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'Affordable' housing

Developers face pressure to build projects for lower-income residents — which they say can’t be done without substantial government support

By Vicki Viotti

POSTED: 01:30 a.m. HST, Feb 09, 2014

Everyone can be forgiven for being confused about the meaning of "affordable housing." The expression is popularly applied to everything from heavily subsidized public rentals up to condos that are also described as "workforce housing," units priced for urban professionals.

Across the country, different levels of affordability are linked to the area median income (AMI), which varies from place to place. The U.S. Department of Housing and Urban Development (HUD) gives tax credits to developers, which they can sell to help finance the project, as long as the units are priced for households earning 60 percent of the AMI or less.

Without that federal assist, said Honolulu developer Stanford Carr, nobody could afford to build new affordable rentals. And there's no subsidy for projects accommodating those who earn higher than 60 percent AMI. Most developers who build at the higher end of the affordability scale do so in exchange for something other than financing aid — usually permission from government to build with greater density than zoning would otherwise allow.

Carr's latest project is Halekauwila Place, a nearly completed rental highrise of 204 studios and one-, two- and three-bedroom apartments in Kakaako, the Honolulu district in the throes of the most intense debate over redevelopment. Many current residents, as well as housing advocates and others, fear that too little is being done in the "affordable" category, however they define it.

"Affordable," Carr noted, is a relative term.

"What's affordable to one person may not be affordable to others," he said.

The high cost of housing has been a chronic condition in Honolulu, but worsened with the stagnation of middle-class salaries over the past decade. The price for constructing homes has been prodded upward by raised building standards but especially by the rising cost of fuel to get the building materials here.

Also: There are far too few housing units available for those who want them, a deficit that forces families to double up and rents to skyrocket. Meanwhile, the wage-earner's ability to pay the bill has not kept up.

On that point there is broad agreement. Where people differ is the best policy change to correct the imbalance. Some would take a legislative approach.

On Thursday a pair of resolutions, 13-168 and 13-202, were heard in City Council; another public hearing is set for 2 p.m. Feb 19. Proposed by City Councilman Ron Menor, they would change the rules the city sets when it strikes unilateral agreements with developers needing a zoning change. Known as "inclusionary zoning," the practice is to award the rezoning and often some other development concession in exchange for a set-aside of affordable housing.

City policy is that the affordable units comprise at least 30 percent of the total number for projects requiring a zone change. Among other amendments, the legislation would require that the highest price point for the units would have to be affordable to those earning 120 percent of AMI — the current ceiling is set at 140 percent, and that at least 15 percent would be priced for families earning no more than 80 percent of median income. The city's 2014 figures put the median at $82,600 for a family of four.

"I don't think my proposal is being unfair to developers," Menor said. "Clearly, 140 percent is market-priced housing; that's not ‘affordable.'

"At 120 percent of median. you're still talking about prices some people would consider fairly high," he added. "That's a home about $500,000 to $600,000 for a family of four. In my view, you could build it at 120 percent and still earn a healthy profit. There are affordable housing advocates who figure that's too high."

In the state Legislature, a slew of bills were introduced in an effort to tighten controls on the Hawaii Community Development Authority, the agency that oversees the redevelopment of Kakaako. The measures that were heard Saturday did not include a bill that sought to increase the percentage of units built for those between 80 percent and 120 percent of the median. This bill is not expected to move this session, but affordability was at least a tangent issue raised by the other legislation.

Marshall Hung has his doubts that lawmakers fully grasp the industry's challenges in supplying affordable housing and sees proposals to change the rules as unrealistic. He is the developer of 801 South Street, designed as twin towers and the target of criticism from those who say, among other things, that the project does not provide enough affordability.

Hung's company, Downtown Capital LLC, is currently focused on developing condominium units for the middle class, those at the upper end of the "affordable" scale. These are the "workforce" units that 801 South Street offers to those at the 140 percent income level. He describes it as a rung on the housing "ladder," enabling middle-class families to move up to newer housing stock and freeing older homes for lower-end buyers and renters.

"The private sector cannot build, without huge subsidies from the government, for below that," he said. "Mathematically, we can't do that."

Construction costs have made it virtually impossible to build homes at median prices, Hung said, which is the heart of the rental market.

"Since 1980 we have not seen the private sector build a rental project for 100 percent of median income," he said.

The resulting shortage of units has enabled prices and rents to rise, he added, making them unaffordable to more and more people and exacerbating the shortage.

"In Honolulu we have 950,000 people, 330,000 housing units," he said. "There are people who say that of the 330,000 housing units, 5 percent are second homes, and that's growing. … Thus we have the shortage, and we have the doubling up, the hidden homeless."

However, advocates for those on the bottom rungs of the income scale are convinced that there's enough value in Honolulu property that the yield of affordable units could increase. Drew Astolfi is executive director of the nonprofit Faith Action for Community Equity, better known as FACE, one of the most high-profile groups on this issue.

"Affordable housing means what people can afford to pay, so the difference between where the market is and what people can pay is where the gap is," he said. "You just have to figure out what that is for Hawaii. And I think for Hawaii, where wages are low, that means the cost of housing relative to the wages is harder."

Astolfi said inclusionary zoning has provided some units, but too few of them remain affordable for the long term. Within the Kakaako special district, "workforce" projects use no subsidies and there are no restrictions on resale (flipping). Even at the lower end of the condo price scale, he added, most of the homes are barred from resale for 10 years at the most.

"After 10 years, there is no restriction," Astolfi said. "There's been a lot of talk over the years about doing only 10 percent set-aside, but doing it for 30 years, which I think would be better. Because what happens is, real estate huis buy these, rent them, flip them at 10 years and one day.

"So we don't keep any of this housing," he said. "We just have these temporary fixes, and we never catch up to the demand for the affordable, because it never sticks around that long."

Others argue that inclusionary zoning has been a big failure in any case. One of them is John White, executive director of Pacific Resource Partnership, an advocacy group for the construction industry. He pointed to a University of Hawaii Economic Research Organization study which blamed the practice for producing fewer affordable units and raising prices and reducing the number of market-priced housing as well.

Instead, industry experts urge government to pursue other programs. White and Hung both said government investment in infrastructure would incentivize affordable housing development. Carr said a fund should be created to bolster financing options for "gap group" housing, especially rentals priced for households just below median income.

White also applauded the public-private partnership strategy that yielded Halekauwila Place, built on state-owned land. More public land should be used to lower the costs of developing affordable housing, he said, which should be a priority in the islands and elsewhere.

Carr agreed, adding that his phone has been ringing off the hook with prospective renters.

"There are only 204 families that will be served," he said. "We need thousands more."