Kaka'ako agency may suspend affordable-housing fee
By Andrew Gomes
Advertiser Staff Writer
The state agency that guides redevelopment of Kaka'ako hopes to spur commercial and residential development in the district by temporarily suspending the fee developers must pay to provide "affordable" housing.
The Hawai'i Community Development Authority is proposing a three-year waiver of the fee, which finances below-market housing projects and can be as much as 4 percent of a project's total unit sales.
The requirement is imposed on developers who want a zoning trade-off that allows building higher than 45 feet and up to 400 feet, applies to projects mauka of Ala Moana Boulevard. The rule generally does not apply to Kaka'ako-makai where the agency is trying to attract high-tech users.
No change is being proposed for a separate requirement for developers to provide land or cash for parks and other public facilities.
Developers and agency staff say a waiver would lower prices for residential units built in the area and remove a barrier that has put redevelopment efforts at a competitive disadvantage. However, the waiver also would stymie the availability of affordable units.
If approved, the waiver would be the latest of several adjustments to the fee, which the agency has changed to balance the mix of prices for new residential units in Kaka'ako as market conditions fluctuate.
The Legislature gave the agency planning power over the area bounded by Ala Moana Boulevard and Pi'ikoi, Punchbowl and King streets to improve the community.
Providing increased housing supply for low- or moderate-income families has been part of the agency's residential development policy since the the Legislature created the agency in 1976.
The agency required that developers who want greater development densities must include affordable housing equivalent to 20 percent of industrial, commercial or residential projects. Or they could pay cash that would finance construction of "affordable" housing.
The cash fee was initially up to 2.5 percent of a project's gross revenue. In 1990, as luxury condominium projects flooded the market and property values soared, the fee was doubled to 4 percent.
As the economy slowed, the fee in 1995 was pegged to a sliding scale: the lower the price of the project's market units, the lower the fee.
Based on last year's median income for Honolulu households and interest rates, the fee ranged from 4 percent for units priced above $450,000, and progressively decreased to zero for units under $319,000. The thresholds are somewhat higher this year.
In 1997, the fee was waived for one year in hopes of stimulating development. But no one took advantage of the suspension, which the agency concluded was too short for projects to qualify.
The three-year waiver being proposed would undermine supply of below-market units. But the agency said changes in the residential real estate market have narrowed the gap between below-market and at-market units.
According to a study prepared for the state Housing and Community Development Corp. of Hawai'i, the price difference between "affordable" and market units shrank from 41 percent in 1994 to 16 percent in 1999.
Jan Yokota, agency executive director, said a three-year waiver would help lure interest by developers who she said view the fee as an "unacceptable risk."
"It's a huge impediment for going forward with a development of a site," said Karl Heyer, project broker for Nauru Phosphate Royalties (Honolulu) Development Inc., developer of luxury high-rises Nauru Tower and Hawaiki Tower. "As an incentive for another developer, (the waiver is) pretty substantial."
Heyer said Nauru Phosphate, which plans to build two more luxury towers, won't benefit from the waiver because the company satisfied its "affordable" housing requirement by building the "affordable" condominium 1133 Waimanu.
But the savings could be substantial for new projects. Posec Hawaii Inc., which is trying to move ahead its long-stalled plans for either a senior-living or mid- to high-end condominium, could save more than $2 million.
"That $2 million is not small money," said Robert Lee, Posec's secretary and treasurer.
Posec's project, placed on hold in 1998 because of the shaky South Korean economy and the agency's calculation of Posec's public facilities impact fee, was the only one to qualify for the previous one-year waiver. Another waiver would help the company attract a joint-venture partner to develop the $60 million project, Lee said.
Developers figure prices for new residential units in the $300,000 range would drop roughly $10,000 with the waiver.
But Kathleen Hasegawa, director of the Affordable Housing & Homeless Alliance, believes the authority's affordable housing requirement should continue.
She praised the agency's efforts to incorporate elderly and affordable housing in Kaka'ako, but said compromising the mission, even temporarily, should not be considered. "That's not fair to the rest of the population, particularly to the people who need it the most," she said.
Hasegawa said the gap between affordable and market housing may have narrowed, but there is still "tremendous" housing needs for people at the lowest income level.
"They still can't get anything within a reasonable rate to their income, and that's where the gap remains," she said. "After paying 50 to 60 percent of their income for rent, they don't have enough of their money left over to meet any of their other expenses like food and transportation; and therefore, they live in poverty."
Heyer believes that if the redevelopment of Kaka'ako is to continue, the waiver is needed. "If it wasn't a problem, I don't think the HCDA would be taking it up," he said.
The proposed change will be discussed at a July 5 a public hearing in the agency's conference room at 677 Ala Moana, 10th floor.