A new County of Hawaiʻi report suggests the removal of a popular option for developers to meet affordable housing requirements.
Qualified affordable housing projects are incentivized by the local government through tax exemptions, fee waivers and other perks. On Hawaiʻi Island, those projects must have enough “credits,” which are earned via the number of affordable housing units sold to low-income families.
County law permits developers to transfer "excess credits" to other developers. This enables them to build qualified affordable housing projects, even if the units in those projects are not sold as affordable housing.
The county has issued some 1,800 credits to developers over the last 15 years. Of those, 1,300 have yet to be used, creating a stockpile that can disincentivize affordable housing development.
“You've built up this big balance of credits, many of them 10 years ago, 15 years ago. Because that big balance is available, new projects could potentially not provide any future affordable housing for many years,” said David Doezema, the senior principal for Keyser Marston Associates’ Northern California office.
The California-based real estate advisory firm prepared the report for the county.
Excess credits have been a go-to option for developers who want to meet affordable housing eligibility. KMA said that based on a county audit, 44% of 56 projects used excess credits to meet those requirements, which is a far higher usage than other options.
In theory, those credits can be used to lower construction costs and incentivize developers to sell more than the minimum amount of affordable housing units required by law.
Smaller developers can also buy credits, incentivizing affordable housing in smaller projects that wouldn’t have the scale to do so otherwise.
Doezema said it hasn’t played out that way.
“It's not a source of permanent financing, it’s not a source to repay debt, and the affordable (housing) developers that we talked to have generally indicated that (they) have tried to use it as a financing source for their project, but generally haven't haven't been able to do that,” he said.
It’s not entirely clear how much the credits cost, but Doezema said it was about $50,000 based on limited data he obtained for those sold from 2005 to 2015.
The KMA report recommended phasing out, removing or restricting the use of excess credits.
Council Chair Heather Kimball said she’s dissatisfied with the credit system. Buying out the 1,300 excess credits would cost an estimated $60 million, she noted, but that might just be the price the county has to pay to get rid of the system.
The KMA report suggested an “in-lieu fee” as a replacement. It would involve developers having to pay for affordable housing units they don’t have.
Those fees are being used on Kauaʻi and Maui, it said.
The KMA report said it “has the advantage of simplicity and a direct link to the affordable unit not being provided.”
However, it added that it “creates a disincentive for smaller unit sizes and higher density project types by charging the same amount regardless of the size of the market rate units, which creates a disproportionate burden on projects with small units.”
Over 13,000 new housing units are needed on Hawaiʻi Island to meet demand, KMA noted.
