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LAHAINA >> Disabled couple Reuben and Rhonda Pali worry they’d have no place to live and would have to close their part-time after-school music business for children if their home in a 142-unit low-income housing project is converted to market-priced rentals.
“I wouldn’t know where to go,” said Reuben Pali, a Native Hawaiian who can trace his roots in the region back to the early 1800s.
Some 300 low-income residents at Front Street Apartments effectively face eviction under what they call an “IRS loophole” that enables the property to be converted to market-priced units after 15 years in service.
Under the IRS amendment, tenants have until Aug. 4, 2019, before their rents are raised to market-price levels. Building owner Front Street Affordable Housing Partners has begun raising rents at vacated units.
To prevent the rent hikes, some Hawaii legislators, including Sen. Rosalyn Baker (D, West Maui-South Maui) proposed Senate Bill 1266 in 2017 authorizing the state and county in a partnership to buy Front Street Apartments through negotiation or condemnation. The bill was held in a Senate-House conference committee.
State Rep. Angus McKelvey (D, Lahaina-Kaanapali-Honokohau) said he and other lawmaker want to see the bill or similar legislation passed in 2018.
The problem is not unique to Hawaii. Ed Gramlich, senior policy adviser to the Washington, D.C.-based National Low-Income Housing Coalition, said foreclosures of low-income housing have been a problem also in Ohio, Pennsylvania, New Jersey, Michigan and Florida. He said his coalition and legal aid advocates in local communities have written to the IRS, urging the agency to issue clearer rules and guidance to states.
The Lahaina landowner, 3900 Corp., a Weinberg charitable trust affiliate, was unavailable for comment, and the building owner, Front Street Affordable Housing Partners, which has a 50-year lease on the land, declined to comment.
Reuben Pali, 50, who was disabled in a car accident, and his wife, Rhonda, 47, who has fibromyalgia, said they pay $840 a month in rent for a one-bedroom unit at Front Street Apartments. A one-bedroom apartment was recently rented to a new tenant at the market-price rate of $1,700, so their rent will likely more than double in less than two years.
“That’s before paying for electricity and water,” Pali said. “It’s all commercialized in Lahaina, so landowners jack up the prices. Everything is sky high.”
Rhonda Pali said she and her husband have started a business teaching guitar, piano, ukulele, violin, singing and music theory to about 30 children, ages 5 to 12, although neither is able to work full time.
She said Reuben, who broke his back in the car accident, has recovered enough to walk but occasionally uses a brace and crutches.
“He has to be careful. He can’t work a whole day,” she said.
Tourism industry workers in resort areas like Lahaina have faced a housing dilemma for years.
In West Maui, where food service employees earn about $1,960 a month before taxes, many work at more than one job. The average monthly rent for a studio in Lahaina is $1,375, according to rentcafe.com.
Some workers live on the edge of homelessness, sometimes staying with friends and family or wherever they can park their vehicles at night.
At Front Street Apartments, residents pay $758 to $923 for a studio and as much as $1,161 for a two-bedroom unit.
The tenants group said 75 to 80 percent of the apartment’s adult occupants work, but many of them are in low-paying positions characteristic of a tourism economy, including salon workers, landscape employees, maids, condominium cleaners, taxi drivers, waiters, busboys, store clerks, part-time construction workers and entertainers. The others are retirees and disabled, including veterans.
County exemptions
In September 1999 developer SunAmerica Affordable Housing Partners Inc. proposed building the 142-unit low-income housing complex on 8.73-acres of land owned by 3900 Corp.
A 1997 market study done for SunAmerica said the cost of homeownership in West Maui was high, forcing many to rent, including the majority of the tenants who work in the visitor industry and can’t amass the down payment to purchase a home.
The Front Street Apartments project was approved as a “fast track” housing project by the Maui County Council on Nov. 5, 1999.
Sunamerica asked for and received a number of exemptions from Maui County because its project was a low-income housing development. A portion of the site was rezoned from residential to apartment, and the number of required parking stalls was reduced by 25 percent.
Maui County also waived requiring the developer to provide 1.5 acres of land for public park purposes and placing off-site utility lines underground along Kenui and Front streets.
Under a government incentive program with help from the state Housing Finance and Development Corp., the project qualified to receive more than $1.5 million.
Since it went into service in 2001, the building and land owners have been charged virtually no land and building taxes.
Federal tax
In 2012 the IRS revised its tax code to help in the resale of low-income housing before the end of its projected life.
In the case of Front Street Apartments, the projected life was 50 years.
A supporter of the revision was the Washington, D.C.-based Affordable Housing Tax Credit Coalition, a national investors-lenders associated group that includes SunAmerica Affordable Housing Partners, the original developer of the Front Street Apartments.
The coalition supported giving the investors an opportunity to offer for sale the low-income housing property under certain conditions.
In a letter to the IRS, the coalition said if investors had no opportunity to recoup their investment or benefit from the potential appreciation of the property during an extended period, then they would be less likely to provide capital or as much capital.
Hawaii appleseed attorney Victor Geminiani, representing tenants, said the developers claimed in 2015 — when they first asked for deregulation — that the property was worth $8.6 million. But in their recent testimony opposing SB 1266, they claimed the current value — after the removal of the affordability requirements — was between $31 million and $47 million.
Geminiani said political leaders need to act now if they want to prevent homelessness and a loss of affordable housing.
“Our political leaders in both the county and the state are going to have to develop a concrete plan to acquire this property,” he said.
Front Street Apartments tenant Marialejandra Pocatera said she and her 6-year-old son could become homeless if the low-income apartment building is able to go through with its plans for a rental increase.
“There is no place for me to relocate in West Maui,” said Pocatera, a survivor of domestic violence who works in a beauty salon and also as an acrobat at a hotel luau. “I appeal to the common sense and compassion of all decision-makers.”
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