Movement has been frustratingly slow on construction of affordable urban apartment buildings in Honolulu under a program known as
Bill 7, despite a $10 million pot of grants that’s been set aside to incentivize developers. And so, with the urging of the mayor and the city Office of Housing, the Honolulu City Council is moving to increase payment amounts and to provide them as front-end grants, in hopes of spurring more action.
The City Council legislation enabling this shift, Bill 3, makes sense considering the realities, and the Council unanimously advanced the bill on first reading. It should be passed.
Bill 3 increases the payout for each unit of affordable housing built, and that reflects the current high costs of construction, from interest rates to materials to labor paid at the prevailing wage — which would be required to qualify for these grants. And Bill 3 taps an existing tranche of city general fund money that is crying out to be spent. The $10 million was set aside for developer incentives in 2021 — but only $140,000 has been paid out, reflecting a disappointing lack of interest.
Representing the administration, Office of Housing Executive Director Denise Iseri-Matsubara told the City Council that additional incentives are justified, given current interest rates and high costs for building.
“The city needs to seize this opportunity to be a facilitator and give small, experienced developers the confidence to take on the risk of development,” Iseri-Matsubara said, highlighting a potentially valuable benefit of the program: Creating working relationships with new developers who find it worthwhile to build smaller affordable-housing projects.
If this version of the incentives program gets off the ground, a new pool of developers can add capacity to build infill workforce housing at a more rapid pace. For example, the most recent affordable development built with city incentives, a 26-unit apartment building at 1427 Ernest St. that began renting to tenants in the fall, was raised in under nine months. It was the first Bill 7 project for development partners Paul Lam, Greg Thielen and Evan Amakata.
The city and Oahu’s households need more developers like these to help turn the tide on a swelling unaffordability crisis. The $10 million available is a one-time allotment, and time is of the essence.
Under Bill 3, approved builders would be offered a grant before construction begins — a change from Bill 7’s grant-per-unit upon completion — allowing for a reduction in startup costs. And developers can report Bill 3 pre-construction grants when seeking financing, improving terms, Iseri-Matsubara said.
Bill 3 offers up to $35,000 for each unit that offers rents affordable for those earning 60% of Honolulu’s area median income (AMI). A single worker with an income at or below $55,000 currently qualifies for this housing. For units priced for those earning 60% to 100% of AMI — between $55,000 and $85,000 — the maximum grant would be $25,000.
Residential units can be built on parcels already suitable for dense construction, in residential, commercial or mixed-zoning areas. This is a savvy strategy to keep languishing areas vibrant.
It’s important to see forward movement and hear from developers and the city in a few months, perhaps as the fiscal year ends, about what works and doesn’t, so that efforts to maintain affordable urban-infill momentum can continue.
On the campaign trail toward his first election in 2020, Mayor Rick Blangiardi often pointed to Bill 7 as a city program that could produce results, So the city’s progress in getting housing units up and available will be tied to views of Blangiardi’s success in delivering on promises.
If builders step up in reaction to Bill 7’s incentives and Bill 3’s enhancements, continued funding beyond this first infusion of cash may follow. If developers continue to hang back, however, a failure to produce more affordable housing can only hurt Honolulu’s limited-income households.
