Since 1988, Hawaii has offered tax credits to incentivize the development of housing for very low-income people. 

The Hawaii Low Income Housing Tax Credit program has resulted in approximately 13,600 units of affordable housing since its inception. Banks can invest in affordable housing and then get a tax break when the project is move-in ready. It’s one of the only state programs aimed at building new units for renters making 60% or less of the area median income. For families of four, that’s $72,300. 

But observers worry the program is in jeopardy. They say the problem – and the solution – is in supply and demand. 

Currently, only large financial institutions buy the credits, meaning the demand for them is limited to just a few big banks and insurance companies. A proposal at the State Capitol, Senate Bill 2694, would open up the program to anyone who pays Hawaii taxes, from small businesses to wealthy individuals. 

Kaimuki Honolulu Housing Real Estate homes. New culiinary UH campus at top. 23 may 2017
Housing advocates worry that affordable housing could become more difficult to build without a change to the law. Cory Lum/Civil Beat

With more competition for the tax credits, investors will be willing to pay more for them resulting in larger sums of equity for low-income developments, according to the bill’s backers.

“It won’t cost taxpayers any more,” said Kenna Stormogipson, a policy and data analyst at the Hawaii Budget and Policy Center. “The state of Hawaii is already giving out these tax credits, but the price increasing is good because it means more money into affordable housing.” 

Put simply, she said: “It means more bang for your buck.” 

So how many more units of affordable housing will this enable? It depends on who you ask. 

Stormogipson projects it could enable one or two more projects per year. Developer Stanford Carr predicts it could fund thousands of new units in the coming years. Kevin Carney, vice president of EAH Housing in Hawaii, thinks it will keep affordable housing construction levels the same.

What there does seem to be consensus on is that if this change isn’t made, there will be less money available for affordable housing. 

Kenna StormoGipson Hawaii Appleseed.
Kenna Stormogipson of Hawaii Budget and Policy Center wants more affordable housing. Cory Lum/Civil Beat/2020

In 2018, Hawaii lawmakers appropriated $200 million to the state’s Rental Housing Revolving Fund, a major increase over previous years. With that money came more affordable housing financing commitments and more credits for sale, said Darren Ueki, finance manager for the Hawaii Housing Finance and Development Corp. 

“You’re going to begin to flood the market with the Low Income Housing Tax Credits,” Ueki said. There is some fear that, like anything, if there’s a greater amount of something out there, there will be less of a demand for that.”

Similar bills have been introduced at the Legislature before but failed to gain traction. Last year the Hawaii Department of Taxation testified in support of the intent of the bill and offered comments on improving the tax structure. A department spokesperson did not respond to an interview request.

The credits currently only sell for approximately 55 cents of affordable housing investment for every dollar of future credit awarded. 

“Our concern is that if we don’t expand, the pricing will go down,” said Carr, who expects the legislation to maintain current pricing levels. 

Stormogipson and Carney believe the bill could increase tax credit value up to 70 cents. 

“If we can increase the price of the tax credits, that’ll help to take a little bit of pressure off the Rental Housing Revolving Fund,” Carney said. 

More money in the revolving fund means more opportunities for affordable housing, Ueki said. 

“At the end of the day, that gives more resources to make commitments to other projects,” he said. 

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