Developer credits bills with making 5-story walk-up complex feasible

A five-story walk-up affordable rental building is sprouting on a small Liliha lot that until recently was occupied by a deserted and dilapidated single-family house.

The developer of the 25-unit walk-up apartment is crediting two recently passed affordable-rental city bills with providing the incentives making the project financially viable.

Derek Lock, owner/developer of the project at 311 Puuhue Place, said the 100% privately financed project he and his partners at HNL Development are undertaking will create 25 one-bedroom, one-bathroom units that will be available by the summer.

The Affordable Rental Housing Bill, commonly known as Bill 7, provides landowners and developers of smaller residential parcels (lots no greater than 20,000 square feet) breaks on fees and taxes, as well as some other key concessions, in exchange for putting up an apartment with a minimum of 80% of the units at affordable rates as set annually by the U.S. Department of Housing and Urban Development.

Under HUD’s guidelines for 2020, an individual generating 80% of Oahu’s median income is making a maximum $70,560; a couple, no more than $80,640; a three-person household, a maximum of $90,720; and a family of four, no more than $100,720.

Using 30% of income as a general guideline for housing expenses, rents in 2020 dollars would need to be no more than $1,890 for a one-bedroom unit.

Lock said the units in his building will start at $1,100 a month, much lower than what’s required.

Only two applications were filed initially after Bill 7 was signed into law in May 2019. But that bill said the developer or landowner needed to keep the affordable units in that price range in perpetuity in exchange for the incentives.

But a second measure, Bill 60, that became law in June, got rid of the “in perpetuity” clause in the law so that the developer only needs to keep the units affordable for 15 years.

While no one opposed Bill 60, the Building Industry Association of Hawaii and EAH Housing submitted written testimony raising concerns against lifting the rent caps.

But Mayor Kirk Caldwell said the Bill 60 amendments to the original ordinance have made a difference. “More people have stepped up,” Caldwell said. “And they stepped up in a pandemic, which is really important.”

Nine applications have been submitted to the Department of Planning and Permitting seeking the incentives. Two of them, including Lock’s project, have been approved so far.

The nine projects total about 214 units. “All smaller sizes, but it adds up and it starts to make a difference,” Caldwell said.

Among the major incentives being provided: greater density, taller allowable heights, less setback, no required parking, waivers from building permit application and wastewater facilities charges, no park dedication fees and a 10-year tax waiver on property taxes.

The incentives could save a developer thousands of dollars per unit. Lock told reporters Tuesday exactly how much his project is saving has yet to be determined.

“This is a big give in our minds that will hopefully incentivize more developers or small landowners,” said Kathy Sokugawa, acting director of the Department of Planning and Permitting.

The two laws are to be in place for a five-year experimental period ending in 2024, Sokugawa said. During that time, DPP will analyze how the incentives are affecting the housing market.

“We really want to encourage the private sector,” Sokugawa said. “As the mayor said, this is an opportunity for smaller projects, (in) in-fill neighborhoods in the Primary Urban Center, our downtown area. A lot of people have a little patch of land that they really haven’t figured out how best to use it. This is one option.”

Lock said he believes the building he and his partners are constructing will be the first of many as a result of the new laws.

The two laws are exactly what’s needed “to redevelop small, underutilized parcels of land in Oahu’s apartment-zoned neighborhoods to create affordable rental units,” Lock said. “What stood here before was an old, old single-family home built in the 1940s. The structure had been in disrepair. No one had been living in it for years. … It had become the neighborhood eyesore, dumping ground and liability.”