A big, unconventional idea to end Oahu’s affordable-housing shortage at no long-term public expense has been diminished at the Legislature after three years of effort.

State lawmakers recently received an updated study of a proposal to have a state agency develop and sell leasehold high-rise condominiums on state land at cost, under a model that could produce thousands of homes at affordable prices for buyers with lower- moderate incomes.

The analysis concluded that a key element in the plan — selling condos with 99-year land leases — isn’t workable despite some parts of the plan holding promise.

“Although there is an appetite for greater state involvement in expanding affordable home-ownership opportunities — evidenced by discussions with Hawaii residents for the purposes of this study — there are too many barriers to the concept for it to be feasible,” the report said.

The report was produced by the Hawaii Budget and Policy Center of the nonprofit Hawaii Appleseed Center for Law &Economic Justice at the direction of lawmakers after consideration of an initial bill in 2019 that proposed establishing a program for leasehold condo development on state land.

Dubbed ALOHA Homes (Affordable Locally Owned Homes for All), the plan led by Sen. Stanley Chang is modeled after a long- running similar program operated by the government of Singapore.

Chang, (D, Diamond Head- Kahala-Hawaii Kai), chairs the Senate Committee on Housing and envisioned the high-density leasehold housing program to produce homes on state land within a mile of city rail stations on Oahu.

Under the ALOHA Homes plan, an upfront investment by the state to produce an initial bunch of homes would be fully recouped from condo sale proceeds, which then could be plowed back into a second project and then a third, and so on.

During the land lease period, condo buyers would own and maintain their buildings. At the end of 99-year land leases, ownership of the homes would revert to the state.

Chang has previously estimated that 270 acres of state land near planned rail stations could be used to produce 67,500 condo units, including land next to Aloha Stadium, Leeward Community College, Honolulu Community College and McKinley High School.

The ALOHA Homes concept attracted backing from Gov. David Ige and a handful of lawmakers, but bills to establish the program have not passed in each of the last three years.

Early last year, the Hawaii Appleseed affiliate produced a preliminary analysis of the plan that found demand for leasehold condos was likely high, while many program provisions could address the housing needs of many residents priced out of local home ownership.

Early findings in the study concluded the state could produce leasehold condos with 1,000 square feet of living space, including two bedrooms and two bathrooms, for $400,000, which was more than Chang’s projection of $300,000 but still affordable to households earning about $80,000 a year, or 80% of the median income in Honolulu.

By comparison, a similar market-price home would cost about $600,000 from a private developer largely because of land costs, higher financing expenses and profit margins, the study said.

Study authors, however, said they needed more time to assess the contentious issue of using public land for leasehold housing.

In the finalized report delivered to lawmakers last month, study authors said a big problem with leasehold home ownership is that the value of such homes begins to drop markedly when the remaining term of the land lease gets below 40 years. At that point, someone wanting to sell such a home would have fewer options because buyers would face difficulties financing a purchase.

Singapore, the report noted, addresses this issue by buying out leaseholders near the end of a lease. Doing this in Hawaii would be inconsistent with the ALOHA Homes premise of the program being revenue- neutral to the state.

The report also noted that other places with leasehold housing on government land allow land leases to be renewed, and that doing this in Hawaii would raise legal, political and moral concerns over the alienation of ceded state land that formerly belonged to the Kingdom of Hawaii and is supposed to retain a trust obligation benefiting Native Hawaiians.

Another issue mentioned in the report is whether ALOHA Homes owners could convince or force the state to sell the land under their homes in the future.

“Important differences between Hawaii and Singapore, upon which ALOHA Homes is based, make it impossible to replicate Singapore’s success,” the final report said.

Citing the report’s conclusion, the agency called on to carry out leasehold condo development, the Hawaii Housing Finance and Development Corp., recently declined to support a pending bill for establishing the ALOHA Homes program.

“Given the results of the study, HHFDC is unable to support this bill in its current form,” Denise Iseri- Matsubara, the agency’s director, said about Senate Bill 3261 at a Feb. 3 hearing held by the Senate committees on Housing and Government Operations.

Hawaii Appleseed testified that it would still be worthy to pursue a smaller scale of leasehold condo development at cost on non-ceded state land, which is in more limited supply and includes land purchased after statehood.

“The legislature’s passage of some version of ALOHA Homes would help address a significant housing need for an important segment of Hawaii residents,” the organization said in written testimony.

Unlike versions of ALOHA Homes bills in the last three years, SB 3261 was drafted to exclude ceded lands from use.

Chang said the program could still have a big benefit under this condition.

“There’s still many, many parcels that are not ceded,” he said. “I still think that this continues to have the ability to supply enough homes to meet demand for Hawaii.”

Chang noted that Aloha Stadium is on non-ceded land and could accommodate as many as 100,000 homes if very high density were allowed. However, state lawmakers previously approved a plan to have private developers build a new stadium surrounded by mainly commercial uses and some housing on the 98-acre site in Halawa.

The two Senate committees passed SB 3261 unanimously after agreeing to amend the bill in hopes of improving its chances for becoming law.