One of the hottest areas for new housing production on Oahu could soon have a longer-lasting supply of moderate-priced homes for sale or rent — and at lower prices — if a state board adopts new rules recommended by its staff.

The recommendations were recently published by the Hawaii Community Development Authority, which regulates development in Kakaako, following more than two years of work that included suggestions from two different board committees along with input from the federal Department of Housing and Urban Development, local developers and other stakeholders.

HCDA’s board of directors will consider adopting the changes after holding two public hearings, the first of which could be in late March.

The agency has been criticized for decades about the way it fulfills an objective in its administrative rules that proclaim part of its purpose is “to establish an increased supply of housing for residents of low or moderate income within the Kakaako community development district.”

Sharon Moriwaki, a Kakaako resident, said some of the changes proposed are long overdue for an area where condominium prices in some towers average over $1 million.

“It’s about time,” she said. “We have been really pushing for housing that’s affordable for people in Kakaako.”

One proposed change would reduce allowable prices for condos and rental apartments that developers have to build and offer at below-market rates. The agency requires that developers of large projects offer 20 percent of homes at below-market prices, either for sale or for rent, so that they are affordable to moderate-income residents.

For condos these prices are calculated so that buyers, who are limited to earning no more than 140 percent of Honolulu’s median household income, pay no more than 33 percent of monthly gross income for a mortgage at prevailing interest rates, property taxes, insurance and association fees with no more than a 10 percent down payment.

This calculation allowed below-market units with one to three bedrooms to be priced from $360,000 to about $690,000 about two years ago, based on income of $84,574 for a single person, $120,820 for a family of four or $140,151 for a family of six.

Thresholds lowered

Today 140 percent of the median income equates to $98,560 for a single person or $140,700 for a family of four, which would permit a maximum condo price around $500,000 for a single person or $710,000 for a family of four.

Moriwaki calls the 140 percent threshold “insane” as a measure for creating housing for most working residents.

Under the proposed amendment, a buyer could still earn up to 140 percent of the median income, but prices on average would have to be affordable to someone earning 120 percent of the median income. This would make the average condo price around $430,000 for a single person or $610,000 for a family of four.

For rentals, one proposed major change would require that a developer maintain affordable rents for 30 years instead of 15 years as currently required.

Maximum allowed rents also would be reduced. The existing rule requires that rents are affordable to a tenant earning up to 140 percent of the median income. That would change to 120 percent of the median income on average. A reduction in monthly rent based on the change could roughly be $2,100 instead of $2,500 for a studio, or $2,700 instead of $3,200 for a two-bedroom unit.

Last year HCDA’s special board committee recommended tying affordable rents to a maximum 80 percent median income level.

Shifting requirements

Developers argue that building homes for low-income residents can’t be done without subsidies, which is reflected in HCDA’s approach to produce what it calls “reserved housing” in the urban core as a way to serve a “gap” group of residents who earn too much to qualify for government assistance but not enough to afford a market-priced home.

HCDA has produced low-income housing on its own or with other state agencies using money from developers or taxpayers. Examples of these projects include Kauhale Kakaako, Kamakee Vista and Halekauwila Place.

For moderate-priced housing, HCDA is proposing to change how big a project is for triggering the requirement to offer 20 percent of homes at below-market prices. Currently this requirement applies only to projects on lots over 20,000 square feet, but it would change so it applies to any project producing 10 or more homes.

In addition to the 20 percent exaction, HCDA has another program intended to produce moderate-priced homes referred to as “workforce housing.” Under this program, projects with at least 75 percent of homes that meet the reserved housing guidelines and are built with no government financing assistance are allowed to be twice as dense.

The agency is proposing to reduce allowable prices for workforce units to match the proposed reduction for reserved housing units.

In addition, several restrictions already placed on buyers of reserved housing would also apply to buyers of workforce housing under the proposed rule changes.

HCDA takes priority

Currently, reserved housing buyers must give HCDA the first option to buy the unit if they sell within two to five years, depending on the project. No such requirement exists for workforce housing. Under the recommended changes, HCDA would have the first option to buy a reserved or workforce unit regardless of when an owner decides to sell.

A repurchase price would be set by applying annual percentage increases for the median price of all Oahu condo sales, as reported by the Honolulu Board of Realtors, to the original market price for the reserved or workforce home.

On top of the price cap, HCDA would take a cut of appreciation, which it can use to help produce more affordable housing. Currently, HCDA uses a formula to calculate its share of appreciation. For instance, a condo worth $500,000 that was sold as reserved housing for $400,000 and then resold later by its owner for $700,000 would produce $40,000 for HCDA and $260,000 for the seller under existing rules. The same cut to HCDA would increase to $140,000 under the proposed change.

Developers concerned

This equity sharing doesn’t apply to workforce housing now, but would under proposed changes even though the special board committee last year advised against such a move.

By repurchasing units, HCDA intends to make them available to other buyers meeting income limits. And by taking a cut of equity, the agency can build up a fund supporting affordable-housing production. But some real estate industry operators warn that imposing more restrictions on developers and homebuyers could work to reduce supply and demand.

“It’s ridiculous,” Dale Nishikawa, CEO of brokerage firm Marcus & Associates Inc., said in reference to provisions proposed for workforce housing. “HCDA is trying to make it harder for workforce housing developers.”

Nishikawa’s firm was the sales agent for a pair of workforce housing towers called 801 South St. He said that out of 1,045 units in the towers completed in 2015 and in January, only 19 units have been resold, and nearly all at prices that are still affordable to households earning 140 percent of the median income. “As far as we’re concerned, it was a success,” he said.

Moriwaki, who is part of a group called Kakaako United which has opposed some tower projects and believes that not enough affordable housing is getting produced in the area, said she expects a long debate at the upcoming public hearings. “I know (HCDA) is getting pushback from developers,” she said.