Developers readying affordable apartment projects on Oahu

A handful of new low-rise apartment buildings could start rising soon around Oahu as part of a trial city program aimed at increasing the supply of affordable rental apartments.

Thirteen developers have submitted applications for building permits to produce roughly 300 apartments under a 2-year-old city ordinance that provides incentives for private developers to build such projects in areas zoned for apartment use.

Most of the projects, which range from three to six stories, are sprinkled around the Makiki and McCully areas, though others are in lower Nuuanu, Kapahulu and Kailua.

The applications were mostly submitted in 2019 and 2020, along with a few earlier this year. They represent an initial batch of projects that Mayor Rick Blangiardi hopes to expand by offering developers grants of up to $15,000 per affordable apartment unit through a bill pending at the City Council.

“This is absolutely important for us,” Blangiardi said at a March 17 Council meeting at which the bill advanced toward a possible final approval. “This is to me a real master stroke.”

The incentive program was established in 2019 at the behest of some local developers who said small residential property owners in urban areas needed incentives to make better use of their real estate, which in many cases feature 50-plus-year-old single-family homes in neighborhoods with more dense housing.

The program was established in 2019 as a five-year pilot project offering incentives including a 10-year property tax waiver, density and height bonuses, reduced setbacks from property lines, no required parking and waivers on fees for building permits, wastewater connections and park dedications.

To qualify, sites cannot be bigger than 20,000 square feet and must be zoned for apartment use. Also, developers must rent 80% of units to households earning no more than the median income, which under city guidelines equates to $88,150 for a single person, $100,750 for a couple and $125,850 for a family of four.

Under city guidelines that adjust annually with the median income, maximum monthly rents for such units would initially be $2,361 for a studio, $2,519 for one-bedroom units and $2,975 for two-bedroom units.

Then-Mayor Kirk Caldwell endorsed the initial program and envisioned it becoming permanent if successful.

The city Department of Planning and Permitting has estimated that enough suitable real estate exists on Oahu to produce 14,000 to 15,000 apartments under the program.

However, there also was one condition that developers didn’t like, which was for affordable rental rates to be maintained in perpetuity.

Developers and lenders claimed that this condition rendered the program unfeasible, and lobbied for amendments.

Last year, the City Council modified the program so that affordable rents must be maintained for 15 years.

One of the program’s biggest drivers, local affordable-housing developer Marshall Hung, also asked for cash incentives from the city last year, but no such change was made.

Now Blangiardi hopes to provide grants upon project completion to increase use of the program.

Under Blangiardi’s proposal, Bill 1, grants would be $11.25 per square foot of living space up to $9,000 per affordable unit, or $15 per square foot of living space up to $15,000 per unit if rents are affordable to households earning less than 60% of the median income.

If applied at the standard level, grants could total $27,000 for the smallest pending project — a three-unit complex at 1809-A Dole St. in Makiki on a flag lot behind an existing single-­family house.

The largest of the pending projects is a 40-unit building proposed next to First Christian Church at 1525 Liholiho St. in Makiki. That project could receive $360,000 if every unit received a $9,000 grant.

To receive the maximum, units would have to average 800 square feet.

Bill 1 proposes capping the grant program at $10 million.

That sum could help pay for 1,111 affordable apartments at the $9,000 grant per unit figure.

Scott LaRue, a local developer with plans to use the incentive program, said in written testimony that grant money is critical to moving forward.

“The cost to build is skyrocketing making these project(s) undoable without some assistance,” he said.

LaRue has applied to build a six-story structure with 33 units to replace a two-story building with four apartments built in 1951 at 611 Coolidge St. LaRue bought the McCully property in April for $1.6 million, according to property records, and in June applied for a building permit for construction estimated to cost $4 million.

Among the 13 applications, project costs range from about $1 million to $10 million.

The Department of Planning and Permitting said two of the 13 projects have been approved to date.

City Councilwoman Andria Tupola said at the March 17 meeting that grants are needed to get more affordable apartment units built before the five-year pilot project ends.

“We only have three more years left,” she said. “This is a great idea.”