL said it received 1,414 credits from counties though the end of January, including some credits for homes that were built before the credit program was created.

In some instances, credits were given to developers that helped produce housing for DHHL. The agency also claimed credits for homes it built. DHHL even claimed credits for two homes built by Hawaii Community College students for homesteaders.

$177M in lost housing

By one estimate, there could be more than $177 million of affordable housing that doesn’t get built under county regulations that require developers to build homes for low- to moderate-income residents in return for certain approvals to develop large-scale residential and resort projects.

This estimate is based on minutes of a 2009 DHHL meeting with beneficiaries in which the agency valued credits between $75,000 and $125,000 each. At that price, DHHL’s credits total between $106 million and $177 million. Given it typically costs more than $125,000 to build a home, the value of affordable housing that developers can avoid building is beyond $177 million.

DHHL initially pitched the credits through a bill at the Legislature as a way to produce affordable housing during the economic recession that had put a damper on residential development statewide, including homes produced under county requirements.

Lawmakers passed the bill and then-Gov. Linda Lingle signed it as Act 141 in 2009 over opposition from county officials who warned that it would compromise existing and future agreements with developers.

“This could seriously compromise the city’s ability to distribute affordable housing,” the Honolulu Department of Planning and Permitting said in written testimony six years ago on the bill that became Act 141. “Residents without Hawaiian ancestry could be at a disadvantage with less affordable-housing units available in the county-wide inventory.”

County officials also said the credits would take away from efforts to integrate new affordable housing in market-rate projects, and that DHHL housing doesn’t have the same county restrictions that limit occupancy to residents with certain incomes.

Act 141 was scheduled to expire last June, but DHHL lobbied to make the program permanent. Instead, lawmakers extended the program through July 1, 2019, by passing House Bill 142 last year, and Gov. David Ige signed the bill.

DHHL Director Jobie Masagatani told lawmakers that the program has helped the agency develop homesteads without state money.

“This program has proven successful in providing incentive to private sector developers to build affordable homes on Hawaiian home lands and the program should be permanent,” she said in written testimony.

DPP urged lawmakers not to continue the program, explaining that the city had to provide DHHL with more than 700 credits and is expected to issue about 300 more in the near future.

Counties voice fears

George Atta, DPP’s director, said in written testimony on last year’s bill that the city’s effort to encourage affordable-housing development along the rail line will be dampened by DHHL’s program.

“It undermines the ability of the counties to provide new affordable housing to all its residents within county-defined income need groups, on a time schedule commensurate with private sector construction, and in geographic areas where the counties believe affordable housing is needed,” Atta said of the credit program.

DPP said it has issued 742 affordable-housing credits to DHHL and that DHHL has not indicated that it has transferred or sold any of those credits to private developers.

Kauai County also opposed the original measure and raised concerns about last year’s extension. However, Kauai County and DHHL reached a memorandum of agreement to regulate the use of credits by developers.

The agreement, signed in early 2015, permits developers to use credits to satisfy only up to 25 percent of their county requirement for producing affordable housing on Kauai.

DHHL was trying to produce a memorandum around the same time with Honolulu county officials but didn’t reach an agreement.

On Maui, administration officials did not oppose bills relating to the credit program in 2009 or last year.

Hawaii County’s Office of Housing and Community Development opposes the DHHL credit law in part because developers can avoid building affordable housing close to where their projects increase housing needs for teachers, police officers and others in the workforce.

Alan Rudo, an official with the Hawaii County agency, noted that a developer with a project in Kailua-Kona can satisfy their affordable-housing requirement by purchasing credits for DHHL homes in Puna.

Hawaii County also said in 2009 testimony that it believes the credits violate federal fair housing law by benefiting one specific ethnic population.

To date, Hawaii County has issued DHHL about 140 credits.