COMMENTARY
Plan to sell city properties a win-win deal
By Craig Watase
In 2005, Mayor Mufi Hannemann convened an Affordable Housing Advisory Committee that met for more than a year. While the entire committee report is on the city Web site, one of its key recommendations was to privatize the city-owned rental properties as a way to preserve and rehabilitate affordable rental housing.
The mayor recently announced action on this strategy. Public and media reaction seemed mixed. This is a sound plan and there are ways the city should implement it.
First, it is important to note that this is not the first time that a government-owned low-income rental property has been sold into private ownership and preserved as affordable housing.
Under Gov. Cayetano, public housing in Palolo was sold to a nonprofit group that used 9 percent federal and state Low-Income Housing Tax Credits (LIHTC) and Section 8 rental assistance to acquire and rehabilitate the housing project.
The problem here is that the IRS only issues a limited amount of the "9 percent" LIHTC, and the state housing agency that administers the program is only able to produce or preserve about 150 units a year with the 9 percent credits.
However, there is a type of low-income housing tax credit we call the "4 percent" LIHTC. For accounting fans, the "percentage" describing the tax credit generally is referring to the amount of depreciable basis from which you can claim tax credits. While you don't get to claim as many credits, the key benefit is that 4 percent tax credits are readily and widely available.
Privatizing government-owned affordable rental properties using 4 percent LIHTC and private placement tax-exempt revenue bonds will:
One critical radio talk show host ignorantly claimed that no one would buy the properties unless they could convert them to market condos. Well EAH has already publicly announced their desire to acquire the projects and keep them affordable, as will Mark Development and many others in the affordable housing business. Government ownership does not protect and preserve the affordable nature of these rentals. Some will recall that Mayor Jeremy Harris proposed to convert the city rentals to condos and sell them.
It is the deed restrictions that require the preservation of the units as affordable. It doesn't matter if it is a for-profit entity or nonprofit. In fact, in a tax-credit deal, the for-profit investors are the ones who use the tax credits and the depreciation expenses. This incentive causes the for-profit investors to make sure that:
I believe the problem is that the city is selling just one project and one of the most poorly maintained projects. I believe the city should package at least one good project with one of the not-so-good projects to make it more attractive to investors. A large land-acquisition cost, like the fee purchase from Bishop Estate, can make a deal upside down because land is not a part of depreciable basis and eligible for tax credits.
The city will end up having to pay a buyer to take Kulana Hale off its hands, and the effort to privatize these properties will die at a City Council budget committee, or something like that.
Residents of the city should urge councilmembers and the mayor to be bolder and to package the properties so they are attractive to investors and get them out for proposals as soon as possible. If we are in an affordable housing "crisis," our leaders need to respond as such. This strategy is not an experiment.
Preserve the affordable housing. Repair affordable housing. Re-invest the net proceeds into new affordable housing.
What are we waiting for?
Craig Y. Watase, president of Mark Development Inc., led the city's Affordable Housing Advisory Committee. He wrote this commentary for The Advertiser.
