When we talk about affordable housing it’s important to differentiate between rental and for-sale housing.

Let’s look at rental housing first. To be economically feasible to build rental housing for households earning 80% or below the area median income (AMI), requires zero land cost and significant government subsidies.

In addition to obtaining free land from the state or county, private developers commonly utilize Low-income Housing Tax Credits (LIHTCs) in conjunction with tax-exempt private activity bonds administered through the Hawaii Housing Finance and Development Corporation (HHFDC) to build affordable rental units.

In addition to LIHTCs, every rental unit priced for households earning no more than $72,300 a year (60% AMI) requires about $125,000 in Rental Housing Revolving Funds (RHRF) in order to keep rents affordable — $1,627 per month for a 2-bedroom unit.

Without these subsidies, rents would have to be priced much higher to cover the cost of construction. There are no government programs to subsidize the development of affordable rentals more than 80% AMI, making it difficult if not impossible to underwrite and finance.

HHFDC currently has approximately 5,000 rentals in construction and planned for households earning 60% or below AMI. This volume of activity is largely due to the recent infusions of funding by the state Legislature into the RHRF.

For-sale housing is quite different. It is generally for families earning between 80% to 140% AMI, or $96,400 to $120,000 (for a family of four) who have the capacity to qualify for and pay a mortgage. Teachers, firefighters and hospital workers are just an example who fall in this category. There are no government subsidy programs for the development of affordable for-sale housing. Senate Bill 3104 offers a solution to this.

Aside from acquiring entitled land, developers are responsible for many upfront costs: infrastructure (sewer, water, traffic impact fees) along with indirect expenses such as architectural, engineering fees, school impact fees, and fees from complying with energy efficient codes. All of these fees increase the cost of construction and need to be paid before one can secure a building permit and even begin construction.

This is why SB 3104, Senate Draft 2, is so important for housing. It gives HHFDC the authority to grant long-term leasehold interests to homebuyers, which will cover the cost of land and reduce total development costs. The bill represents a collaborative effort by not only the state Legislature and administration, but also the business and nonprofit communities. It addresses the primary barriers to housing development: affordable land and infrastructure. Without this kind of support and incentives, it is virtually impossible to build affordable units since no one can stay in business by building at cost.

It is an important bill that attempts to address the affordable for-sale housing needs of Hawaii’s workforce, which is also the core of our tax base that is migrating out of the state.

Additionally, it’s important to realize that developers can only get a loan if the project pencils out — it must generate enough revenue to pay back the loans. The developer pays all carrying costs for several years until people move in and the development costs can be recouped from buyers.

A developer must calculate the costs of doing business. After all, why would anyone who runs a business take the risk if there wasn’t any incentive?

It’s easy to be critical of a measure or initiative, but very difficult to find the right balanced formula that will actually result in affordable housing. We have to work together not against each other if we sincerely want to find a solution.

Stanford Carr is president of Stanford Carr Development LLC.