Posted on: Sunday, August 8, 2004

Housing rule changing soon

By Andrew Gomes
Advertiser Staff Writer

New affordable housing in Kaka'ako is once again on the horizon, after nearly a decade without any below-market condominiums or rental apartments being developed.

Three years ago the state suspended rules that required private developers of buildings higher than 45 feet in Kaka'ako to either provide affordable residential units or give the state money to build below-market housing.

On Sept. 16, the suspension of the special assessment will expire, and developers will once again be building or paying for affordable housing. The waiver expiration comes as home prices hit record levels, generating a renewed focus on the need for affordable housing.

"We're in a crisis when it comes to housing," said Darlene Hein, executive director of the Affordable Housing and Homeless Alliance. "The cost of housing is out of sight, even for people with fairly high incomes. Those at the lowest level of income are those who are the most affected by that."

The Legislature created the Hawai'i Community Development Authority in 1976 to guide redevelopment of the area roughly bounded by Ala Moana and Pi'ikoi, Punchbowl and King streets.

Part of the agency's mission is to ensure a supply for low- and moderate-income families — specifically the "gap" group of people who make too much to qualify for government assistance but not enough to qualify for a typical mortgage.

So developers seeking greater development density for commercial or residential projects between 45 feet to 400 feet high were required to make 20 percent of a project affordable housing or pay cash to help the state finance affordable housing in the area.

The cash fee was initially up to 2.5 percent of a project's gross revenue, but was raised to 4 percent in 1990 as luxury condos flooded the market and property values soared.

Under the fee rule, 1,400 affordable units were built from 1982 to 1996. But development stopped after that, as the state's economy and housing market faltered.

In hopes of stimulating development, the agency reduced the fee for projects that contained more moderate-priced residential units, and in 1997 waived the fee for one year. But that failed to spur additional development.

The fee was reinstituted in 1998, but by 2001, with still no qualified projects on the radar, the agency again waived the fee, this time for three years in order to accommodate long-range planning for land acquisition, financing and permitting.

Developers at the time said the waiver would remove a disincentive to building in the area, and reduce prices of units built. At the time, developers estimated that the price of a $300,000 condo would drop roughly $10,000 with the waiver.

Supporters of the waiver also said the gap between below-market and at-market units had dramatically narrowed since the early 1990s.

Others opposed the waiver, including the state Housing and Community Development Corp. of Hawai'i, which encouraged relaxing the rule instead of suspending it.

Building approved

Since the waiver was granted, three major residential high-rises were approved with about 1,100 units at mostly high-moderate and luxury prices.

At Hokua, the first to begin construction, sales average about $1 million per unit in the 248-unit project.

The Moana Pacific twin-tower project also has qualified, and 909 Kapiolani expects to complete its permit application to qualify for the waiver by the Sept. 16 deadline.

A fourth project under construction, Ko'olani, is part of the five-tower former Nauru project that previously satisfied its affordable-housing commitment.

Hong Lee, project manager for 909 Kapiolani, said the fee would have jeopardized the 150-unit condo, which was delayed for nearly 10 years in part because of weak economies in Hawai'i and South Korea where the developer's parent company is based.

"The waiver of the affordable-housing rule is a huge issue," he said. "We would have to sacrifice up to 20 percent of the units, for affordable housing, or pay (about) $4 million."

Dan Dinell, development authority executive director, said the waiver served its purpose.

"That fact is validated by the major projects that are coming to fruition," he said.

Dinell said the waiver led to several hundred million dollars of economic activity, and has an ongoing benefit of strengthening the city's property tax base.

A&B project

Last week, Alexander & Baldwin Inc. announced it reached an agreement to purchase a 2.7-acre parking lot on South Street on which it anticipates starting construction of a 300-plus-unit condo late next year.

A&B representatives said the company will not be able to qualify for the waiver before it expires, but has not decided how it will satisfy the affordable-housing requirement.

The A&B project, with unit prices estimated between $450,000 and $650,000, would be the first project to contribute to the Kaka'ako affordable-housing program in nearly 10 years.

Based on the latest median household income for Honolulu and interest rates a little under 6 percent, the fee would range from 4 percent of units priced above $580,000, and progressively decrease to zero for units at or below $437,000.

If A&B sold 300 units at $600,000, it would incur a $7.2 million assessment under the formula, which fluctuates with changes in median income and interest rates.

The development authority has $1.5 million in its affordable-housing development fund that can be used for projects or to buy back affordable units if owners sell within 10 years.

If affordable units were built today under state guidelines and a 6 percent mortgage rate, a family with an annual income of $52,550 would qualify for a home priced at $215,300. The price rises to as much as $376,800 for a family earning $91,980.

"We certainly have a great need," said Stephanie Aveiro, executive director of the state Housing and Community Development Corp. of Hawai'i, which works with the Kaka'ako development authority to establish affordable housing. "We're glad to see the end of the three-year waiver."

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.

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