Building 800 affordable homes annually on Oahu is a goal Mayor Kirk Caldwell laid down last month. It is ambitious. And he said he has an aggressive strategy to get it done. But a close look at his plan suggests it will be tough to realize.
Caldwell, who devoted the majority of his recent State of the City address to his three-pronged strategy, said it will “change the fundamentals in housing in basic, major aggressive ways.”
The three parts:
>> Giving developers city real estate in return for building affordable housing.
>> Giving other financial incentives to builders.
>> Changing the requirements for affordable-housing production.
Caldwell says adopting all three would add 800 new affordable units annually.
Given the challenges developers face, the mayor’s goal will be difficult to achieve even beyond his new four-year term. Still, some developers said Caldwell has good ideas that can at least make a difference if his plan is adopted by the City Council.
“This is one of the best things the city has ever put out,” said Chuck Wathen, an affordable housing advocate and developer.
Prong 1
Wathen said offering up city property is a quick way to get more affordable homes into the market.
Among parcels the mayor wants to provide: the Ewa half of Aala Park for 90 homes, 7 acres next to the old Aiea Sugar Mill for senior housing, 18 acres near Leeward Community College, 17 acres in Kapolei, and planned rail stations at Pearlridge and Ala Moana Center that could be topped with affordable towers.
Caldwell also said converting the downtown Honolulu office tower Alii Place into affordable homes is being seriously examined.
It’s questionable, though, how long it would take to produce homes from some of these ideas or whether the homes can be produced.
Converting park land for residential use is especially controversial.
Building an envisioned 400-foot tower atop the Ala Moana rail station is complicated by the rail project’s incomplete financing and a projected completion of the station at the end of 2025.
Converting an existing tower would take less time than building a new one, but only the land under Alii Place is owned by the city. The state tried to buy the tower from its private owner in 2015 for its own office space needs but couldn’t pull it off.
Giving developers free land is already a successful model for affordable housing development, but often the process is slow.
For instance, the state offered 2 acres in Kakaako for affordable high-rise homes in 2012, and the selected developer has yet to break ground on the project called 690 Pohukaina despite projecting initial homes would be done last year.
On an adjacent site, an affordable rental tower called Halekauwila Place was announced in 2007 on state land and opened in 2014. And in Iwilei, a planned senior housing rental tower on state land awarded in 2001 wasn’t completed until 2014.
Prong 2
A second prong of Caldwell’s plan would provide developers with “first-ever” financial incentives.
“We want to partner up with the private sector,” he said in his address.
One part of this prong is providing $100 million in annual tax-free bonds called Private Activity Bonds that the city can issue for projects that have public benefits. Such bonds essentially would be a loan that developers would need to pay back, which Wathen said isn’t as helpful as a direct subsidy.
Other incentives Caldwell mentioned include waiving fees for sewer hookups, park dedications, plan reviews and building permits. Real property taxes also would be waived for affordable rentals.
Caldwell also proposes unspecified density bonuses for affordable projects and wants to contribute to infrastructure costs for projects on city land, saying: “We’ll build roads. We’ll build the sewer. We’ll build the storm drains. We’ll build the water mains for you. Or share in those costs in some way.”
Some fee waivers and density bonuses are already allowed under a state affordable housing law that developers use, so it’s hard to project what impact these parts of Caldwell’s plan would have on the market.
Prong 3
Perhaps the most debatable aspect of Caldwell’s plan involves requirements placed on developers.
Local economist Paul Brewbaker derides exactions of affordable housing as hurting home production that effectively drive up prices because of undersupply.
“Their restrictions on homebuilding are the cause of housing shortages and the consequent high cost of housing,” he said.
Caldwell defends inclusionary housing policies, which require developers to include an affordable housing component in their projects. “Guys are already telling me inclusionary housing doesn’t work,” he said in his speech. “But hey, has it made a difference so far? It does work. Absolutely. Five hundred communities around our country have inclusionary housing and is making a difference.”
The mayor proposes to change an existing requirement for how much affordable housing large residential projects have to include. The change would require fewer homes and not require prices to be as low, but would apply the requirement to more projects and have affordable prices last longer. (For a breakdown, see story above.)
One other plan caveat would allow developers to pay the city instead of delivering affordable homes. This payment is designed to be more costly than producing affordable units, and is $45 multiplied by the square footage of an entire project. So a project with 200 units each at 1,000 square feet would cost a developer $9 million to avoid delivering 10 to 40 affordable homes.
Prongs joined
Taken together, Caldwell estimates his three prongs can produce 800 affordable homes a year, but not quickly because rules, if adopted, would be phased in over three years around rail stations and after one year elsewhere.
“It’s not going to happen overnight,” he said.
Also, the proposed city rules wouldn’t apply to the biggest residential development projects on Oahu.
In Kakaako, where several condo towers are under construction and a couple dozen more are anticipated, the state controls affordable housing requirements. On the Ewa Plain, residential communities under development including Ho‘opili, Ewa by Gentry and Hoakalei already have binding affordable housing agreements with the city. So does Koa Ridge in Central Oahu and Live Work Play Aiea near Pearlridge.
Caldwell’s plan requires that new projects make 5 percent to 20 percent of homes affordable. Based only on that requirement, it would take development of 4,000 to 16,000 homes annually to reach 800 affordable homes per year. Of course, some of the 800 could be built voluntarily through incentives. Still, developers have built only around 2,000 to 3,000 homes annually on Oahu in recent years, including projects receiving state land and financing assistance.
Doing nothing, however, will result in Oahu becoming a de facto gated community for an exclusive few, according to Caldwell.
“The bottom line is we got to focus with conviction on affordable housing and keep it affordable over the long term,” he said.
“Otherwise the problem just compounds and we have a community where our keiki cannot afford to live here. We need to facilitate and stimulate 800 units of housing that’s affordable every year and this administration is committing to do that for the next four years.”