The Honolulu City Council has advanced a first-reading measure meant to give private developers of affordable rental projects more financial incentives to build.

Introduced by Council member Tyler Dos Santos-­Tam, Bill 3 would augment older city legislation meant to increase affordable housing options on Oahu.

To do so, the draft measure will tap an existing $10 million grant, comprising city general fund money, toward planned construction of over 1,100 new homes.

Representing District 6, which spans from Kakaako to Kalihi, Dos Santos-Tam asserts that those properties would be housed in parts of the city zoned for apartment, apartment mixed-use and business mixed-use units.

“Essentially, the homes would be located in areas that are zoned to be more dense,” he previously told the Honolulu Star-­Advertiser. “They would not be located in rural areas or in single-family neighborhoods.”

Prior to the Council’s Jan. 24 unanimous vote to advance the new measure, the city said it strongly supported Bill 3 “because it’s responsive to current market realities and challenges that small developers face with the higher interest rates, supply chain shortages and higher costs of materials that affect project feasibility,” city Office of Housing Executive Director Denise Iseri-Matsubara told the panel during public testimony.

“If we really want to support the city housing program, then the city needs to seize this opportunity to be a facilitator and give small, experienced developers the confidence to take on the risk of development.”

Effectively, the new measure would bolster Bill 7.

Adopted by former Mayor Kirk Caldwell’s administration, that 2019 legislation relaxed private development standards and provided incentives — such as property tax exemption for 10 years, and no fees for the city application process — for qualifying developers’ projects.

In 2021 the city added a grant program, Bill 1, to the existing Bill 7.

That action provided projects with a “completion bonus” of up to $15,000 per unit, while the program was given a $10 million cap, Dos Santos-Tam’s office said.

Under the latest measure, builders would be offered an alternative path to the existing completion bonus — this time, a grant of up to $35,000 per unit before construction begins, Dos Santos-­Tam’s office said.

As drafted, Bill 3 will offer the following incentives to developers:

>> Up to $25,000 for units between 60% and 100% of area median income. For one person, that means between $55,000 and $85,000, respectively.

>> Up to $35,000 for units at 60% AMI and below — an income at or below $55,000.

>> Grant recipients would pay their workers’ prevailing wage.

>> Using the existing $10 million cap for Bill 7 grants.

At the Council meeting, Iseri-Matsubara noted that when the grant program for Bill 7 was first introduced in 2021, “interest rates hovered around 3%.”

“Last year interest rates peaked at 8% and are projected to drop down to 6% to 7%, but that is double what it was when many of these projects first started,” she said, adding that Bill 3 would increase that initial grant. “So the proposed measure expands the support by offering a subsidy in the form of a pre-construction grant that the developer can acknowledge at the time of financing.”

That grant will “trigger prevailing wages,” she added.

“I’m not sure if this will cover the differential in labor costs, but it surely does start the conversation,” she said. “So, I think this is a step in the right direction,” noting that the city has “so few programs that help workforce rentals.”

She said workforce housing is meant for teachers, firefighters and first responders who “make too much to qualify for a low­-income rental but not enough to pay market rent.”

“So this is very, very essential,” she added, “and I urge the Council to support it.”

According to Dos Santos-­Tam’s office, median rent in Honolulu is currently $2,700.

And citing a study by the state Department of Business, Economic Development and Tourism, Dos Santos-Tam’s office said Oahu might need up to 21,392 rental units by 2030 to meet demand.

The Council member also said the need for the new measure rests on the mixed performance of Bill 7.

As of September more than 40 Bill 7 projects applied for permits, the city says. Of those projects, eight have begun construction, two have been built and one has successfully applied for and received its completion bonus.

For the grant program specifically, Dos Santos-Tam’s office said about $140,000 has been spent from the $10 million cap since its creation nearly three years ago — or just 1.4% — as $9.86 million remains.

Although the city touts affordable housing development under Bill 7, the pace of development under the older measure — which had a goal of producing 500 affordable rental units per year — has been markedly slow.

In August, city Department of Planning and Permitting Director Dawn Takeuchi Apuna told the Honolulu Star-Advertiser that Bill 7 projects — offering 229 units — were among 43 projects that fall under its purview.

“If all are approved, they will result in nearly 1,300 affordable rental units available to our residents,” she said.

In spite of the slow pace, Takeuchi Apuna said the city’s commitment to Bill 7 and its affordable housing projects will continue for years to come, albeit in a new form.

“The City Council believes there is a future for Bill 7 projects, and therefore approved the extension of the waivers and incentives for another seven years,” she said, alluding to the fact that the law was set to expire in 2024. “On June 1, Mayor (Rick) Blangiardi signed Bill 8, which extended Bill 7 for another seven years.”