Large-scale residential construction is dramatically lagging demand for new homes on Oahu. Yet the imbalance is making it an attractive time for developers of small-scale housing projects.

In Kalihi, construction is about to start on 17 homes next to The Towers at Kuhio Park, formerly Kuhio Park Terrace.

In Wahiawa, 24 new homes are planned on the edge of the largely rural town.

And in McCully, sales have gone well for an envisioned nine-unit condominium building.

These projects aren’t high-profile. And they typically don’t make headlines. But developers adding several new homes here and there are clearly busy.

Christian O’Connor, a former Kamehameha Schools asset manager involved with the trust’s master plan for several residential towers in Kakaako, said it was an opportune time for him to become a boutique independent developer and launch the McCully condo project called Hau’oli Lofts.

"There’s not a lot out there," he said, referring to new-home inventory.

Hau’oli Lofts is a seven-story building with nine units planned on a 10,000-square-foot lot bought a year ago by Centre City Development LLC, a firm O’Connor started with arts industry entrepreneur Wei Fang.

Construction is expected to start in June or July. Seven of the nine units have been sold. Prices range from $697,000 to $828,000 for the units designed to have three bedrooms, two bathrooms and 19-foot ceilings in the living/dining area.

"The interest level was pretty intense," O’Connor said.

The state Department of Business, Economic Development and Tourism published an updated report this month on housing supply and demand in Hawaii, and projected that about 65,000 new homes are needed statewide over the next decade, or about 6,500 a year.

Developers, however, have been producing about 2,400 new homes annually since 2009 compared with 6,000 to 7,000 during the 1980s and 1990s, according to the report. Most of the need and production is concentrated on Oahu.

"There has not been a sustained increase in private residential construction," the report said. "Because of constrained supply and increased demand in the Honolulu metro area, housing prices reached an all-time high in 2014."

Median prices last year reached a record $675,000 for single-family houses and $350,000 for condos.

One developer trying to capitalize on high prices and low supply is set to break ground next week on a project that involves building or renovating 26 homes in Kalihi next to the Towers at Kuhio Park.

California-based Blue Mountain Homes acquired a 2-acre site along Coombs Lane in October, and plans to build 16 new homes after demolishing 16 homes dating from between 1914 and 1949. The project also includes renovating four duplexes and building one new duplex.

Base prices for homes at Kauhale Gardens range from about $425,000 to $725,000.

Luke Monroe, director of acquisitions for Blue Mountain, said the real estate market dynamics on Oahu presented a good opportunity. 

"There’s not a lot of new construction going on," he said.

Most new homes on Oahu are produced by big developers such as D.R. Horton, Gentry Homes, Haseko (Hawaii) Inc., Castle & Cooke Homes, Alexander & Baldwin Inc., Stanford Carr Development and Howard Hughes Corp. These companies typically own or acquire large parcels and often go through lengthy regulatory procedures to build high-rises or subdivisions with hundreds of units.

Small developers, by comparison, often try to build on remnant parcels of existing subdivisions or small lots bought from local families that had not maximized building on their property.

One increasingly active local player in small-scale housing development on Oahu is The Green Waters Group, headed by Tyler Greene and Chad Waters of Bridge Real Estate Hawaii.

The firm aims to develop 24 homes in a project dubbed Ka’ala Highlands on a mostly vacant 3.7-acre parcel zoned for residential use on the edge of Wahiawa town, bordering part of Kaala Avenue. 

Green Waters also is working on developing a cluster housing project called Waikalua Bayside in Kaneohe with 20 homes, and a subdivision of 23 homes called Olomana Heights on farmland in Kailua.

Another small-scale housing project in Kailua by a different developer is nearing completion near the edge of the town’s commercial core. A company affiliated with Kailua commercial real estate management firm 50th State Management Corp. is building 24 residences in a four-story building on a site formerly occupied by two single-family homes on Wailepo Street near Hardware Hawaii.

The company, 50th State Investments LLC, led by Aaron and Evan Scherman, also turned an adjacent existing home into four more residences.

Sometimes trying to intensify density on relatively small parcels can be a bad fit for a community.

Vineyard Investment Realty, led by Patrick Low, sought to build 42 homes plus a community center and preschool on 2 acres on Ilima Street in Wahiawa occupied by 13 dilapidated homes. That plan drew opposition from the Wahiawa-Whitmore Village Neighborhood Board and was amended to a less dense proposal that received a city permit in October.

Low’s new plan will add six homes to the cluster of 13 existing homes that the developer plans to renovate and also sell.