The state Department of Hawaiian Home Lands is pursuing its biggest homestead development initiative in history, but one expanding piece of the plan aimed at helping low-income beneficiaries is distressing some stakeholders.

At least 500, and maybe more than 1,100, rental homes are part of the agency’s goal to deliver roughly 6,000 homesteads for beneficiaries over the next several years.

These rentals, mostly single-family homes but also one town house complex, would be reserved for low-­income beneficiary households who would have an option to buy their rental unit after 15 years and obtain a homestead lease.

Such low-income rent-to-own housing isn’t new to DHHL, but the big current push is causing some division among beneficiaries and the Hawaiian Homes Commission.

Much of the concern involves low-income beneficiaries on DHHL’s waitlist receiving a homestead lease before beneficiaries who have been on the waitlist longer but don’t qualify by income.

DHHL has traditionally awarded residential, agricultural or pastoral homestead lots to beneficiaries under 99-year leases costing $1 a year, and lessees have to pay for their own house. About 28,700 applicants are on the waitlist, including many who have been on it for decades.

“Waitlisters are now going to be reshuffled,” Germaine Meyers said during a March 25 panel discussion on DHHL challenges and accomplishments. “You’re making people at the bottom of the list that are (low income) swing up to the top of the list past somebody like me who may be (middle income).”

Rowena Contrades-­Pangan of Kauai criticized the commission governing DHHL at a Feb. 20 meeting, saying that 82 residential lots planned in Hanapepe are now listed in DHHL’s plan as low-income rent-to-own housing.

“Shame on you guys,” she told commissioners. “Stop trying to put us in an apartment house, and give us back our aina (land).”

DHHL clarified later that 30 of the 82 Hanapepe lots will be for low-income rentals with purchase options.

Patrick Kahawaiola‘a, a homestead community association leader on Hawaii island, suggested during a March 19 commission meeting that DHHL is deviating from Prince Kuhio’s vision of rehabilitating Native Hawaiians by returning them to the land under the 1920 Hawaiian Homes Commission Act.

“We got to return our people to the soil,” he told commissioners. “This is the Department of Hawaiian Home Lands. Give the land, not the house.”

Commissioner Makai Freitas responded that DHHL’s core focus is to put Hawaiians back on the land, but that rent-to-own projects for beneficiaries with low incomes is a good option for a segment of waitlist applicants.

“I do feel that there is a place in our overall portfolio for this type of project,” he said. “There is a place, a sliver, in the overall spectrum of the portfolio we’re trying to offer our beneficiaries.”

Needs vary

Many waitlist applicants haven’t been able to accept homestead leases because they can’t qualify for a mortgage to buy a house. DHHL in some cases has produced lots for beneficiaries to build homes themselves or with the help of Habitat for Humanity.

Kapua Kaliikoa-Kamai told commissioners that she agrees that rentals can serve the needs of some beneficiaries, but she questioned how big that sliver is.

“Let’s not go crazy with building rentals all over the place that exceeds the needs,” she said at the commission’s March 19 meeting.

Commissioner Randy Awo noted at the Feb. 20 meeting that beneficiaries in a 2020 survey expressed little preference for rentals, especially apartment building units.

“It is clear we want to return our people to the aina — not to boxes,” he said.

The survey showed that 54% of respondents preferred a lot with a single-­family house ready for purchase, followed by 22% who preferred a lot with infrastructure but no house.

The third-highest preference, representing 9% of respondents, was for a single-family house to rent with a purchase option. Only about 1% expressed a preference for a condominium to rent with a purchase option.

However, the survey noted that more beneficiaries would accept rent-to-own options if they couldn’t qualify financially for higher preferences.

Kali Watson, DHHL director and commission chair, said most waitlist applicants have incomes at or below 60% of Hawaii’s median income, and thus need the rent-to-own option.

“It is a fact that because of the financial conditions of the majority of people on our waitlists … unless we used this approach many would not qualify for homeownership, which has unfortunately and historically been the case for over a 100 years since the beginning of the (homestead) program,” he said in an email. “With over 25,000 on our residential wait lists, I wish we could do more.”

In DHHL rent-to-own projects, no portion of rent is applied toward a purchase. But the purchase price is based on what was affordable based on household income at the beginning of the rental period.

Tenants can buy the rental only after 15 years because of a tax provision tied to project development financing. Currently, a rental tenant can’t receive a homestead lease up front, but a bill pending at the Legislature, Senate Bill 3236, aims to make this possible.

The income limit for DHHL rent-to-own projects is 60% of a county’s median annual income, which on Oahu is $55,020 for a single person, $62,880 for a couple and $78,600 for a family of four.

One of DHHL’s first such projects was Kapolei Ho‘olimalima, where 69 single-­family homes were dev­eloped in 2001 as a pilot project for beneficiaries with low incomes. Rent at the outset included a three-bedroom, 2-1/2-bath house for $850 a month. In 2017, renters bought the homes for between $62,871 and $76,842.

Project pipeline

In 2022, Hawaii lawmakers gave DHHL a historic $600 million to primarily produce homesteads for beneficiaries. An initial plan by the agency and approved by the commission expected DHHL to develop roughly 3,000 lots on land the agency owns.

Low-income rent-to-own housing was potentially part of the plan, but the quantity was largely left for determination later.

More emphasis to produce such housing has been driven by Watson, whom Gov. Josh Green appointed to lead DHHL in early 2023. Watson had led DHHL from 1995 to 1998, and after that helped develop several low-income rental housing projects as CEO of the nonprofit Hawaiian Community Development Board.

A key to developing low-income rental housing is obtaining federal and state tax credits from the Hawaii Housing Finance and Development Corp., a state agency that allocates such credits that developers sell to investors to help finance affordable housing.

Watson aims to seek these tax credits to help more DHHL beneficiaries obtain homestead leases than would be possible if relying only on the $600 million appropriation.

“It’s really an opportunity for homeownership that would not be available otherwise,” he said at a recent presentation. “We are basically able to access this free money.”

Another part of Watson’s plan is to obtain $628 million from federal agencies and roughly double the number of homestead projects for beneficiaries to around 6,000 over the next several years.

Some of the planned rent-to-own projects are to be developed on lots produced with the Legislature’s $600 million appropriation, including 30 of the 82 Hanapepe lots and as-yet-­undetermined portions of the 181-lot Leali‘i subdivision on Maui and the 300-lot East Kapolei IIA project on Oahu.

Watson said consideration is being given to having two entire projects planned on Maui be low-­income rentals with purchase options — 207 homes in Wailuku and 311 homes at Waiehu Mauka.

Other low-income rentals with purchase options are slated for DHHL projects subject to the agency receiving the federal funding it seeks. These include 84 single-family homes at the 220-lot Ku‘u Papaikou project on Hawaii island, 40 single-family homes at Palamanui on Hawaii island and 120 single-family homes at the 400-lot Kamalani project on Maui.

Extra controversy

DHHL also plans to buy and renovate an existing rental townhouse complex on Kauai to make it a rent-to-own property for 81 low-­income beneficiaries. The pending purchase of the Courtyards at Waipouli has stirred extra controversy because it would displace existing tenants and become DHHL’s first multifamily rent-to-own property.

Claire Niheu, a lifelong Kauai resident and DHHL beneficiary, told the commission at its Feb. 20 meeting that the agency should be developing more homestead lots instead of buying an apartment complex.

“We were told that we were going to have one lot, not an apartment,” she said, noting that she has been on the Kauai waitlist for over 40 years and is 154th in line. “That is really not pono (right) for us. We want our lot. Am I going to wait another 40 years?”

DHHL plans to use a combination of federal funding, tax credits and other debt financing for the Courtyards project estimated to cost $60 million.

The agency estimates that tenants will have to borrow, on average, $195,000 to buy the units with one to three bedrooms 15 years down the line, while current prices for two-bedroom town­homes in the area run around $715,000.

Watson said he believes acceptance of low-income rentals with purchase options will grow with better understanding of the program and how much it can benefit an ethnic group that has the least amount of homeownership and very high levels of overcrowded households and homelessness.

“We’re aiming to develop as many as we can realistically and as soon as possible,” he said. “Putting the financially challenged into safe housing right up front and having them pay very affordable rent for the next 15 years until they do the conversion to homeownership not only makes sense, but is the best approach under DHHL’s ‘rehabilitation’ program for the lower income waitlisters.”