As Michelle Kauhane drives along a quiet Kapolei road, she points out the brown single-story homes that sit between two-story houses on Hawaiian homelands.

“You see the difference between these two houses?” Kuahane asks. “The difference is $300,000 and $185,000.”

The families who live in the smaller homes almost got passed over on the waiting list for homesteads because they didn’t have the money to finance larger mortgages, Kauhane says. But with the help of homestead associations, 10 families were able to get mortgages to build homes.

Kauhane is executive director of the Council for Native Hawaiian Advancement, a coalition of more than 150 Native Hawaiian organizations. A former deputy director of the Department of Hawaiian Home Lands, she’s critical of the lack of progress Gov. David Ige’s administration has made toward increasing the supply of rental housing on land set aside for people who are more than 50 percent Hawaiian.

Kapolei Hawaiian Homelands $185000 home. 15 marhc 2017.
Here’s one of the homes that homestead associations say they helped owners finance at a cost of about $185,000. Cory Lum/Civil Beat

She says homesteaders like her aren’t waiting around for the state to act, though. Last year, the Sovereign Councils of the Hawaiian Homelands Assembly — which works closely with her coalition — established the Homestead Housing Authority, a nonprofit to develop affordable housing and rentals.

Their effort comes as a huge unused pot of federal funds at the Department of Hawaiian Home Lands is fueling a long-running debate over whether the agency should be doing more to house Native Hawaiians, even if that means providing rental units rather than fee-simple homes.

More than $38 million intended for homestead housing has piled up in DHHL accounts even though thousands of people have been on the waiting list for so long that some of them have died waiting for a home.

The state agency has a nearly 100 year old mandate to help people who are more than 50 percent Hawaiian return to the lands, including giving them homesteads in a “prompt and efficient manner.”

That’s far from what’s happened. More than 20,000 people are on the waiting list for residential homesteads. Many applied decades ago, and while some have had the opportunity to receive a lease and chosen not to take it, others are still waiting or have died without receiving a piece of land.

With homelessness rising in Hawaii and the cost of housing skyrocketing, the department recently came under fire from U.S. Sen. Brian Schatz and state Rep. Scott Saiki for not using federal money to build rental housing.

That resonated with Robin Danner, a homesteader from Anahola on Kauai and executive director of the Homestead Housing Authority.

“We are sitting in the middle of a housing crisis,” says Danner. “It is just totally unacceptable.”

Kapolei Hawaiian Home lands Kalanianiole Building. 15 march 2017
The Department of Hawaiian Home Lands is based in Kapolei at the Kalanianiole Building. Cory Lum/Civil Beat/2017

DHHL Director Jobie Masagatani says the agency has already encumbered $20 million of the $38 million, and wants to use the remaining $18 million to underwrite mortgages, but is running into procurement issues and other hurdles.

She presented data showing that the department spent more than $14 million in 2014 and $11 million in 2015. That’s more grant money than the department ever spent previously in a single year. The balance has fallen from $65 million in 2014, when Ige was elected.

Masagatani says that spending down federal capital improvement funds is time-consuming not only because design, procurement, permitting and construction can take years, but also because the unique rules of building on Hawaiian homelands can further slow down the process.

Many people on the waiting list have also passed up opportunities to receive homestead leases because they aren’t ready to take on a mortgage or they want to wait until land opens up in a different area, Masagatani says. Only 15 percent of the people who have been contacted over the past five years to receive homestead land have responded to the department, and less than a third of them actually expressed interest in receiving a lease.

As a result, only about 200 people receive homestead leases each year, Masagatani says. There are 27,000 individual applicants for various types of homestead land, including agricultural, pastoral and residential, across the islands.

But there’s still more than $38 million in the bank, and it’s unclear how much more money the agency will get unless it does a better job of spending down the balance.

Meanwhile, Danner and Kauhane want to convince Congress to give federal funding to the Homestead Housing Authority instead of DHHL. They think they can do more to create rentals and for-sale homes, starting with small rental units, known as accessory dwelling units that were recently legalized in Honolulu.

“Homeownership is not for everybody, it just isn’t,” says Kauhane. “But we don’t want them on the beach. We don’t want our families in shelters, not when we have a land base that we could be providing housing with.”

Demand For Rental Housing

Jeff Gilbraith works at Hawaiian Community Assets, a nonprofit that specializes in counseling low-income people. Many of his clients live on Hawaiian homelands or are eligible to do so, but need help becoming eligible for homeownership or managing finances to maintain their homes.

His clients often don’t have enough money for a down payment and closing costs, or they have bad or nonexistent credit scores. He says there’s a need for DHHL to focus on rental housing, even if beneficiaries ultimately want to own a single-family house with a yard.

“In order to get to affordable homeownership … we need affordable rentals,” Gilbreath says.

Many Native Hawaiians are homeless. The Department of Hawaiian Home Lands is under fire for not providing enough homesteads or rental housing for Hawaiians. Cory Lum/Civil Beat

He’s not the only one who feels that way. Participants in the 2015 Native Hawaiian Housing Conference recommended that the Department of Hawaiian Home Lands develop rental housing for the elderly and students statewide, and help homeowners already on DHHL sites become landlords.

“The need for housing should be looked at on a continuum that includes affordable rental opportunities as well as affordable homeownership opportunities for our very-low and low-income individuals and families,” the report says.

Rental housing will also be on the agenda for another conference scheduled for Oct. 9-11 this year.

The state has already recognized the need for rental housing for Hawaii residents in general. The Legislature set a statewide goal of producing 22,500 affordable rental housing units by the end of 2026.

But its latest housing study found that there’s a large demand for housing from people who identify as Native Hawaiians. Not all of these people may qualify for DHHL programs, but there’s a bill in the Legislature that would make more of them eligible by decreasing the blood quantum requirement from half to 1/32nd.

Plans For More Housing

The demand for affordable rentals in Hawaii has been spurred by rising rents, particularly in Honolulu. The fair market rent for a two-bedroom in Honolulu is close to $2,000 per month. A three-bedroom apartment is nearly $3,900 per month.

“A family is not going to ever be able to buy a homestead house if they’re spending $3,000 a month on the rental market,” says Kauhane. “There’s nothing to save.”

Both Kauhane and Danner emphasize the importance of empowering beneficiaries, the term for people who live on Hawaiian homelands. Danner says that homestead associations have built a cafe, salon and thrift shop on homestead land in recent years.

Kapolei Hawaiian Homeland buildiing Kitchen. 15 march 2017
Danner and Kauhane call for more projects like this community center, which was developed by three Kapolei homestead associations. Cory Lum/Civil Beat

She ultimately wants the Homestead Housing Authority to facilitate the construction of duplexes and vertical rental developments. But she’s getting started with accessory dwelling units, and hopes to bring a model 20-foot by 24-foot unit to Kauai next month.

“Our target is under $75,000, own it in 13 years,” she explains.

If the pilot works and people can own the unit for less than $500 per month, Danner wants to make them available to homesteaders statewide.

In addition to accessory dwelling units, the Homestead Housing Authority wants to focus on providing low-income rental projects, mid-rises, high-rises and community grants.

But developing rental housing on the homelands isn’t easy. Danner says it will require finding homesteaders who want to become landlords, and getting approval from the department to add the homes. Homesteaders may also have to go through the city permitting process.

There are already some rental housing projects on homestead land in Nanakuli and Waimanalo, but both have run into controversy. The Nanukuli project angered some beneficiaries because it was open to all low-income people due to federal funding requirements.

Meanwhile, DHHL is struggling to figure out how to keep the Waimanalo senior housing development affordable, and frustrated tenants last fall by raising the rent.

Realities Of Rentals On Homelands

Few are more familiar with the difficulty of adding and managing rental housing on Hawaiian home lands than Craig Watase, president of Mark Development.

His company used federal low-income housing tax credits to build the Ho’olimalima Pilot Project, a 70-unit rent-to-own complex in Kapolei. It was the first time that a developer had used those federal tax credits to build on Hawaiian homelands, and he had to get a letter from the U.S. Attorney stating that the project could utilize the tax credits without violating the Fair Housing Act by limiting the project to people who are more than 50 percent Hawaiian.

That was just the beginning. Watase has also been in charge of managing the project and it hasn’t been easy. The idea was that tenants would rent for 15 years and then be ready to purchase the units.

A resident of the Kapolei Ho‘olimalima Project signs documents at the Department of Hawaiian Home Lands on March 20. She is one of 19 renters who are now homestead lessees. Courtesy of the Department of Hawaiian Home Lands

But Watase says he ended up evicting several tenants who weren’t following rules, for example by allowing people to stay with them who weren’t on the lease. The move provoked public and media criticism. For many renters who remained, getting to the brink of homeownership has required a lot of financial counseling and education.

More than half of the 70 families in Watase’s project have gotten homestead leases so far, including 19 last week. DHHL published a press release celebrating the achievement, and Watase thinks that he’s proven the rental model works.

“We think (the Department of Hawaiian Home Lands) should do more and we are disappointed they hadn’t done more sooner,” he says.

But he adds that he doesn’t blame the department for waiting to see if his project was a success.

The department has requested proposals from developers for a similar project in Kona on the Big Island. Watase’s company has submitted a proposal and is waiting to hear back.

What DHHL Is Doing

Masagatani points to the rent-to-own project as an example of how, despite criticism, the department has been working on providing rental units.

She says the department is just beginning its process of rulemaking for DHHL-run rental projects and accessory dwelling units on Hawaiian homelands. The agency has been working internally on the rules and just launched the formal process of receiving public comment that’s expected to take two years.

Adding rentals raises a host of questions, she says, like how do you limit who lives in an accessory dwelling unit to people who are 50 percent Hawaiian? How do you enforce that? How do you make affordable rental projects financially sustainable without pricing people out?

Jobie Masagatani is the director of the Department of Hawaiian Home Lands. Anita Hofschneider/Civil Beat

“We are not trying to make it hard on purpose, we are trying to make sure we have clarity,” she says.

She also says the department is open to working with nonprofits that respond to its requests for proposals.

That’s good news to George Massengale, who advocates for the Hawaii Habitat for Humanity. He says the nonprofit wants to do more work on Hawaiian homelands and elsewhere in the state, particularly when it comes to accessory dwelling units.

Kevin Carney from EAH Housing also says he’d be open to working on Hawaiian homelands, but his nonprofit does rely on federal funding that would force the development to be open to people of all races, like the Nanakuli project.

Masagatani says she sees rentals as just one part of what the department does. A bigger priority is getting beneficiaries homestead leases.

“It’s not an either-or proposition,” she says. “Our goal is to try to provide the families with as many options as possible to get onto the homelands.”

Other challenges include complying with federal rules regarding environmental review and procurement. The process of creating a new rent-to-own project in Kona has been slowed down by the need to gather more information from applications. An effort to redevelop the old Bowl-O-Drome site in Honolulu has been delayed by environmental analysis.

She is concerned about the idea of losing federal funding if it were to go to the Homestead Housing Authority instead. The DHHL has used the money in recent years for providing homeowner education, helping families with down payments, financing and foreclosure prevention, and putting infrastructure in the ground on homestead land.

“We really are part of the solution,” Masagatani says. “But the way we are a part of the solution may not fit into what people think our role should be.”

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