State wise to sell housing projects

Following the example set by the city, the state is beginning a process of extricating itself from direct ownership and management of its affordable-housing properties. It is beginning with two projects with built-in financing arrangements that protect the affordability of the rentals for the long term.

These are only the first of the nine state-owned projects to move ahead toward a sale, however. Advocates for Hawaii’s insufficient affordable housing stock must watch the process carefully.

The privatization drive is a welcome one — the state stands to end a long financial drain imposed by the projects. But preservation of that stock must be a paramount concern.

The two housing complexes, Kekuilani Gardens in Kapolei and Nani o Puna in Pahoa, are among those controlled by the Hawaii Housing Finance and Development Corp. (HHFDC). The state will retain ownership of the land — which is essential to maintaining some oversight of the operation — and will give the buyer a 75-year lease on the property. Various financing controls lock in for 40 years or longer.

That buyer is expected to be the Seattle-based Vitus Group, which has considerable experience rehabilitating low-income properties here. Its Hawaii developments include Banyan Street Manor, Lokahi Ka‘u, Kahuku Elderly, Whitmore Circle Apartments, Kekaha Elderly Apartments and, most notably, the revamping of Kuhio Park Terrace.

The two complexes in the deal will continue to be financed through the U.S. Department of Agriculture Rural Development program, which will pick up the cost of the subsidy, said Karen Seddon, the HHFDC executive director.

The financing in the sale plan would mean that tenants will not see an increase in their rent payments; regulations limit their part of the rents to 30 percent of their income, Seddon added, which means a displacement of tenants is not expected to happen.

That is excellent news. State housing agencies have been watching the sale of the city’s 12 affordable rental properties for guidance before moving ahead on its future sales. That’s a good instinct. Seeing that the turnover of tenants was kept to a minimum was a primary worry in hammering out the city deals, too.

Seddon compared the sale to a house refinance, in which the owner can take out some equity to make improvements and to add liquidity. The state had sought to raise rents to pay for needed upgrades to the property, but USDA did not have the funds available to increase its own portion.

Across the country, the process of states and municipalities offloading their low-income housing units has been in progress for 30 years. Hawaii is a bit late to the game, but it’s important that the state jump in with both feet. The average operating losses on these two properties alone are disheartening. Kekuilani Gardens has lost roughly $72,000 annually between 2009 and 2012, and the annual loss over that same period was $132,000 at Nani o Puna.

On other properties, the drain can be even worse. HHFDC tried previously to sell a Hawaii island rental complex on land owned by Kamehameha Schools, but the complication, paired with rising land rents, made the sale difficult. But there’s this incentive to work through the problems: The annual deficit there has been $290,000.

In a state with a great deal of pressing needs, Hawaii simply can’t afford to allow its housing fund to leak like a sieve. The state must divest itself of its projects, selling them to private corporations that aren’t subject to the cost of procurement laws and various inefficiencies.

Then the agency can turn its attention to assembling the incentives that attract private developers of affordable rentals, which is more properly government’s role in the housing industry.