Hawaii Reserves Inc. has dropped plans to build hundreds of affordable homes between La'ie and Kahuku, citing "unacceptable risk" and only "moderate community support."

HRI President and CEO Eric Beaver attributed the decision to a host of cost and regulatory factors, but said recent decisions to close Molokai Ranch and shut down Aloha Airlines confirmed that now may not be the time to pursue the project.

"What's happening generally in the economy, that's a nagging concern for all of us as well," he said. "We're starting to see that these are difficult times, that we seem to be falling into a recession."

The news disappointed many in La'ie, where several generations often live under one roof and as many as 200 families had expressed interest in owning one of the homes.

"Quite a number of people in the village who were very hopeful of getting housing are unhappy with that decision," said Stan Curnow, a La'ie resident.

HRI, which manages and owns land affiliated with The Church of Jesus Christ of Latter-day Saints, had said it would build 550 homes on 663 acres that once belonged to the old Gun Stock Ranch. Last year, HRI purchased an additional 227 acres adjacent to the ranch property for the development, which has been planned since at least 2003.

The company first announced its intention to pull out at a Ko'olau Loa Sustainable Communities Plan meeting on March 5. The next day, a statement by Beaver was read at a La'ie Community Association meeting.

"Feasibility estimates pose an unacceptable risk at this time," Beaver said in the statement. "Cost of the entitlement process, current market and political conditions, moderate community support, and other nearby residential development plans were key factors in our decision to stop the project."

Beaver told The Advertiser yesterday that a combination of factors would have resulted in homes that would cost more than the citizens who were to benefit from it could pay.

For one, the land's zoning had to be changed, a three-step process that could have taken five to 10 years, he said. On top of that, the cost of the land and infrastructure alone was estimated at $200 million, Beaver said. That translates into more than $363,000 per house for the 550 homes.

There were questions about whether the group HRI was targeting — families earning about $72,000 annually — could afford the homes, given those initial costs.

The company tried to find cheaper, "greener" ways to build — maybe without gutters and sidewalks, which is usual in most rural areas. But to do that, the city said the company would have to get an ordinance change, Beaver said. In the end they were told it would take less time to go the traditional permit route, he said.

"Another factor was that the community support was somewhat moderate," Beaver said.

There was no overwhelming support when it came time to lobby for changes that would help the project, he said. One model was to develop the homes as leasehold, but residents didn't like that even though they knew they couldn't afford fee property, he said.

"I'm not sure what it is they're expecting us to do," Beaver said. "We've been saying for a long time, we're not going to do the project unless it's feasible. We're not going to lose money."

Finally, the whole market has changed along with the political issues with Turtle Bay development and other projects slated for the community, he said.

Beaver said the company will hold on to the 890 acres and the current lessees will remain on the property.

PREDICTABLE, SOME SAY

Dan Davidson, executive director for the Hawaii Housing Finance & Development Corp. that helps provide affordable housing in the state, said losing an affordable housing project is disappointing because of the statewide shortage of such units.

Davidson said a number of factors make it difficult to develop affordable housing, including land cost, the permit process and financing. But HRI had the added burden of trying to develop in a rural community where density is low and construction costs are higher, he said.

"Developing affordable housing is not an easy business in the best of circumstances," Davidson said. "It requires a lot of positive factors in terms of financing, land cost and permit cost. Sometimes it works better than other times."

He said the permitting process needs to be shortened and that he and others are working to fix that.

HRI's effort to address the "gap group" — residents making $72,000 — was also difficult because of a lack of state and federal financial incentives, Davidson said.

Despite the problems the company faced, some La'ie residents said a number of people feel betrayed by the project's cancellation.

Others thought the decision was predictable. Choon James, a longtime La'ie resident, said HRI or its predecessor, Zion Securities, has made promises to the community before and not kept them. This latest decision is more of the same, she said.

"For over 20 years, Zion Securities and (now) Hawaii Reserves have asked for community support when they needed them," James said. "Each time they needed community support, they dangled the 'affordable housing' carrot stick to the community."

Zion had plans for affordable apartments in the 1980s but couldn't get anything built because a sewage treatment plant needed upgrades, James said. At least three times, she said, the community was asked to support sewer projects and each time they were told the project would make it easier to build affordable housing. But no homes were built.

"HRI got what they wanted and affordable housing is still in the discussion stage," James said. "Affordable housing is always in the discussion stage."

The new project failed to gain widespread community support because it was touted as workforce housing for employees of Brigham Young University, Polynesian Cultural Center and the church, James said. It didn't help that HRI wanted to sell the homes on a leasehold basis, she added.

OTHER PROJECTS

Beaver said the homes were slated for the workforce from community institutions and while that includes the church, the university and the cultural center, it also includes teachers, firefighters and police officers who work in the area. He said 98 percent of the La'ie workforce is employed in the community, so nearly all would have benefited.

As for the sewer system, HRI rebuilt the treatment plant and hooked up everyone to the system for free at a cost of tens of millions of dollars that will never be recouped because the system has been turned over to the city, Beaver said.

HRI did benefit from the new plant because now it can build a new hotel, but it paid for the new plant, he said.

HRI's affordable homes project was the largest of a number of residential developments planned for the area between La'ie and Kahuku. And, while some of those are still in play, the loss of the planned homes means that people who have been doubling up while waiting for the housing won't get any relief soon.

Beaver held out hope for affordable housing in projects proposed by other developers.

"We are pleased that there are other development plans in the area that seek to address the shortage of affordable housing for the community," he said. "We trust the residents will study these plans and support those projects that best reflect their interests."

Manager's Ridge and Malaekahana Hui West are two projects that include plans to build some affordable housing in Kahuku, but the numbers fall short of what HRI had planned.

The developer of Manager's Ridge, above Kahuku High & Intermediate School, plans to build 104 homes on 58 acres, with 51 percent of them affordable.

Malaekahana West, which has 455 acres, is still planning but said it has pledged 50 acres to Kahuku High & Intermediate School to build a new campus, will keep some of the land in agriculture and intends to build affordable homes on the rest.

Two, three and as many as four generations are living under one roof in La'ie and people are wondering where their children will live, said Tipa Galeai, vice president of the La'ie Community Association and head of its housing committee. HRI had offered hope, he said.

Galeai has a list of people who wanted to buy one of those affordable homes, and said as many as 200 families expressed interest.

But Galeai said the association hopes to still work with HRI and maybe pick up where it stopped.

"We gotta band together as a community and save what we can save from this whole thing."

Beaver said he is still willing to work with the community if it wants to move ahead on the project.