The state Department of Hawaiian Home Lands didn’t produce any new housing units for Native Hawaiians last fiscal year, even though it has $38 million in unspent federal funds.

And that’s unlikely to change this fiscal year or next, because the agency is focused on its massive waiting list of people who want land for homesteads instead of on building rental units.

Meanwhile, the state is in the throes of a housing shortage and its homelessness problem is among the worst in the nation. The high cost of housing has driven some residents out of state and forced others to live in overcrowded conditions.

“I was disappointed in the extreme to learn that they built no homes last year,” U.S. Sen. Brian Schatz said Thursday. “It makes it extremely difficult when I’m fighting for federal funds to know that they haven’t built anything.”

State Rep. Scott Saiki, the House majority leader, said he isn’t surprised, but he’s not happy either.

“We fully support the mission of DHHL but it has been frustrating because we haven’t really seen tangible results,” Saiki said.

The head of the department, Jobie Masagatani, responded to the criticism by saying the DHHL is “not a housing agency” and that the department must do “a better job of educating” Schatz.

Schatz and Saiki sent a letter to Gov. David Ige in December asking how many new units were made available in fiscal year 2016, which began in July 2015 and ended in June. They also asked how many were expected to be produced in the next three years.

The governor’s chief of staff, Mike McCartney, replied earlier this month that no new units were completed in fiscal year 2016. But he said the agency made more than 400 lots available for homesteading that year — pieces of land with enough infrastructure for recipients to build a house.

The Department of Hawaiian Home Lands also assisted more than 300 families in fiscal year 2016 by providing loans and other homeowner services, which McCartney described as “workshop and case management services to prepare beneficiaries financially for homeownership or to assist existing lessees with preventing cancellation of their leases for mortgage default.”

McCartney wasn’t available to talk Thursday, but Masagatani, who leads the DHHL as chairwoman of the Hawaiian Homes Commission, defended the agency’s progress.

“When you just look at one measure of effectiveness, units, it doesn’t give you the full flavor of all of the activities that are going on, especially when many of our families and most of our lands are not in the urban core,” Masagatani said.

She noted that the agency is considering creating rental housing at the agency’s only residential property in urban Honolulu, the former Bowl-O-Drome site on Isenberg Street in Moiliili.

“It makes it extremely difficult when I’m fighting for federal funds to know that they haven’t built anything.” — Sen. Brian Schatz

But that’s insufficient for Schatz and Saiki, who both say that the idea of rental housing production has been discussed for years with little action by DHHL. Their frustration may spell bad news for the agency, which is hoping the Legislature and Congress will provide them with millions of additional dollars to fund its work.

“As with any other agency, DHHL has to make its case,” Saiki said of DHHL’s budget request. “They need to come forward with solid information and justification.”

Schatz said he hasn’t decided how much money he’s going seek for the department during the next budget cycle in Congress, where he serves on the Appropriations Committee.

“I’m frankly trying to figure out the path forward here because … it’s now been two or three years and we’re having the same conversation, so something has to give,” he said.

He said when it comes to Hawaii-based expenditures for defense, education and Native Hawaiian health care, “I can always look a colleague in the eye and say these are good programs, it’s an important program and it’s money well spent. It’s very difficult for me to make that argument now that I see that no homes have been built.”

Unspent Funds

Schatz said he and Saiki decided to request information on DHHL in an effort to team up to try to find solutions to Hawaii’s housing shortage.

Congress established the Hawaiian Homes Commission in 1920 to manage public lands and create homesteads for people with at least 50 percent Hawaiian ancestry.

A December state housing study estimated more than 4,000 units are needed by Native Hawaiians alone by 2020. Most of them need rentals, although not necessarily every Native Hawaiian in that study would qualify for DHHL programs.

DHHL has struggled for years to fulfill its obligation to provide homesteads for beneficiaries, in part because of limited funding. Native Hawaiians even sued the state to force the Legislature to provide the agency with more money. A 2012 decision was favorable to the agency, and the litigation is ongoing.

But DHHL has also historically been slow to use federal money that it has received.

For years, the agency received about $12 million annually from Congress. The Obama administration temporarily stopped funding the agency because it wasn’t spending money fast enough, Schatz said.

Ryan Okahara, who leads the local office of the U.S. Housing and Urban Development, said that DHHL has improved its expenditure of federal funds and is now spending more money than it receives.

“They’re doing better than they have been doing in previous years,” Okahara said.

Currently, DHHL has $38 million in unspent federal funds from the Native Hawaiian Housing Block Grant. The agency is the only recipient of the federal funding stream in Hawaii, and the money can be used for housing development and services like homebuyer education, housing management, crime prevention and safety.

Despite the agency’s progress in spending down its balance, Schatz says that’s not adequate. DHHL predicts just 16 new lots will be made available in fiscal year 2017 and nearly 100 in fiscal year 2018.

The agency’s waiting list for homesteads, which includes agricultural and ranching lots as well as residential, exceeds 20,000 people.

“You only get so many millions of dollars a year and you have more than 20,000 people waiting for homes,” Schatz said. “We’ve got to rethink what it means to try to provide housing to beneficiaries. If zero people are getting a home and maybe a dozen or two are getting a lot, something is not working.”

‘We Are Not A Housing Agency’

Masagatani said the housing demand from DHHL beneficiaries, particularly those on the neighbor islands, is largely for single-family homes.

“Increasingly we have more and more beneficiaries saying we want the opportunity to build our own home because we can do it for a lot cheaper than what the department can do it at,” she said.

And while Saiki described the function of DHHL as “develop homes,” Masagatani sees the agency’s mission differently.

“We are not a housing agency, although we do do development of homes,” she said, noting that building rental housing doesn’t help the agency cut down its waiting list.

“On the home lands, one of our most critical measures of effectiveness is addressing the waiting list,” she said. “Let’s say we could build a 50-unit (rental) product or develop 100 homestead lots. (The former) would provide housing for 50 families, no question, but it wouldn’t take a single person off of our waiting list.”

The agency also has relatively little land on Oahu, less than 4 percent of its total land holdings, even though more than 10,500 Honolulu residents are on the waiting list for residential lots.

“If we had more land in the urban core we definitely would look at developing it for these rentals; we just don’t have it,” Masagatani said.

She’s concerned about Schatz’s disappointment with the department, saying that the federal grant money “is the most important federal tool we have to assist our beneficiaries in the rural locations and we’ve done the best that we can.”

She said the agency is relying on Schatz and the Legislature.

“We have tried to do everything as expeditiously as possible given the resources that we do have,” she said. “I guess we have to do a better job of educating the senator of what our program does and does well.”

For Schatz, learning more about homestead lots isn’t the answer.

“That’s always been part of their process but when it comes to trying to make a real dent in a massive waiting list of more than 20,000 beneficiaries, and when it comes to making a dent in our affordable housing problem, providing infrastructure for a handful of large homestead lots is maybe part of the strategy but it can’t be all they do,” Schatz said.