A bill meant to give private developers of affordable rental housing greater financial incentives to build is moving forward — but with a change to post-construction grant amounts meant to spur completion of more units above or below 300 square feet in size.

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

To do so, Bill 3 will tap an existing $10 million grant, comprising city general fund money, toward planned construction of over 1,100 new homes.

During the City Council’s Committee on Zoning meeting last week, Council member Calvin Say offered amendments to Bill 3’s post-construction grant amounts — meant to incentivize the completion of those affordable rentals — for units above or below 300 square feet in size.

Under that change, the owner is eligible to receive $15 per square foot of dwelling unit floor area for units less than 300 square feet in size, rented to households earning 60% or below of the area median income — an annual income at or below $55,000.

For affordable rental units 300 square feet or greater in size, the owner is eligible to receive $12,000 per affordable rental unit.

According to Say, the $15 per square foot is “an increase from the existing $11.25 per square foot for affordable rental units rented to comparable household income groups.”

“Units of 300 square feet or less are considered to be ‘micro-units’ under the city’s affordable housing requirements,” Say said Wednesday at the meeting. “This increased grant amount is intended to incentivize the development of larger workforce housing for families.”

Still, private developer Paul Lam — with a history of building development projects under city incentives in urban Honolulu —disapproved of Say’s changes to the city’s grant program.

“In the luxury market there are 120 luxury condos — Alia (Kakaako) and Koula (at Ward Village) — that are under 300 square feet that have sold for $500,000 each,” Lam said. “So my question is, Why isn’t an affordable program able to receive equal grant as a 300-square-foot and up?”

He added “the cost per square foot to produce a 300-square-foot unit is higher, actually, per square foot.”

Effectively, the new measure bolsters Bill 7, adopted in 2019 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.

And on June 1, 2023, Mayor Rick Blangiardi signed Bill 8, which extended Bill 7 — scheduled to expire May 21, 2024 — for another seven years, the city said.

By November, Lam, along with partners Greg Thielen and Evan Amakata, completed a 26-unit Makiki-area development that was deemed Hono­lulu’s second, but their first, affordable rental housing project constructed under the auspices of Bill 7.

Constructed in prefabricated concrete in under nine months, the building at 1427 Ernest St. offers 24 studio apartments and two one- bedroom units on a more than 5,300-square-foot property. Lam’s group has two similar projects nearby.

“It feels like we’re being punished for producing two out of the three projects that we have finished so far that we have happy tenants in, grateful tenants,” Lam told the zoning panel. “And we, according to this bill, would receive one-third of the grant money that a 300-square-foot unit (or greater) would get. So I don’t think there is equity in the amount of grants.”

Later, Dos Santos-­Tam said part of the issue was “we don’t want to incentivize every single unit to be tiny — to squeeze as much grants out of the program — but I just heard from Mr. Lam, in his previous projects, it’s not as if every single unit is under 300 square feet.”

Ultimately, the zoning committee voted to pass an amended Bill 3, for possible review and approval by the full Council in July.

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 previously told the Honolulu Star-Advertiser that Oahu might need up to 21,392 rental units by 2030 to meet demand.

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.

On Thursday the city Department of Planning and Permitting told the Star- Advertiser that to date, 52 applications for Bill 7 projects were submitted to the city. Of those, 13 permits were issued, while 39 permits are being processed.

But only one Bill 7 project — Puuhue Apartment LLC’s 25-unit development at 311 Puuhue Place near Liliha Street — has actually been completed, and its city- issued certificate of occupancy granted, DPP staff say.