KAILUA — A cluster of low-cost apartments is down to its final tenants, who have three more months before they must leave and find housing in O'ahu's expensive market.

Only about 50 apartments — out of a total of 185 along Kailua Road — remain occupied in the Kailua Arms, Coral Apartments, Kailua Palms and Town and Country apartments. The rest are shuttered in preparation for demolition.

By Sept. 30, the remaining tenants have to be out to make way for the 153-unit Ironwoods at Kailua condominiums, which will be the largest residential project on the Windward side in years.

The displaced residents will be entering one of the nation's most expensive rental markets, according to a report issued by the National Low Income Housing Coalition.

Based on last year's figures, renters had to earn $48,940 a year to afford a two-bedroom apartment in Hawai'i, more than those anywhere else in the nation, the report said. Nationally, renters had to earn $33,924 to afford a two-bedroom apartment at fair-market rent.

Cheyenna-Leigh Ahn, a 27-year-old single parent of six children all under age 9, fears what will happen when she has to leave the Kailua Arms.

She currently pays $650 per month for her two-bedroom apartment and figures she can afford no more than $1,000 for another apartment — if it includes utilities.

Her neighbor, Ann Barker, 61, also hasn't had any luck finding something she can afford.

Barker lives in a two-bedroom apartment with her three grandchildren and daughter. Barker pays $750 a month. She searches rental ads every day but can't find anything affordable in Kailua.

One street in Kailua offers rents of $800 to $850 per month "but it's just drug-infested," Barker said.

Frank Rainey, a 36-year-old Hawai'i Pacific University graduate student, has been paying only $300 for his share of a two-bedroom apartment costing $600 per month.

When he has to leave, Rainey hopes to find an apartment in town for about $1,000 per month.

"Three hundred dollars is almost unheard of on this island," Rainey said. "But I need to do what I need to do."

Whatever the sales price when Ironwoods opens sometime in 2009, the cost will certainly dwarf the current rents of less than $1,000 per month for a two-bedroom apartment on the existing site. When it is built, Ironwoods will feature one-, two- and three-bedroom condo units tentatively priced at $400,000 to $800,000.

"The market at that time will dictate what these can yield," said Bob Bruhl, vice president of O'ahu development for D.R. Horton Schuler Homes, which bought the 6.5 acres of land under the buildings where the Ironwoods will be built. "Who knows what it will be then? We're trying to keep prices as reasonable as possible. That's why we decided to offer the one-bedroom units."

Cathy Matthews, past president of the National Association of Residential Property Managers O'ahu chapter and broker in charge of Callahan Realty Ltd., said O'ahu's rental market has slowed in the last several months — but rental prices in prime areas like Kailua haven't dropped.

Current renters along Kailua Road "are going to be looking at a significant sticker shock," Matthews said. "There is a lot more available than there was six months ago, a year ago. And there have been some price reductions in Makaha, Kapolei, 'Ewa, 'Ewa Beach, Makakilo. But places like Kailua are still holding their value."

Buying a home also is an unlikely option for people used to paying low rents. On Tuesday, the Honolulu Board of Realtors reported the median sales price for existing single-family homes in June rose to a record $685,000, up 7.2 percent from $639,000 in June 2006. The previous record was $668,300 set in May 2006.

A record also was set for condominiums, with a median price of $334,000 last month, up 7.7 percent from $310,000 in the same month last year. The previous record was $329,000 set in July 2006.

"This housing market is not very friendly to people who work for a living," said Drew Astolfi, lead organizer with Faith Action for Community Equity, a group of 25 churches and temples on O'ahu that works on affordable rental issues, among other topics.

Some of the current tenants will have to move in with relatives or struggle to pay significantly higher rents, Astolfi said. "They're going to have a lot of trouble and a lot of trouble on the Windward side."

The existing apartments were never designed to be affordable when they were built half a century ago, said Bruhl of Schuler Homes.

"They're only affordable because of the conditions," Bruhl said. "We've been criticized for changing the socioeconomic fabric of Kailua overnight because these tenants will have to find someplace else to live. But these apartments were always intended as market-rate housing."

At the Kailua Arms this week, wood rot was clearly visible on a lanai, along with exposed rebar on a stairway landing and missing louvers.

Several tenants said the complex is infested with rats and roaches that even survived the efforts of a professional exterminator.

"This place is overrun with rats," Barker said. "Everybody has them. Rats and thousands of roaches no matter what you do."

Sometimes, the tenants said, the sewer backs up and flows into the yard and apartments.

Upkeep on the apartments all but stopped years ago after the Environmental Protection Agency ordered large-capacity cesspools such as the ones below the Kailua Road apartments closed.

A consent decree with the EPA two years ago allowed D.R. Horton Schuler Homes to keep the cesspools open until the end of the year. As part of the decree, tenants began moving out and the vacated units were not allowed to be rented again.

Eight of the 74 cesspools have since been capped, Bruhl said.

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com and Eloise Aguiar at eaguiar@honoluluadvertiser.com.