Is Hawaii’s historic investment in affordable housing paying off?

Hawai’i’s Legislature made a historic investment in affordable housing in 2022, betting that $300 million would make a dent in the state’s affordability crisis.

Two and a half years later, initial results are encouraging: About 2,000 units priced below market rates are in the pipeline for renters in the coming year.

The results are also sobering, showing just how far the state has to go to meet existing housing demand.

From 2020 through 2024, the Hawaii Housing Finance and Development Corp. — which oversaw the distribution of the money — doled out awards to 40 projects promising nearly 5,000 affordable rental units statewide.

Those units are reserved for a wide range of renters, from people who earn less than 30% of the state’s average median income to those right at the median, which was almost $140,000 last year for a family of four in Honolulu.

They are one portion of the 10,000 affordable housing units — funded through a variety of sources including federal, state and county funds — that the state estimates will be online by 2026.

But a 2019 study of Hawaii’s housing needs prepared for the housing finance corporation found that roughly twice that many units would be needed by this year to meet the affordable housing demand.

Funds Pushed Projects Forward

The Legislature directed the $300 million in 2022 to the state’s Rental Housing Revolving Fund, which makes low-interest loans to housing developers.

It was the revolving fund’s largest cash infusion in its then-16-year history. In 2021, legislators had earmarked $25 million for the fund and it later would add $280 million to spend during the 2024 and 2025 fiscal years.

Gov. Josh Green in December proposed keeping the momentum going with $250 million more for the fund over the next two fiscal years, which, if approved by the Legislature, would be raised through general obligation bonds.

Following the record appropriation, $320 million went to develop about 2,000 apartment units around the state, from Hilo to Kihei to Kaka’ako.

The state funds played a key role in pushing forward housing for the lower-income families, those earning below 60% of the state’s area median income — about $83,500 for a family of four in Honolulu. Many teachers would qualify since their average salary was $73,319 during the last school year, according to the Hawaiʻi State Teachers Association.

Building low-income housing comes with extra challenges in a state that already has a host of challenges. While it costs as much to build affordable housing as market rate housing, lower rents bring in less income, making it harder for developers to make their money back. That, in turn, makes it tougher to raise capital to even start construction in the first place.

Loans from the revolving fund are meant to help developers close that financing gap.

Just over half the 2022 appropriation went to five lower-income projects — four of them now being built — for a combined 1,036 apartment units.

That was a major boost, said Arjuna Heim, director of housing policy at Hawai’i Appleseed, a nonprofit research and advocacy organization.

“That is the only program we have that significantly delivers housing for people at the low- and very low- income spectrum,” Heim said. “Without having those funds earmarked specifically for that, I’m not sure how else we would be able to house a significant portion of our community.”

Reserved For ‘Workforce’ Housing

The Legislature reserved about half of its record appropriation for Tier 2 projects, commonly known as workforce housing. Those units are aimed at renters who make between 60% and 100% of the median income.

Workforce housing has typically been much less of a focus for the revolving fund. Of the combined $330 million the housing finance corporation awarded in 2021, 2023 and 2024, none went to such projects.

That meant the 2022 awards had an important impact, said Dean Minakami, executive director of the Housing Finance and Development Corp.

“We’re experiencing population decline, especially in Honolulu. And what we’re seeing is that it’s not just the lower-income households. It’s also middle-income households that are leaving,” Minakami said. “It’s those middle-income folks that are the ones that we’re trying to reach” with Tier 2 projects.

The workforce housing appropriation subsidized four projects that combined will provide 756 units. Under the terms of the awards, those units must remain affordable for more than 50 years.

Stanford Carr, developer of Kahuina in Kaka’ako, said the funding has been critical to developing affordable workforce housing rental properties.

“Without it we wouldn’t be able to build rentals,” said Carr, who received $24 million in Tier 2 funds to help build 124 units.

Kahuina will include a mixture of market rate and affordable condominiums. It is set to break ground in 2025, Carr said, and will take about 2½ years to complete. Rents will range from from $1,715 for a one-bedroom, one-bath apartment to $3,396 for a three-bedroom, two-bath.

A second project that won a workforce housing award in 2002 — the 97-unit Koa Vista II, in the Central Oʻahu town of Waipiʻo — has also progressed and workers are preparing the site for construction. Koa Vista received $25 million in state support.

Of the additional $250 million Green has proposed for the rental housing fund over the next two years, $150 million is designated for Tier 2 workforce housing projects.

Program Revived A Project

Despite a big push from state funding, developers of low-income and workforce housing still face significant obstacles. Those range from permitting delays, to the economy, to supply chain issues in a state that imports most of its building materials. The pandemic worsened all of those problems.

Of the other two workplace housing projects funded in 2022, both remain in the design and permitting stage and it’s not known when they might emerge, Minakami said.

“There are always challenges when they go through permitting,” he said “So we’re just hoping that they can work through those as quickly as possible.”

One of those, Hualalai Court on the Big Island, is expected to break ground around the mid-2025, said Carlo Mireles, a partner in the development. He said the project – which got a $67 million award — had been previously intended as low-income senior housing relying on federal tax credits funding that didn’t end up penciling out financially.

The state funding revived the Hilo project, Mireles said, although it was later delayed again as interest rates and construction costs rose.

“Tier 2 is an amazing program,” Mireles said. “The project would have been dead without it; we wouldn’t have had the opportunity at all to build on the Hilo side and serve our workforce community.”

Once ground breaks, Hualalai Court should be ready for occupancy in about 18 months, Mireles said.

Construction is expected to start in 2026 on a fourth workplace housing development funded in 2022, in Kaka’ako. Plans for the 431-unit Pohukaina have been submitted to the city Department of Planning and Permitting.

Demand Is Greater Than Supply

The disheartening backdrop of a far greater need for affordable rental units has led some housing advocates to argue for different approaches.

That gaping disparity between production and demand means that the current approach of directly funding development is wildly inefficient, said Joe Kent, executive vice president of the Grassroot Institute of Hawaii, a libertarian research and advocacy group.

“It’s much easier to spend money than it is to deal with regulations, and that’s what’s going on here,” Kent said. “The cost of this program is a consequence of the government over-regulating the housing industry, and that’s a price they’re willing to pay, apparently.”

“But,” Kent acknowledged, “at least it’s creating housing.”

Among its recommendations, the institute advocates for cutting back the authority of the state’s Land Use Commission — which limits development of parcels over a certain size — and creating more land zoned for urban development. Kent said that alone would free up more areas for rental housing construction.

Grassroot Institute also argues that eliminating school impact fees, which help fund school construction but add to construction costs, and narrowing the definition of historic property would smooth the way for more affordable housing development.

Housing Hawaiʻi’s Future wants the state to finance construction of homes to be sold to somewhat higher-income residents, who also face a constricted market.

As people moved up into housing pegged to their income levels, that would free up housing stock for residents with lower incomes, said Sterling Higa, executive director of the housing advocacy organization.

“If your goal is to produce a lot of units really fast, you would want to be subsidizing higher-income housing,” Higa said.

At the same time, he said, financing the creation of homes for sale, rather than rental units, would mean construction loans would be paid back sooner, allowing the state to recoup its money faster and reinvest it in housing more quickly.

At Catholic Charities Hawaii, however, Chief Operating Officer Tina Andrade said the state should double down on the 2022 strategy and increase investments in the Rental Housing Revolving Fund.

But, she said, the focus should be on projects serving the rental needs of lower-income residents less than 80% of the state’s median income.

“The people who are having the hardest time are the ones that are going to fall 60% and below and even up to 80%,” Andrade said. “That’s what we’re finding with the people that we work with.”

Of the 2022 funding, Andrade said simply that more is needed: “We still have work to do,” she said. “It’s a little bit of progress but there’s still such great need and we still have to keep working at it.”

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This story was originally published by Honolulu Civil Beat and distributed through a partnership with The Associated Press.