Program’s fairness challenged

Anna Azevedo became the owner of a new $176,650 home on Department of Hawaiian Home Lands property earlier this year after spending 26 years waiting for a homestead. But her house — affordable by Hawaii standards — was built with a tool that could reduce the number of affordable-housing units for non-Hawaiians.

The tool is a relatively new and controversial credit program that has largely simmered out of public view.

When a county requires developers to build a certain number of affordable-housing units in exchange for approving large-scale residential or resort projects, the developers have the option of buying credits from DHHL instead of building low-cost homes.

The credit program was established by the Legislature and signed by Gov. Linda Lingle as Act 141 in 2009.

County officials have been worried that cashing in the credits will reduce or even wipe out development of affordable housing outside of DHHL projects that are restricted to Native Hawaiians.

"This could seriously compromise the city’s ability to distribute affordable housing," the Hono­lulu Department of Planning and Permitting warned five years ago. "Residents without Hawaiian ancestry could be at a disadvantage with less affordable-housing units available in the county-wide inventory."

County officials are also concerned the DHHL credits could result in less diversity. Affordable housing under county policies is supposed to be integrated into new developments, not pushed off to other areas.

Two counties even raised the question as to whether DHHL credits violate federal law prohibiting discriminatory housing policies.

No developers have cashed in DHHL credits yet, but some county officials are bracing for the impact when they do.

"Affordable housing credits issued to DHHL and then transfered only serve one specific ethnicity — a small fraction of Hawaii’s population," Kamu­ela Cobb-Adams, housing director for Kauai County, said in written testimony on a bill this year seeking to refine the law covering DHHL credits.

DHHL defends the credits, saying they give the agency more resources in the midst of diminished state funding to develop homes for its Native Hawaiian beneficiaries, many of whom have waited decades for homesteads.

DHHL has taken 1,296 credits to date. In 2009 the agency figured each credit is worth between $75,000 to $125,000, according to minutes of a meeting with beneficiaries. At that price, DHHL’s credits total between $97 million and $162 million.

Act 141 qualified all "existing and future" DHHL homes for credits. The agency has asked for and received credits for homes built more than a decade ago.

Some county officials are concerned those credits could lead to a downturn in affordable-housing construction.

Before Act 141, county governments controlled programs through which they required private developers to produce affordable housing in instances typically where zoning changes were granted for new large-scale residential or resort projects.

The number of required affordable homes varies from 10 percent to 50 percent of units in such projects. Buyers or renters for these homes have to meet certain restrictions, such as not already owning a home and earning no more than 140 percent of a county’s median income.

DHHL isn’t bound by these rules, and was given wide latitude in obtaining credits for property — including undeveloped lots in some cases.

DHHL, which said it is the largest developer of affordable housing in the state, initially sought legislation for the credits as a way to attract assistance from private developers to produce homes for more of the roughly 20,000 Native Hawaiians on its homestead waiting list.

The department told lawmakers in 2009 that credits would be a way to produce affordable housing during the economic recession that had put a damper on residential development statewide, including homes produced under county requirements.

"This bill would allow DHHL to provide homes to its beneficiaries and alleviate the housing crisis; a true win-win situation," then-DHHL Director Micah Kane said in written testimony.

Developers and development industry groups including the Land Use Research Foundation of Hawaii, the Hawaii Developers Council and the Building Industry Association endorsed the proposal.

"By increasing the supply of homes on DHHL lands, we are increasing the overall supply of homes in our state, and making more homes available to the general public," Debra Luning, director of governmental affairs and community relations for Gentry Homes Ltd., said in written testimony.

Some county officials objected to the move.

"Although (the bill) may provide DHHL with additional funds, it comes at the expense of non-Hawaiians by reducing the amount of affordable housing units for private developers who purchase the credits," wrote David Tanoue, then-director of Hono­lulu’s Department of Planning and Permitting.

Concerns also were expressed about DHHL not being bound by a requirement that homes be in the same area as the project that generated the requirement so as not to create income-stratified neighborhoods.

One major county goal is having neighborhoods integrated with affordable and market-priced housing. Counties do this by requiring that affordable housing is built on the same site or region as the project that triggers the requirement to produce affordable homes. Diverting affordable housing to DHHL land, however, counteracts this intent by concentrating homes for lower-income residents together, some county officials have said.

Despite the concerns of county officials, lawmakers passed Senate Bill 1268 almost unanimously, but inserted language to repeal the law June 30, 2015. That bill became Act 141.

In 2012 another bill was introduced and passed to add more value to DHHL credits. That prompted elevated concern from Tanoue, who said there was danger that no new affordable housing would be produced outside of DHHL homesteads.

"Based on the potential amount of credits that could be awarded to DHHL, Oahu residents of non-Hawaiian ancestry might not have any opportunity for an (affordable) unit offered under our program," he said in written testimony. "If the other counties are in a similar situation as Hono­lulu, then there is a real possibility that no (affordable) units would be available within the state in the near future."

Tanoue said Hono­lulu’s program has produced more than 14,000 homes over 30 years without state support, and suggested that the state adopt a strategy to boost DHHL housing development without detracting from county production efforts.

Representatives of Kauai and Hawaii counties also opposed the DHHL credit law. Maui County administrators have not raised concerns, though past Maui County Council Chairman Danny Mateo opposed the credit program.

Hawaii County’s Office of Housing and Community Development indicated that it had discussions with the U.S. Department of Housing and Urban Development and believes the DHHL credit law violates federal fair housing law by benefiting one specific ethnic population. Kauai County officials raised a similar concern.

HUD was unable to comment on the issue over several days. DHHL said it has been working with county officials to address their concerns.

Earlier this year five bills were introduced with DHHL support to extend or make permanent Act 141. None passed.

"Since Act 141 was passed by the Legislature in 2009, this program has been very successful for DHHL," Jobie Masa­ga­tani, DHHL director, said in written testimony.

George Atta, director of Hono­lulu’s Department of Planning and Permitting, urged lawmakers to repeal Act 141.

"It undermines the ability of the counties to provide new affordable housing to all its residents within county-defined income need groups, on a time schedule commiserate with private sector construction, and in geographic areas where the counties believe affordable housing is warranted," he said in written testimony. "The goal should not be to redirect the resources and/or opportunities from one branch of government at the expense of another."

Of the five bills, one that would permanently extend Act 141, House Bill 2286, advanced through seven House and Senate committee hearings but expired on the hectic final evening of this year’s legislative session in April when conference committees ran out of time to pass many bills.

DHHL intends to work with the next governor to introduce another bill next year that would continue the affordable-housing credit program, according to agency spokes­man Puni­aloha Chee.

Of the 1,296 credits given to DHHL to date, the City and County of Hono­lulu issued the most — 729 — followed by 479 from Maui County and 88 from Hawaii County. Kauai County has not issued any credits. Hono­lulu officials also said they expect to issue roughly 600 more credits shortly.

Projects for which DHHL has claimed credits on Oahu are its Kau­puni subdivision in Wai­anae, Kau­pea and Kane­hili subdivisions in Kapo­lei and the Kumu­hau subdivision in Wai­ma­nalo.

On Hawaii island, credits included a 37-unit first phase of a project called Lala­milo, a project called Kau­mana and two homes built by Hawaii Community College students through a program that has produced 47 homes for DHHL since 1965.

One of those HCC homes was Aze­vedo’s. The other was a $199,935 residence sold in 2012 to Denice Keliʻi­koa, who had been on DHHL’s waiting list since 1986.

DHHL said it has not sold credits for cash, but has used credits to reduce the cost of some homes built for beneficiaries by providing credits to developers who helped construct homes on DHHL land.

To date, DHHL said it has transfered 387 credits. Dow­ling Co., a Maui development firm, received 372 credits, according to Maui County.

The developer received the credits for homes it completed for DHHL between 2001 and 2008 — before Act 141 was enacted — at projects called Villages of Lei­­ali‘i and three phases of Wai­‘ehu Kou.

DHHL said those projects qualified for credits because some elements of the overall projects were not finished as of 2009. The agency also said it will not ask for credits for other projects going further back.

Dowling Co. President Everett Dow­ling submitted written testimony on the 2012 bill modifying the credit program, saying DHHL credits provide private developers an alternative for satisfying county affordable-housing requirements and that such credits would help jump-start long-stalled projects and employ construction workers.

Dowling did not respond to requests for comment for this story. However, in a 2006 video produced by the developer and DHHL, Dow­ling said building affordable homes for Hawaiians benefits everyone.