An unusual form of affordable housing on state land in Kakaako is one big step closer to getting built after a state agency approved the 84-unit rental project with lofts for artists Wednesday.

The board of the Hawaii Community Development Authority, the agency that owns the loft project site and regulates development in Kakaako, voted 6-0 to issue a development permit for the eight-story building. Two board members were absent and one new member abstained.

Artspace, a nonprofit Minneapolis-based developer of housing for artists, has been working with fellow nonprofit developer EAH Housing on the project dubbed Ola Ka ‘Ilima Artspace Lofts for nearly five years.

Significant challenges tied to obtaining government financing for most of the project’s $38 million cost led some observers to previously question whether Artspace could pull off its plan.

Several artists attended Wednesday’s HCDA hearing to express their support.

Fumiko Wellington, a Hawai’i Symphony Orchestra violinist who brought her instrument to the meeting, said in an interview that Ola Ka ‘Ilima represents an important show of state support for local artists.

"I’m hoping this project will succeed," she said. "It’s not any secret that the margins for earnings between the poverty level and the middle class are widening — and artists are in the lower sector."

Edward Clark, operator of a glass-blowing studio and school called Taonga Glass in Kailua, said too many artists leave Hawaii because high real estate costs make it unaffordable to live and work here.

"We’ve got 60 working artists but not all can pay the gas bill," he said, adding that one of the biggest complaints he hears from students is about a lack of affordable work space.

Ola Ka ‘Ilima units will provide space for artists to live and work. Monthly rents are projected to range from $437 to $1,334 and will be affordable to artist households earning 30 percent to 60 percent of Honolulu’s median income.

The annual income limit equates to $20,150 for a single person or $40,260 for a family of four at the low end, and $28,750 for a single person or $57,480 for a family of four at the high end as calculated by the Hawaii Housing Finance and Development Corp., a state agency that provided some financing for Ola Ka ‘Ilima.

Commercial space on the ground floor also is part of the project, and will be managed by local nonprofit Pa’i Foundation for Native Hawaiian art performances and education along with other community uses.

The HCDA permit represented the last major hurdle for Artspace, though the City Council has yet to consider a resolution exempting the project from some county fees.

If the project is cleared for construction, work should start June 30 and finish by the end of 2016, Artspace officials said.

Rental applications wouldn’t likely be sought until summer 2016, at which time there will be public information sessions to explain the process that will include a lottery, the developer said.

Artspace, which has developed 36 artist housing projects in 14 states since being founded in 1979, provides artists a preference for its apartments under federal fair-housing law that defines artists as a special group.

A broad spectrum of art may qualify applicants to live in Artspace projects, including literature, photography, architecture, singing, dancing, filmmaking and acting. Even workers such as technicians, administrators and teachers who help produce or support art can qualify.

A committee of artists, who don’t judge the quality of art from prospective tenants, helps make tenant selections.

Suzanne Sato, a Kakaako resident who lives in the Keola La’i condominium tower and is the director of foundation relations at Punahou School, told HCDA board members that Ola Ka ‘Ilima will add cultural richness to Kakaako.

"I’m excited and proud that artists might be my neighbors," she said.

Honolulu resident Lenora Springer, who in the past has objected to some condo tower projects approved by the HCDA, also endorsed Ola Ka ‘Ilima.

Greg Handberg, Artspace’s senior vice president of properties, was grateful to the agency for sticking with the developer through a long and tough effort to line up financing.

"This is a big step forward," he said. "We appreciate the yearslong support of HCDA."

Artspace’s work on Ola Ka ‘Ilima goes back more than four years to when it began exploring use of a 30,000-square-foot lot on Waimanu Street owned by the agency.

The lot makai of Public Storage and the Pacifica Honolulu condo tower was once going to be developed with moderate-priced rental apartments by a developer that started Pacifica and then lost the tower project to foreclosure. The tower was finished by another developer. The HCDA bought the lot for $4.2 million in 2010, according to property records.

After Artspace expressed interest in the site, the HCDA gave the firm exclusive rights to negotiate a land lease in April 2011. The 65-year lease is for $1 per year. However, the developer needed a few extensions to the negotiation window because a key piece of financing — tax credits — was difficult to obtain.

During the extension period, some HCDA board members expressed concern over whether waiting for Artspace to assemble its financing was prudent given that perhaps someone else could do something with the property. Yet the agency stuck with the artist housing plan.

Hawaii Housing Finance and Development, a state agency that facilitates affordable-housing development, approved issuing tax credits to Artspace in July.

The $2.1 million in tax credits — $1.4 million in federal credits and $712,500 in state credits — can be claimed annually for 10 years, giving them a face value of $21 million. The developer expects to net about $16 million selling the credits to investors.

Artspace also received a $4.5 million loan from Housing Finance, a $1.9 million grant from the state Legislature, $1 million allocated by the city and other financing.

Under the financing agreement, Ola Ka ‘Ilima unit rents will remain tied to low-income levels for 65 years.