A maze of regulations

If Oahu land-use authorities could channel their counterparts in Santa Clara, Calif., some affordable-housing developers in Hawaii would count that as a real plus.

At least, that’s the perspective of Mary Murtagh, chief executive officer of EAH Housing, a California-based nonprofit corporation that specializes in affordable rental development and management. EAH recently opened a project in Ewa, The Villages of Moa’e Ku.

Murtagh was in town for that event and, along with Kevin Carney, EAH’s Hawaii director, sat down with the Star-Advertiser editorial board to discuss obstacles to affordable-rental development. Mostly, she said, they involve bureaucratic delays while developers confront a tight timetable for needed approvals.

Most cities, like this one, present developers with an obstacle course for housing projects, one already complicated by the hurdles of the public financing options that underwrite construction. Santa Clara, Murtagh said, was different.

"They would bring in the head of every department and sit around a table, review your plans collectively in one big meeting," she said. "They were really pro-development. They wanted to help you, where most cities will put you through serial torture."

In one way, Honolulu is similar to Santa Clara: It’s a place where high property values contribute to the high cost of housing. In Hawaii the resulting shortage in affordable housing — especially rentals, which are all that the below-average wage earners can afford — has reached crisis levels.

Overall, the need for housing units across all income groups between 2015 and 2025 is estimated roughly at 50,000-60,000 units, said Craig Hirai, executive director of the Hawaii Housing Finance and Development Corp. (HHFDC). Hirai, who took the figures from a 2011 housing study, was addressing lawmakers at a joint committee briefing on housing and homelessness on Wednesday.

State Sen. Suzanne Chun Oakland, the Senate’s housing chairwoman, reminded the gathering that the same study shows about half the total need is for units priced somewhere on the affordable scale, below 140 percent of area median income (AMI). The private sector can handle anything above that line, she said; public-private partnerships are necessary for affordable homes.

Hirai added that the near-term need for rental housing among lower-income households — those earning 80 percent of AMI or less — was about 19,000 statewide.

But the most critical need is for families earning at 60 percent AMI and below, Murtagh said, which is where EAH is focused. For example, that would target individuals earning no more than $40,260, and families of four with an income of $57,480 maximum.

In order to make projects pencil out at this level, government financing is needed. The primary sources include the Low-Income Housing Tax Credit Program, administered by the Internal Revenue Service but allocated to each state on a per-capita basis. The allocation is based on a simple population count, whatever the socioeconomic mix of the state, Murtagh said.

"Hawaii is disadvantaged because of that, because we’re in a very, very high-cost economy here, with very low-wage employment market and a small population," she added.

Besides the limited availability of financing, the other problem is coordination, Carney said. Tax credits, managed by HHFDC and another federal financing source — the HOME Investment Partnerships Program, which on Oahu is administered by the city — operate on separate application calendars. The tax credit application deadline had been January but recently was postponed until April, he said.

"If you need HOME funds for gap money — that’s processed on the city side, through the Department of Community Services — the application process is in November, and you won’t get the funds for four, five, six months later," Carney added.

"The city could talk to the state, or the state talk to the city, and put those two processes closer together."

Some of this may be out of the reach of local government to change, because the federal budgeting process is involved, and the federal fiscal year starts Oct. 1.

Regardless, time is money, or the loss of it. On a 9 percent tax credit — the most commonly tapped resource for new construction of affordable units — "you have two years from the year you’re awarded to complete the project and open it up," Carney said. "So the later in the year you get awarded, that means the less time you have."

Miss that deadline, he said, and "your equity goes out the door.

"At one point in time we had to give back credits because we realized we just weren’t going to make the deadline because of design delays or permitting delays, or whatever," Carney said. "And that’s not a good thing to do, believe me, because it ruins your track record with HHFDC, and you get points based on your experience and how well you perform."

There are other sources affordable housing developers must tap to complete the "layer cake" of financing for the project, Murtagh said, so it’s an incredibly complex undertaking — and hardly surprising that developers aren’t lined up to take on such projects, no matter how much everyone agrees that affordable rentals are needed.

A group of them were called together this weekend for a Housing Summit, organized by the advocacy group Faith Action for Community Equity, better known as FACE.

At the top of the agenda was a discussion of prospects for affordable rental housing, especially given the city’s proposal to raise the bar of what’s required for developers seeking city approvals, and the proposal by the Hawaii Community Development Authority (HCDA) to tighten its own affordable housing requirements.

Drew Astolfi, FACE executive director, agreed that city-state coordination should be much better than it is, and is essential to successfully boosting production of rental units.

"A bunch of housing deals that collapsed would have succeeded if that had been true," Astolfi said.

He expressed no small measure of cynicism about how the process works, especially in urban Honolulu. There is a whole industry built around shepherding permit applications through the byzantine process, Astolfi said.

"This long-term messing around serves only one interest: the bureaucrats who are close to the planning companies that will do your permitting," he said.

In his legislative presentation Wednesday, Hirai pointed out the need for "interagency collaboration," though he offered no specifics. He agreed with other industry experts that transit-oriented development along the Honolulu rail corridor presents real opportunities for a coordinated plan of attack.

Pending approval of Gov.-elect David Ige, Hirai said, HHFDC will propose legislation that includes adding an incentive for the development of rental housing targeted at lower-income households; and restricting an existing tax-exemption incentive to projects that will remain affordable for the long term.

Another bill, he said, would authorize HHFDC to use up to $5 million of the share of the state conveyance tax that goes to the Rental Housing Trust Fund, "to be pledged toward the repayment of revenue bonds that would be used to finance affordable rental housing.

"This would allow us to, on a one-time basis, generate a large Rental Housing Trust Fund balance to address short-term shortages in affordable rental housing, statewide," he said.

Policy proposals aside, the more practical scene at the ground level seems pretty frustrating. Carney said EAH has been waiting nine months for approvals to rehabilitate a project in Mililani: Kalani Gardens Apartments. The main holdup seems to be clearance of a review concerning facilities for disabled residents, he said.

"The bottom line is if they would come up with a third-party review process, we would be under construction up there right now," he said.

"But we’re just sitting there, and actually, it’s affecting our investor," Carney added. "The investor wants to close this fund by the end of December this year. They’re saying if this project doesn’t get moving, we’re going to lose the investor, and that means we go out fishing again and try to find another investor."