Land developers in one of Honolulu's fastest-building urban areas would be forced to produce significantly more moderate-priced housing under a bill passed this year by the Legislature.

Taking aim at a slew of high-rises planned for future construction in Kaka'ako, Senate Bill 1350 stands to shape what is potentially the biggest building boom in the area's history.

But the bill is under heavy pressure from opponents urging Gov. Linda Lingle to veto the measure over concerns that it would overburden landowners and retroactively apply to one massive project that already has state approval.

Two major Kaka'ako landowners, General Growth Properties, the owner of Ala Moana Center, and Kamehameha Schools, envision building as many as 7,000 residential units in the area over the next two or so decades.

Under present rules, 20 percent, or about 1,400 units, must be set aside as affordable to moderate-income buyers or renters. The bill on Lingle's desk would boost that to roughly 3,400 units or about half of all planned condominiums in their projects, the two landowners estimate.

Numerous smaller landowners also would be affected by the measure, which applies only to Kaka'ako mauka, an expanse of 450 acres between Punchbowl, King and Pi'ikoi streets mauka of Ala Moana.

Anthony Ching, executive director of the Hawai'i Community Development Authority that oversees development rules in Kaka'ako, believes the bill produces a "relatively modest" increase in moderate-priced housing requirements when considering elements in the bill that give developers less onerous options for providing such housing.

Ching also said it's debatable whether requiring owners to build more affordable units would kill the financial feasibility of much development in an area promoted by the state for high-density urban infill.

"An increase in the (moderate-priced) housing requirement may drive away some developers in the Kaka'ako area or cause area landowners to bank rather than develop their lands under this mandate," Ching said in written testimony to the Legislature in March.

Lawmakers, who failed to pass a similar bill last year, passed SB 1350 with an 18-7 vote in the Senate and 39-10 in the House with two excused.

Much of the motive to pass such legislation stems from a perception that present and past HCDA rules haven't been very effective.

Part of the agency's mission is to facilitate development of affordable housing in Kaka'ako as part of a broader goal to improve an area of urban Honolulu that largely decayed into a grubby industrial neighborhood in the latter part of the past century.

Since HCDA was established in 1976, it has facilitated development of about 1,400 affordable-housing units in Kaka'ako — almost all of it before 1997.

SB 1350 generally increases the existing HCDA requirement to produce affordable units when building dense residential projects from 20 percent to 30 percent, and creates new requirements to produce affordable units with commercial projects such as retail and office but not industrial. In some instances, the affordable-housing requirement could be as high as 45 percent.

IMPACT ON GROWTH

The bill elicited a mix of testimony from stakeholders. General Growth and Kamehameha Schools argued against the bill, and so did smaller landowners in the area, including Servco Pacific, Waterhouse Inc., CUNA Mutual Group, JN Automotive Group and Dexter Okada, a small-business and landowner who is on the HCDA board.

Gannett Co. Inc., the owner of The Honolulu Advertiser and its property at 605 Kapi'olani Blvd. in Kaka'ako, also would be affected if the bill becomes law. Gannett has been trying to sell about 130,000 square feet of land next to its news building.

Ann Botticelli, vice president of community relations and communications for Kamehameha Schools, said if the bill becomes law the trust won't be able to proceed with its vision to develop as much as 4.4 million square feet of buildings, including 2,750 residences, on nine blocks covering 29 acres.

"We are asking the governor for a veto," she said.

Kamehameha Schools said parts of the bill are laudable, such as the general intent to produce more affordable housing, but that the size of the increase is onerous, and that a better policy would be to impose a 10 percent affordable-housing requirement statewide. The trust also said it would be agreeable to a 30 percent requirement only on the number of residential units built if a quarter of those units could be produced outside Kaka'ako.

Jan Yokota, General Growth's local vice president of development who formerly headed HCDA as executive director, said the bill places unrealistic economic burdens upon developers in an economic climate with limited development financing.

"It really inhibits development in Kaka'ako," she said of the bill.

LEGAL CONCERNS

Some observers discount the claims by the two giant landowners, believing that they will be able to finance projects under the proposed rules and still earn a profit.

Testifying in support of the bill were largely construction industry groups and affordable-housing developers such as Hawai'i Habitat for Humanity and Marshall Hung.

O'ahu resident Tony Au, who works in the mortgage industry and said he bought his first home under a state affordable-housing program, told legislators in testimony that more needs to be done to produce affordable housing, especially in Kaka'ako.

"Kaka'ako resembles more of a luxury neighborhood with several towers that are far above the affordability of the median-income buyer," he said. "The money invested by the state into the redevelopment of Kaka'ako for the residents of Hawai'i are not going to be realized if the results are expensive luxury condos targeted to out-of-state buyers with price tags beyond the reach of the residents who need housing the most."

During the most recent real estate boom, several luxury towers were built in Kaka'ako with some averaging unit sale prices near or above $1 million. In some cases, no moderate-priced units were produced because HCDA suspended its rules.

The agency's rules helped produce about 1,400 affordable units from 1982 to 1996, but development hit the skids in the later half of the 1990s amid a stagnant state economy.

With the intent to stimulate development, the agency in 2001 waived its affordable-housing requirement for three years, which turned out to be a period of prosperous growth in the economy and local real estate market.

As a result, high-end condos including Hokua, the twin-tower Moana Pacific and 909 Kapiolani were built without producing any affordable units. Only one Kaka'ako high-rise completed during the market boom, Keola La'i, contributed affordable units — 63 that were sold for $275,000 to $375,000.

Russell Pang, a Lingle spokesman, said the governor is studying the bill and weighing input she's received about it.

Lingle has until July 15 to sign or veto bills. She also has the option of letting bills become law without her signature.

One major concern raised about SB 1350 is its application to General Growth's project, which the HCDA approved as a master plan in January.

General Growth received permission to develop 60 acres it owns in Kaka'ako roughly comprising Ward Centers under present HCDA rules that would be applicable for the next 15 years.

Under its plan, General Growth anticipates building 4,300 residential units spread among 20 buildings, with 860 units being moderate-priced. Much of the project would be retail, replacing Ward Warehouse, Ward Centre and other older shopping complexes.

The bill would change the requirement by imposing the higher affordable-housing requirements on any building within the General Growth master plan that isn't under construction in the next five years.

Ching of the HCDA testified that altering terms of an approved master plan could be challenged in court. "Retroactive application of this measure raises legal issues," he said in testimony.

Kamehameha Schools has submitted its master plan to HCDA, which is reviewing the plan but isn't expected to take action on it until as late as October.

WHAT SENATE BILL 1350 PROPOSES

Present HCDA housing rules generally require that any new building rising more than 45 feet with residential units make 20 percent of the residences affordable to moderate-income buyers or renters. Building space devoted to commercial use is excluded from the affordable-housing requirement.

Under SB 1350, the requirement would rise to 30 percent for any residential project on at least 80,000 square feet of land regardless of height.

In addition, the bill requires developers to provide affordable units equivalent to 10 percent or 20 percent of building floor area devoted to commercial use, such as retail or office but excluding industrial. The 10 percent applies to projects on lots from 20,000 square feet to 79,999 square feet. The 20 percent applies to projects on lots more than 80,000 square feet.

The bill would automatically raise all the requirements by 5 percentage points in five years unless lawmakers agreed that adequate affordable housing had been produced.

For any project granted extra density for being near a train station planned by the city — two of which are slated within development plan areas of General Growth and Kamehameha Schools — 10 percent more affordable housing is required.

All told, with a transit bonus and the five-year raise, a project could be required to include as much as 45 percent moderate-priced housing.

In an attempt to add some flexibility to producing affordable units, the bill allows up to one-third of affordable units to be built outside Kaka'ako that would count for the same as building half a unit within Kaka'ako.

The bill also allows affordable-housing developers to build projects in Kaka'ako and sell credits to other developers to satisfy an affordable-housing requirement.

Under the bill, a developer with an affordable-housing requirement could buy credits for about half of what it presently costs to build each unit.

HCDA Executive Director Anthony Ching said the flexibility to produce some affordable units outside Kaka'ako provides significant balance against raising the contribution requirement, but that allowing the sale of credits won't create any additional affordable housing.

"This provision only creates a market for a developer with excess units," he said in testimony. "The provision is flawed and counterintuitive and should be deleted."