State lawmakers are considering diverting a state fund used almost exclusively to develop low-income rental housing to build apartments for residents with higher incomes — topping out well above what most people earn.
A bill to authorize the change, which was proposed by the state agency administering the fund, is in its final stretch at the Legislature.
The shift is intended to produce more subsidized rental housing for residents with a wider range of incomes. Proponents tout it as a way to keep more of Hawaii’s workforce from leaving the state due to the high cost of housing. But the change could reduce funding for low-income housing construction.
House Bill 432 would allow part of the state’s rental housing revolving fund to go toward financing development of apartments for households earning between 60% and 140% of a county’s annual median income.
At the high end on Oahu, this equates to $136,500 for a single person and $194,250 for a family of four. Monthly rent at those income levels could reach $3,412 for a studio and $5,060 for a three-bedroom unit.
Current regulations for the fund prioritize projects that serve households earning up to 60% of the median income, which equates to $58,500 for a single person and $83,250 for a family of four. Monthly rent at those income levels could reach $1,462 for a studio and $2,169 for a three-bedroom unit.
A variety of other state and city programs provide financial incentives for developers to build housing for moderate-income residents, and in some cases such housing is a requirement for a portion of large projects. Yet affordable-housing advocates say more subsidized housing is needed for people who, despite moderate incomes, still can’t afford market-priced homes.
Susan Le, senior affordable-housing policy analyst for the nonprofit Hawai‘i Appleseed Center for Law and Economic Justice, told the House Finance Committee during a Feb. 25 hearing on HB 432 that someone in Hawaii has to earn 200% of the median income to afford a median-priced home.
“Our workforce is struggling,” she said. “That includes firefighters, teachers, health care workers. And without subsidies, these projects don’t work out because we have the highest land costs, construction costs and regulatory process in the nation.”
Subsidy split
The Hawaii Housing Finance and Development Corp., the state agency administering the rental housing fund, sought the change proposed via the bill.
Dean Minakami, HHFDC executive director, said in written testimony that the fund is typically used up by top-priority “Tier I” projects, which are for households earning under 60% of the median income and also obtain federal and state low-income housing tax credits, often in addition to bond financing awarded by HHFDC to make the projects viable.
“This bill is needed so that funding can be available for mixed-income rental projects, or ‘Tier II,’ without the need for legislation to finance projects outside the first priority,” he said. “These are our working families who earn too much to qualify for low-income housing tax credit units but cannot afford to buy their own homes, such as teachers, firefighters, police officers, and nurses.”
Tier II projects are for households earning 60% to 140% of the median income.
HHFDC’s rental housing fund is supplied with 50% of real estate conveyance tax revenue up to $38 million annually and legislative appropriations. Fund proceeds are awarded as very-low-interest loans that get paid back decades later, which also contribute to the fund’s balance.
Only in recent years has the Legislature infused the fund with annual appropriations of $100 million or more in an effort to better address Hawaii’s long-standing affordable-housing crisis.
Those appropriations totaled about $1 billion between 2018 and 2024. And demand for fund awards by low-income housing developers has been high.
In 2022, HHFDC awarded $320 million from the fund to 13 projects, followed by $145 million for nine projects in 2023 and $64 million for four projects in 2024.
One of the projects funded in 2022 was the 95-unit Koa Vista I apartment building in Waipio that opened in March for seniors earning 30% to 60% of the median income. The $39 million project was financed in part with $17.5 million from HHFDC’s fund.
High demand
This year, developers are seeking about $1.1 billion from the fund, which has a roughly $570 million balance, to help finance 28 projects comprising about 4,000 low-income rental units.
The biggest request is from the developer of a 344-unit initial phase of the 900-unit Leiwili Kapolei project on HHFDC land. The developer is seeking either $123 million or $140 million from the fund to develop the first phase for households earning up to 60% of the median income.
Leiwili’s developer also explored developing the first phase for households earning 80% to 100% of the median income as a Tier II project competing for rental fund financing.
Leiwili’s second phase with 484 rental apartments is planned for households earning 80% to 100% of the median income. A 72-unit third phase is slated to be homes for sale to households earning 110% to 140% of the median income.
Through HB 432, HHFDC has requested that Tier II projects receive $150 million over the next two fiscal years. Gov. Josh Green’s proposed budget included the same amount for Tier II projects plus $100 million for the fund generally.
HB 432 also would allow transfers within the rental housing fund to a “mixed-income subaccount” reserved for Tier II projects, meaning money in the fund could be moved away from Tier I priority projects to Tier II projects.
Balancing challenge
Some proponents of the bill say subsidies are needed for both low- and moderate-income housing. But whether future funding for Tier I projects will suffer due to Tier II project funding is hard to discern.
Representatives of the organization Hawai‘i YIMBY (Yes In My Backyard) said in written testimony, “It is important for us to continue to fund homes for our lower income residents, but we must target additional funds to our middle-income, working-class families who struggle to compete for market-rate homes.”
Kevin Auger, executive director of the City and County of Honolulu Office of Housing, said in written testimony that development of low-income housing must continue, but that very limited programs exist to help the moderate-income workforce afford housing.
“The creation of a mixed-income subaccount would help to bridge the gap that currently exists and allow more of our workforce — including our teachers, police officers, and medical staff — to remain here in Hawaii,” he said.
Other proponents of the bill include the Hawai‘i Community Foundation, Holomua Collaborative and Michaels Development, which is a partner in the Leiwili project.
Makana Hicks-Goo, representing Hawai’i LIMBY (Locals In My Backyard), expressed concern to lawmakers in written testimony that maximum rents for affordable housing under HHFDC regulations can be higher than market prices, which is something the agency acknowledges.
“We concede that affordable housing is hard, but it seems a fair criticism that a program claiming to be affordable ought at the very least to be priced below the market,” Hicks-Goo wrote. “It is damning that we neither do so nor build the sort of units needed by locals.”
Because the House and Senate passed different amended drafts of HB 432 earlier this year, House and Senate conferees have been appointed to work on a mutually agreeable version that, if produced, could receive final approval before the legislative session ends Friday.
It’s also possible the change sought by HHFDC gets enacted through Senate Bill 71, which initially proposed something different for the rental housing fund but was amended by a House committee to mirror HB 432.
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Oahu affordable housing rents
Rental housing construction subsidized by a state fund establishes maximum monthly rents based on household income levels for tenants on Oahu.
% of median income — studio — 1 bedroom — 2 bedroom — 3 bedroom
60% — $1,462 — $1,566 — $1,879 — $2,169
80% — $1,950 — $2,089 — $2,506 — $2,891
100% — $2,437 — $2,611 — $3,132 — $3,614
120% — $2,925 — $3,133 — $3,759 — $4,337
140% — $3,412 — $3,655 — $4,385 — $5,060
Source: Hawaii Housing Finance and Development Corp.