A state agency is looking to plug a leak in part of Honolulu’s affordable- housing market where subsidized condominiums have been converted to market-price sales or rentals despite a regulatory tool designed to defer such conversions.

The leakage hasn’t been quantified, but has existed for many years under an affordable-housing program of the Hawaii Community Development Authority, a state agency regulating development mainly in Kakaako.

Under HCDA rules, 20% of new high-density housing in Kakaako must be affordable to households with moderate incomes. Buyers of these “reserved housing” units must be owner-occupants and are discouraged from selling or renting their unit for two to 10 years, depending on the project, under a provision that allows HCDA to buy back the unit if the owner decides to sell or rent their home within the regulated term.

The one-time buyback option exists so HCDA can purchase such homes, at a price determined by a formula, and then make new sales at below-market prices to other moderate-income households.

However, HCDA, which was created in 1976 largely to revitalize what had been a decaying industrial area, has never exercised this buyback option due to what agency officials said has been a lack of staff and financing to carry out purchases and resales.

Now the agency wants to give nonprofit organizations an opportunity to carry out such buybacks and resales in cases where original reserved-housing buyers decide to sell or no longer live in the unit during the regulated term.

“What we’re trying to do is … keep more of the existing reserved- housing inventory in Kakaako affordable for a longer period of time through this buyback provision,” Craig Nakamoto, HCDA executive director, told the agency’s board in October.

In December the board approved modifying HCDA rules tied to most existing reserved-housing units with unexpired buyback periods so that a private nonprofit can act as HCDA’s buyback and resale agent.

The next step would be to determine criteria for participating, and then to seek participants.

Currently, 501 reserved- housing units have open buyback windows, including 150 at the Ke Kilohana tower at Ward Village, 150 in the ‘A‘ali‘i tower also at Ward Village and 152 at Rycroft Terrace in Pawaa where former hotel units were converted to satisfy a reserved- housing requirement for residential construction in Kakaako.

Howard Hughes Corp., the developer of Ward Village, also broke ground in December on a tower dubbed Ulana Ward Village to deliver 697 reserved- housing units about two years from now.

There is some uncertainty over how much interest and capacity a nonprofit partner or partners might have to buy back and resell reserved- housing units that become available, according to Nakamoto.

“The challenge is going to be finding qualified entities to do this,” he said in an interview. “I don’t know if any one nonprofit can buy all those units.”

In recent years HCDA arranged for another state agency, the Hawaii Housing Finance and Development Corp., to act as its buyback and resale agent. However, HHFDC bought only five such units through 2019.

Francis Paul Keeno, HHFDC’s deputy director, said in an email that HHFDC initially declined to exercise HCDA buyback options in 2020 due to uncertainty of COVID-19 impacts, and more recently determined that it wasn’t feasible to repurchase reserved-housing units that became available.

Reina Miyamoto, exec­utive director of the Hawaii HomeOwnership Center, encouraged HCDA to make its proposed change, and said at the agency’s October board meeting that an affiliate of the nonprofit, HHOC Housing and Land Trust, could pursue reserved-housing buybacks and resales to preserve more affordable housing, perhaps in perpetuity.

“I think that the more options that we have to keep more units affordable and available to more working families in Hawaii would be critical to keeping our workforce housed,” she said during the meeting. “Housing stability is so important to our communities.”