Hawaii lawmakers recently decided to create a new incentive for affordable housing development under a state program, but it could have a bigger negative effect on affordable housing required by counties.

The Legislature passed a bill, which if enacted, would give developers credits for affordable units completed under a state program that already has incentives that include exemptions to general excise taxes, county development fees, height limits and density in return for making at least 50% or 60% of a project affordable for moderate-income households.

Such credits could be used by developers so they don’t have to build affordable housing required by counties as part of market-priced housing projects.

The legislation, Senate Bill 1170, was primarily pushed by the Hawaii chapter of NAIOP, a national commercial real estate trade association whose members include developers. Several individual developers also testified in support of the bill.

Opposing the bill were the the City and County of Honolulu’s Office of Housing, the city Department of Planning and Permitting, and Hawaii County’s Office of Housing and Community Development.

The state Office of Planning and Sustainable Development expressed concern with SB 1170, and said that the bill’s stated goal won’t be achieved if the bill is enacted.

NAIOP claims that higher interest rates and other development costs have made the state’s 201H affordable housing program “nearly unusable” by developers.

By adding credits to the program’s existing incentives, a 201H project developer could theoretically monetize credits to help finance a 201H project, perhaps by selling credits to another developer that needs to satisfy a county affordable housing requirement.

The state agency administering the 201H program disputes NAIOP’s claim about developers not using the program, which is known by its chapter number in Hawaii Revised Statutes.

“While we recognize the concern that a high-interest rate environment may negatively impact affordable housing production in Hawaii, HHFDC is processing 201H applications this year when interest rates are higher than they have been in a number of years,” the Hawaii Housing Finance and Development Corp. said in a statement Friday. “In fact, the number of 201H applications that we’ve processed is actually consistent, if not higher, than in recent years.”

In written testimony while SB 1170 was being considered by lawmakers, HHFDC did not take a position for or against the bill. Instead, the agency informed lawmakers that it shares the concern about high interest rates negatively affecting affordable housing production in Hawaii, but that it defers to counties for judgment on issuing credits for 201H projects.

DPP Director Dawn Take­uchi Apuna said in written testimony that SB 1170 would benefit developers at a detrimental cost to county affordable housing programs and policies.

“We oppose this bill because it creates credit value that developers can sell or use themselves to fulfill affordable housing requirements imposed by the counties,” she said. “It amounts to ‘double dipping,’ developers of 201H projects receive fee waivers and exemptions, as well as the monetary value of credits.”

Susan Kunz, Hawaii County’s housing administrator, said in written testimony that giving developers affordable housing credits for 201H projects won’t expand the supply of housing but will undermine the county’s ability to do so.

Under SB 1170, 201H projects that receive federal or state tax credits that require units be reserved for households with low incomes would not be eligible for affordable housing credits.

Another limitation under the bill is that credits will only be available through July 1, 2031.

HHFDC said in its statement that enacting SB 1170 may result in more 201H project applications, but that it is difficult to forecast how many more. Enacting the bill also could benefit 201H projects already planned, including Kuilei Place and Pahoa Ridge.

Kuilei Place is a planned 43-story tower complex in Moiliili with 1,005 condominiums being developed by Kobayashi Group and BlackSand Capital.

In return for making 603 Kuilei Place units, 60% of the total, affordable to households with moderate and high-moderate incomes, the developer received benefits that included about $12 million in city fee exemptions plus building height and density beyond what zoning permits in the area.

Kobayashi Group testified in favor of SB 1170.

Pahoa Ridge is a 211-unit tower planned near Old Waialae Road. Benefits approved under 201H for Pahoa Ridge in January include density, height and lot coverage bonuses. The tower is to be about five times more dense, can exceed the area’s 150-foot height limit by rising 210 feet and can cover 85% of the lot instead of a maximum 40% under zoning.

One of the developers of Pahoa Ridge, Form Partners, testified in favor of SB 1170, saying that the cost to produce affordable homes is well above what they can be sold for.

Lawmakers hardly engaged in public discussion of the bill during two committee hearings in the Senate and two in the House.

A joint House-Senate conference committee meeting to agree upon a final draft of the bill resulted in one concession to counties. The committee on April 26 amended the bill so that 201H credits may be applied to satisfy only up to 50% of affordable housing obligations imposed by a county unless a county wants to allow more.

Final votes approving SB 1170 on May 1 were 46-5 in the House and 22-2 in the Senate.

Gov. Josh Green has until July 10 to sign bills into law or let them become law without his signature. For Green to veto any bills, he must give notice to the Legislature of such intent by June 25.