The state’s Dwelling Unit Revolving Fund (DURF) Equity Pilot program — a new, $10 million loan program designed to get middle-income people into homes by lowering initial purchase costs — is drawing public scrutiny. That’s largely because of a Hawaii Housing Finance and Development Corp. (HHFDC) decision in August to spend $1.7 million out of the fund to buy into 26 “affordable” condos at the controversial, mixed-use Sky Ala Moana project.

There’s plenty of room for criticism of the “affordable” positioning of the Sky development, which has drawn skepticism from the start. Poor sales for affordable units at Sky are behind the decision to use DURF Equity Pilot (DEP) funds there, to make units more attractive to buyers. That is an embarrassment to the city and state, both of which encouraged and signed off on developers’ plans that got land-use exemptions. Yet two years after first being offered for sale, 64 of 84 “affordable” units remain on the market.

It can stick in a taxpayer’s craw to learn that new public money is going into the project. But DEP, a revolving fund program that provides low-cost loans guaranteed by a purchased home’s equity, appears to be a better option than many to resolve the dilemma posed by Sky’s stagnant sales.

In fact, the DEP concept has some utility, as money in the program goes directly to subsidize costs of entry into ownership for targeted workforce groups, including educators, police, firefighters and health care workers.

It’s necessary, however, that future funding for “affordable” housing programs not be continuously funneled into past projects. Once under construction, having been given city and state waivers and benefits, developers must be expected to have accurately assessed buyer interest and market capacity properly — both for market-priced and affordable units. Taxpayers cannot afford to subsidize projects like this indefinitely.

The Sky developers received a bundle of zoning rights — setback, density and height variances that it would not have been eligible for otherwise, in exchange for providing these 84 units, affordable to buyers earning up to 100%, 120% and 140% of Honolulu’s area median income (AMI), a price point that’s better understood as workforce, or middle-income housing. (For reference: 100% AMI for a single earner is $91,700, $104,800 for two, and $131,000 for a family of four.)

Sky’s developers agreed to keep a number of the workforce units restricted to sale at affordability limits for a 30-year-period, becoming the first Honolulu developer to agree to this restriction. They also were relieved of some affordable housing, park dedication and other requirements with the city’s acceptance of a condo-hotel model for a portion of the project. At the time, the developer said condotels would “offset the risk” of a 30-year sale restriction.

Then the affordable condos went up for sale. Parking spaces cost $38,000 extra. And these units would have no access to Sky’s amenities: no gym, no pool, no leisure deck.

Since 2022, just 20 of the units have been sold. The allowable income for a purchaser has been raised to 140% AMI for 38 of the units, and for another 26, the 30-year restriction on resales has been reduced to 10 years, unfortunately. Similarly, a city requirement that limited debt-to-­income for buyers at 33%, barring otherwise qualified buyers, was also dropped, but the changes didn’t produce any renewed interest.

HHFDC’s DEP investment in Sky’s affordable studios will cut costs from $310,000 to $248,000, and from $336,000 to $268,800. The immediate benefit is that these studios will be affordable to buyers earning 80% of AMI — a wider pool. For two 2-bedroom units, costs will drop from $541,000 to $459,850, and from $544,000 to $462,400, lowering income requirements to 110% of AMI.

The new, below-market prices seem attractive, and may solve the problem at Sky. Going forward, however, developers as well as city and state governments must undertake a sharper analysis of middle-income buyers’ willingness to purchase units with few amenities and complex restrictions.