Ige balks at Kakaako affordable-housing rule amendment

Gov. David Ige is not approving new affordable-housing rules for Kakaako over one element in the comprehensive overhaul proposed in September.

The governor publicized his decision Thursday, saying that one of the provisions in revised rules crafted by the Hawaii Community Development Authority intended to preserve inventory of affordable homes built by developers is too extreme and might actually reduce production of such homes.

In a letter to HCDA board Chairman John Whalen dated Jan. 24, Ige took issue with lengthening the period during which the agency can buy an affordable home from the original purchaser at a higher, but limited, price, to 30 years from five years.

The buyback rule is intended to let HCDA resell affordable homes at below-market prices to other residents with moderate incomes, and thus extend the supply of midpriced affordable housing. But Ige said in a statement Thursday that he is concerned that this rule would inhibit developers from financing new projects and thus hurt production of affordable homes for first-time buyers.

“I support creating a mechanism to stabilize resale prices including an equity sharing program for workforce housing,” he said in the statement. “However, the proposed 30-year restriction on for-sale units is too extreme.”

In his letter to Whalen, Ige said similar well-meaning housing rules on the neighbor islands failed to produce more affordable units and instead had the opposite effect.

Ige spokeswoman Cindy McMillan cited a 25-year buyback policy for Maui County from 2006 to 2014 that resulted in three sales, and a current 20-year term on Kauai that has resulted in no affordable housing from developers.

“Increasing housing production is one of my top priorities, and any proposed amendments to the rules must balance affordable mandates with adequate incentives to offset costs, or losses, to make projects financially feasible,” Ige said in the letter. “We cannot afford to make a mistake with our affordable housing policies given where we are in the construction cycle and low interest rate environment.”

Ige said he would be open to considering a 10-year buyback term that is more consistent with other state policies that have proved viable.

HCDA’s board is interested in hearing more details about Ige’s concerns before it considers whether to revisit its decision, which was made after more than two years of study and five public hearings last year.

During those hearings, developers complained that the proposed new rules would hurt affordable- housing production, while affordable-housing advocates disagreed and said proposed lower income limits for affordable-home buyers weren’t reduced enough. The board’s final vote was split 6-3.

HCDA rules generally require that developers reserve 20 percent of new homes in large projects — mainly condominium towers — for residents with incomes up to 140 percent of Honolulu’s median income, which the agency calculates to be $84,900 for one person, $97,000 for two people and $121,250 for a family of four.

Maximum home prices for such buyers could be around $505,000 for a single person, $580,000 for a couple and $720,000 for a family of four.

Under the proposed new rules, buyers would still be allowed to earn up to 140 percent of the median income, but prices on average would have to be affordable to households earning 120 percent of the median income. This would make the average condo price around $430,000 for a single person, $500,000 for a couple or $610,000 for a family of four.

Prices for affordable homes are generally below what they would sell for on the open market, so HCDA requires that initial buyers share part of any profit when they sell, and this “shared appreciation” applies regardless of how many years later the home is sold.

The agency said that based on historical Oahu home price appreciation and a formula for buyback prices, a buyer who paid $400,000 for an affordable home could retain a $100,000 profit in a sale to the agency after five years.

Initially, HCDA proposed an unlimited time frame for buying back affordable homes so it could resell affordable homes to other moderate-income residents. Part of the rationale was that the agency was helping moderate-income residents buy their first home for less than market price, yet these homes could be sold to investors or other market-price buyers after five years, especially during times of strong price appreciation.

As a compromise that took public testimony into consideration, HCDA proposed the 30-year term.