Honolulu Mayor Kirk Caldwell has spent years and thousands of dollars of taxpayer money coming up with an affordable housing requirement for all large developments on Oahu.

The Democrat highlighted his plans during his State of the City speech Thursday and is planning to introduce bills to the City Council outlining his proposals next month.

But it may be too late.

A bill in the Legislature would partially nullify Caldwell’s efforts by preventing counties from imposing affordable housing requirements on developments built for low- and middle-income buyers.

Rep. Beth Fukumoto, a Republican who sponsored House Bill 1549, says she wants to incentivize development of housing for the middle class and sees affordable housing requirements as a tax on developers.

Rep Beth Fukumoto Legislature. 3 feb 2017
Rep. Beth Fukumoto says requirements for producing affordable housing should not apply to developers of housing for middle-class buyers. Cory Lum/Civil Beat

“Don’t use inclusionary zoning to tax the middle-income earners,” Fukumoto said, employing a common phrase used to describe affordable housing requirements. “Use it to have the luxury housing pay for the affordables.”

That sounds good to influential industry groups, including the Pacific Resource Partnership, Chamber of Commerce Hawaii and the Building Industry Association of Hawaii. Developers and construction industry representatives have criticized Caldwell’s proposed policy, seeing additional regulation as an impediment to more development, and are urging lawmakers to pass Fukumoto’s bill.

“With our current housing crisis, perhaps it’s time to move away from using ‘blunt instruments’ such as inclusionary zoning and exactions in an attempt to build more housing, and move toward incentivizing developers to build more affordable housing using the fees, access to infrastructure, density bonuses, and other tools that government has at their disposal,” wrote Gladys Morrone from the Building Industry Association of Hawaii in testimony.

The Caldwell administration is proposing numerous incentives, including waiving park and permitting fee requirements. The mayor’s proposed rules vary depending on where the housing is being built, and allow developers to pay a fee instead of building the affordable units.

Some affordable housing advocates fear Fukumoto’s measure would undermine years of efforts to form an effective inclusionary zone policy, a common strategy in other cities not only to ensure that low-income housing is built but that it’s not concentrated in only a few areas.

Developments aimed at middle-income buyers actually fall under the city’s definition of affordable housing. But exempting them from the mayor’s proposed rules would mean those buildings wouldn’t need to include rental housing or units affordable to low-income people. And they would not be required to remain affordable for any length of time, far from the 30-year limit that Caldwell is proposing.

That’s a concern to the Hawaii Appleseed Center for Law and Economic Justice, a nonprofit that testified that even if the bill encourages developers to build housing for middle-income people, “it would do so at the expense of housing targeted toward income levels at which there is a much greater demand for housing, and a much more dire need.”

The Caldwell administration testified against the bill in House committees on housing and the judiciary, urging lawmakers not to usurp the county rules. A spokesman for the mayor declined to elaborate for this report.

Despite the opposition, both committees approved the measure. It goes to the Finance Committee next, which is led by Rep. Sylvia Luke.

Fukumoto responded to the city’s concerns by criticizing Caldwell as “very slow to the draw” to address affordable housing.

“What we’re seeing at the Legislature this year is that the city continues to come to us to ask for more funding but doesn’t give us a lot of answers about what they’re doing,” Fukumoto said. “If our city officials are not going to move on these things, the Legislature may act, particularly because the mayor continues to come to us asking for a permanent general excise tax increase with not a lot of answers as to how he’s going to make the rail sustainable.”

Hawaii’s Housing Demand

In testimony to the Legislature, the Office of Hawaiian Affairs questioned the wisdom of allowing developers of housing that’s affordable to middle-income earners to avoid building cheaper units.

Fukumoto’s bill would affect developments built for people earning 120 percent of area median income or less. In Honolulu, that’s equal to individuals earning no more than $84,540 per year or families of four earning $120,630 per year.

OHA testified that a recent state study found that more than two-thirds of housing demand from Native Hawaiians comes from people who are considered low-income. In Honolulu, that category includes individuals earning less than $56,350 or families of four earning $80,450 or less.

Dwelling located on the slopes of Diamond Head. 9 dec 2016
A homeless encampment on Diamond Head is one of many on Oahu, where rising homelessness is blamed partially on the lack of affordable housing. Cory Lum/Civil Beat

Fukumoto said there’s a lot of government assistance available for people who fall into that income group.

“What we are really, really missing is the gap housing for the (people earning) 80 percent to 120 percent (of area median income),” Fukumoto said. She said the problem in Hawaii is that millennials like herself are not falling into the income categories that are currently being helped.

“As a result, there’s housing for sort of everybody but us,” she said.

That’s not what the state’s December housing study found. The analysis published by SMS concluded that more than half of the state’s housing demand came from people who are considered low-income.

The state needs more than 13,500 units by 2020 that are affordable to low-income people, the study said. According to the analysis, people earning from 80 to 120 percent of the area median income — the group Fukumoto referenced — need less than 3,000 units by 2020.

Rentals And Future Affordability

Developers have consistently argued that inclusionary zoning discourages housing production. A University of Hawaii study from 2010 criticized the practice locally and nationwide.

But that contradicts an analysis by the National Housing Conference, a nonpartisan advocacy organization for affordable housing, which concluded, “The most highly regarded empirical evidence suggests that inclusionary housing programs can produce affordable housing and do not lead to significant declines in overall housing production or to increases in market-rate prices.”

In general, the effectiveness of inclusionary zoning policies seems to vary depending on the details of the policies, availability of incentives for developers, the housing market conditions and other factors.

The Caldwell administration has spent thousands of dollars on studies and held numerous meetings with developers and housing advocates in an effort to craft its policy.

Mayor Kirk Caldwell Honolulu Hale poi pounder. 16 feb 2017
Mayor Kirk Caldwell promised during his State of the City address Thursday to focus “laser-like” on affordable housing. Cory Lum/Civil Beat

The final version announced Thursday is less ambitious than a draft proposal two and half years ago. While developments in neighborhoods around rail stations would need to set aside 15 to 20 percent of units for low- to moderate-income people, housing projects elsewhere on the island would only need to reserve 5 to 10 percent of units to be affordable. And all developments could pay a fee to get out of actually building the units.

It would still be a significant change from the status quo, in which only developments receiving rezoning approval have to set aside any units for targeted income groups.

One key aspect of Caldwell’s proposed requirement is that housing must remain affordable for 30 years.

Currently, affordable housing required through rezoning agreements has a 10-year affordability period. Reserved housing built in Kakaako, a state redevelopment district, must be affordable for only five years.

Fukumoto’s bill would allow the homes in exempted developments to be resold at higher prices immediately, which would help the initial homebuyers and investors, but wouldn’t preserve housing for middle-income people over time.

She said she’s open to discussing the possibility of requiring housing to remain affordable for a set period of time, but she’s not sure if it’s an effective strategy.

Fukumoto’s bill also doesn’t address the need for rental units, even though the SMS study found more rental units at all price points are needed by 2020 than for-sale units.

Rep. Tom Brower, who leads the Housing Committee, said he voted for the measure because he thinks it’s interesting and worth discussing.

“It’s more thinking out loud and it’s still a long shot,” Brower said.

Still, the bill’s progress so far may spell trouble for Caldwell, who has staked his political career not only on building rail but on delivering affordable housing.

His political career isn’t the only thing at stake.

“If we don’t change the course we have been on for a long period of time, we will become a de facto gated community,” Caldwell said Thursday.

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