Kevin Carney: Vice president of EAH Housing wants more developers to build affordable housing

EAH Housing, where Kevin Carney is vice president, is one of the Hawaii specialists in the mission to fill the enormous gap in its supply of affordable housing. And Carney sees the needle moving — the nonprofit is developing the Nohona Hale “micro-units” in Kakaako, as well as 78 senior rentals in a project at the former Heald College site on Kapiolani Boulevard.

But it’s not moving fast enough, Carney said, and without enlarging the mandate to build affordable units, Hawaii will continue to lag.

He favors an “inclusionary” housing policy that would require developers of all kinds of projects, not just residential, to be pressed to build affordable units as part of their permitting deal.

He acknowledged that developers instead advocate for building more houses at all price points, to increase the inventory, with a “trickle down” effect when occupants move up and leave the cheaper units for the poorer tenant.

“I don’t buy that theory — here in Hawaii, in particular — because we’re a limited land mass,” Carney said. “You only have certain choices. It may work on the mainland, bigger cities, where you can drive to afford. In Hawaii, you can’t drive very far to afford.”

He applauded the governor’s outreach to developers for other ideas, which have started to bubble up to the surface. One is to remove the cap on conveyance-tax revenue that goes to the rental housing trust fund; another is to reduce the state review procedures that apply to affordable housing, speeding up the process.

Carney got his bachelor’s and master’s in business administration from Chaminade University upon his discharge from the Navy, at the urging of his wife (they had the first of three children to support). Until 20 years ago, he worked in the for-profit world.

And though he’s now “beyond retirement age,” Carney has no plans to hang it up.

“I just love what I’m doing so much,” he said, “that’s why I’m still here.”

Question: What is the timetable for the construction of the Nohona Hale micro-units in Kakaako?

Answer: Let me clarify that this a joint-venture project with our partners BronxPro, out of New York City, with EAH being the minority partner but also the property manager for the project.

Nohona received its funding allocation from HHFDC (Hawaii Housing Finance and Development Corp.) earlier this year and we are in process of applying to the City & County of Honolulu for an HRS 201H exemption/waiver of various fees, which is typically granted for affordable rental housing. If we stay on schedule, we expect to break ground in March/April of 2018.

Nohona Hale will consist of 111 micro-units of approximately 300 square feet plus a 70 square feet lanai serving those with incomes at or below 60 percent of the area median income (AMI) — a truly affordable rental housing community.

Q: Is this model of housing replicable elsewhere in Hawaii? What challenges have you discovered?

A: Yes, we certainly hope so, particularly for small parcels located in close proximity to the proposed rail stations. Nohona Hale is a transit-oriented development (TOD) project located very close to the planned rail transit station in Kakaako. This is a unique project, I believe the first micro-unit development in Hawaii: a 16-story building providing 111 living units on a trapezoid-shaped parcel that is less than 10,000 square feet with 75 feet of street frontage. The lot will be provided by Hawaii Community Development Authority (HCDA) on a long-term ground lease of $1 a year. Given the lot size constraint and the TOD designation there will be three parking stalls, primarily for site staff. To mitigate parking we are providing a large area for bicycle and moped storage and looking at a car share program. The primary challenges were in designing the building to maximize the use of a very tight and odd-shaped infill parcel.

Q: What’s involved in lining up the money for these projects?

A: Financing affordable rental housing to serve those at 60 percent of the AMI and below is always a challenge. All of the housing studies conducted for Hawaii over the last 10 or more years will tell you that the greatest need for housing is at income levels below 80 percent AMI. This translates to a huge need for rental housing, not for-sale housing, and the need for large government subsidies to enable developers to build to serve these lower income levels.

Our primary source of equity is the Low-Income Housing Tax Credit (LIHTC) Program regulated by Section 42 of the IRS Code. Last year our state Legislature increased the value of the state LIHTC by reducing the period in which the credits can be taken from 10 years to five years. This makes the credit more attractive to investors who are then willing to pay more for it.

The more equity we are able to raise via the LIHTC program, the less we depend on other sources like the state’s Rental Housing Revolving Fund (RHRF) or other sources administered by the counties.

Q: How do you think transit-oriented development will play out, with affordable housing as a goal?

A: We have concerns but remain optimistic. It depends on how you define affordable. To us affordable is rental housing serving those at 60 percent of AMI and below. To others it may be a for-sale product up to 140 percent of AMI. For our product we need free land, and that could be a problem along the rail line.

Q: Besides land costs, what do you see as the primary impediments to building affordable housing here, as opposed to your projects in California?

A: There are many challenges to building affordable housing in Hawaii: … shortage of developable land and residentially zoned land, lack of infrastructure, … cost of materials, insufficient funding sources to serve lower AMI levels, competitive funding sources and timing of applications.

Last legislative session, Sen. (Will) Espero, chair of the Senate Housing Committee, introduced a bill to raise $2 billion to help solve our housing crisis. That is the kind of initiative that is needed, but it got nowhere.

California is now putting a $4 billion bond issuance on the ballot to help with their housing crisis. We will see if California takes their housing crisis more seriously than Hawaii does. I expect they will.

Q: Do you have concerns about funding becoming less available with the conservative turn in federal governance? What alternative sources may be possible?

A: Conservative or liberal, we are always concerned about our funding sources when it comes time to balance the federal budget.

Over the past year we have been particularly concerned with the proposed reduction to the corporate income tax rate from 35 percent to 20 percent. This proposal has already impacted proposed tax credit properties in the pipeline across the country.

A reduction in the corporate tax rate means a reduced appetite for tax credits thereby reducing their value and the amount of equity we can raise via tax credits for our projects. This means we are forced to rely more on local state and county sources like our RHRF, County Affordable Housing Funds and the HOME and Community Development Block Grant programs funded by the federal government but administered by the counties.

Q: What led you to this career path? Do you find working in this sector satisfying?

A: Pure luck led me to developing and managing affordable rental housing. I had previously worked for 15 years at Kaiser Development and their successors in Hawaii Kai doing commercial development and management. After assisting with the sale of our properties, I found myself out of work.

I responded to a newspaper ad and was hired by EAH to open their Hawaii office in February 1997. …

Developing affordable rental housing has proven to be extremely frustrating and yet very rewarding. The frustrating part is knowing that the demand is beyond what we will ever be able to provide because of the above mentioned challenges.

But the gratitude and smile on our residents’ faces as they move into a new or rehabilitated housing community makes it all worthwhile. That is why we continue to do what we do.