Depending on how long it lasts, the economic downturn could push back redevelopment plans for the most deteriorated public-housing complexes in the Islands, or make it tougher for developers to find financing for the work, experts say.

Already, the floundering financial markets are hurting affordable housing deals on the Mainland or stalling projects that are under way.

But state housing officials are still optimistic that market conditions will improve enough within the next year that a request for redevelopment proposals scheduled to be issued in fall 2009 will draw enough interest from developers.

If all goes well, crews could break ground in late 2010.

"What we're trying to do is move as quickly as we can," said Travis Thompson, state Public Housing Authority board chairman. "Sooner is much better than later because we're ... underfunded. We're looking for what makes sense economically."

Meanwhile, not all residents are sold on mixed-income redevelopment, a model that brings in developers to revamp public-housing units while building new, higher-income rentals on the same property, and which public officials have settled on as the best solution for Hawai'i's distressed public housing projects.

TENANT CONCERNS

Though housing officials have pledged that no public-housing units will be lost in the redevelopment efforts, some tenants say they're worried they'll be sent packing to make way for a higher-income renter.

"We don't know what their interpretation of affordable housing is," said Petina Rios, a member of Island Tenants on the Rise, an advocacy group for public housing residents. Rios, of Wahiawa Terrace, added that public-housing residents have no reason to trust the housing authority because they've been duped before.

"It's a reasonable fear," Rios said.

The proposed redevelopment of as many as seven dilapidated public housing projects in the Islands into mixed-income properties has so far been met largely with praise by state lawmakers and housing officials who have long been grappling with how to tackle a deteriorating, aging public housing inventory in tight fiscal times.

For some, mixed-income redevelopment is seen as the last, best hope for deteriorated properties. The alternative — especially in tight fiscal times — could be tearing down projects in the worst shape or selling them off, potentially losing affordable units, housing officials have said.

The mixed-income redevelopment deal especially appeals to policymakers and legislators because it requires little to no upfront appropriations. Instead, developers use state and federal tax credits, private investments, bonds, grants or other sources of funding to rehabilitate public-housing units and add new rentals at near-market and market prices. Redevelopment could also include adding retail space to a property.

EVALUATING PROPERTIES

Early next year, a consultant will start assessing which public-housing projects statewide are best suited for mixed-income redevelopment. Housing officials would not speculate about which complexes they think would be the best candidates, but several said they would likely concentrate on properties in the urban core.

Linda Smith, policy adviser to the governor and housing authority board member, said a suitable development would also need relatively low densities, some empty land for new construction and would need to be in an area that could attract higher rents.

The plan would likely involve the state leasing the land at a public housing development for a nominal amount. Existing public housing buildings would either be renovated or torn down, depending on cost factors and the shape of the units.

Mixed-income developments are designed to deconcentrate poverty at public-housing complexes and bring in more revenue for upkeep. The redevelopment scheme has proved successful in other states, but the nation's spiraling financial system is foiling some Mainland mixed-income housing redevelopment deals, experts say.

EFFECTS ELSEWHERE

Also, in some states, those in the midst of projects are reassessing their finances.

The Seattle Housing Authority, for example, is retooling its budget for a mixed-income development because of the slumping housing market. The project is under construction, but officials are worried that sliding home prices will mean the for-market units at the property won't fetch enough money to help subsidize low-cost units.

In addition to the housing crisis, a slowing market for low-income housing tax credits has put some affordable-housing projects on hold. Since the mid-1980s, tax credits have been a major tool for developers building low-income housing.

The federal government and states issue the tax credits under guidelines that require certain levels of affordability at projects. Developers can then sell those credits for construction or renovation costs. Investors buy the credits to use them over a 10-year period, but low-income housing tax credits have not been faring well.

The federal housing tax credits used to fetch upward of 90 cents on the dollar. Now, they're getting about 75 cents. State tax credits that used to get between 30 cents and 60 cents on the dollar are now getting under 30 cents or they're not selling at all.

Drew Astolfi, lead organizer for Faith Action for Community Equity, which is educating public-housing residents on the planned redevelopment projects, said the tax credit crunch is not good news for the Hawai'i redevelopment proposals.

LARGER CHALLENGE

However, things could improve in 2009, he said.

If developers tried to map out a redevelopment scheme today, he added, "I don't know what it would look like. People are less willing to buy them (state tax credits)."

Karen Seddon, executive director of the state Housing Finance and Development Corporation, an agency designed to spur affordable housing development, said affordable housing projects in the works or under way in the Islands are hurting because of the drop in the worth of housing tax credits. She couldn't say how many are in jeopardy, but added that the overall economic slowdown is also to blame.

"This means that the challenge becomes even larger for those promoting the development of affordable housing," Seddon said in an e-mail. "Hawai'i is already challenged compared to the rest of the nation with regard to ... the cost to develop."

HIGH DEMAND

But Marian Gushiken, director of real estate development at EAH Housing, an affordable-housing developer, said there is so much "pent-up demand" for low-income housing in Hawai'i that a developer could make a mixed-income redevelopment pencil out — even with a collapsing tax credit market and declining home prices.

She said developers can also tap into federal grants and other sources of cash.

Douglas Bigley, president and chief executive officer of Urban Housing Communities, which builds mixed-income developments in California and Hawai'i, agreed the tax credit slowdown and other factors are making it harder for mixed-income affordable-housing projects to get off the ground nationwide.

"It's definitely more difficult in these financial markets to structure a deal," he said.

But, he added, "deals are getting done."

Bigley, whose company is interested in getting involved in public-housing redevelopment in the Islands, said Hawai'i also has advantages over other states. For one, the slumping housing market has not hit the state as hard as it has the Mainland.

In fact, housing prices in Hawai'i have seen relatively small declines.

Also, he said, Hawai'i has a robust construction labor force vying for jobs.

With these projects, he said, "you're creating houses and you're creating jobs."

The push to redevelop distressed public-housing properties is part of a massive "turnaround plan" for public housing that also includes tackling a longstanding deficit, hundreds of vacant units in need of repairs and more than $320 million in backlogged capital needs. Over the next three decades, the 83 federal- and state-owned housing complexes in the Islands will need about $1 billion in capital improvement work.

But the housing authority will get less than half that in federal and state subsidies through 2038.

FUNDING SHORTFALLS

Public-housing agencies nationwide have long faced funding shortfalls, which is how mixed-income redevelopment was born. The revamping initiative was launched by Congress in 1993 under the HOPE VI grant, which gives states money to demolish distressed housing and replace it with mixed-income communities.

So far, Congress has appropriated more than $6.7 billion in HOPE VI grants nationwide, which were used to demolish about 155,000 units, and build about 50,000 replacement public-housing units and 48,000 non-public housing units.

Funding for HOPE VI has continued to decline over the years, though, and state officials don't anticipate getting any of the grants for Hawai'i redevelopment projects.

Hawai'i twice applied for HOPE VI grants — for Kuhio Park Terrace and Mayor Wright Homes — and was denied. Still, state housing officials are looking to HOPE VI grant projects for models on how to make a mixed-income redevelopment work.

INSPIRED BY MODELS

Mixed-income communities have been built in Chicago, New York, Los Angeles and a host of other cities. But some of those projects have been criticized for not doing enough to replace units that served the neediest tenants. Seattle, meanwhile, is considered a model for mixed-income redevelopment among advocates.

The city pledged a one-for-one replacement of public housing units, as have Hawai'i officials. Tom Phillips, senior development manager at the Seattle Housing Authority, said the city now has two mixed-income developments and is working on a third. "A concentration of just low-income people in one place is a real problem in terms of the quality of life," he said. "It tends to create some real problems."

In anticipation of the mixed-income plans gaining momentum, FACE and Chad Taniguchi, housing authority executive director, are meeting with residents statewide in a series of regional meetings. In the meetings, Taniguchi talks to tenants about the concept behind mixed-income redevelopment and explains what it could mean for them.

"The responsive was generally favorable," said Taniguchi, who added mixed-income redevelopment isn't right for every public-housing project.

But Rios, of Wahiawa Terrace, said she doesn't see how the plan could work at many housing projects, where so many residents have little to no income because they are disabled or are retired.

"It's crazy," she said. "Reality says no way."

Others remain hopeful.

The Rev. Sekap Esah, who lives at Kalihi Valley Homes, said he thinks redevelopment could be the answer for places like Kuhio Park Terrace, where residents have had to deal with deteriorating buildings, broken elevators, intermittent hot water and an aging sewer system for years.

"The worst one is KPT," he said. "They have to do that right away."