Can Affordable Housing Ever Be Built

By Lowell L. Kalapa

(Released on 4/13/08)

Last week, Hawaii Reserves Inc., the land development arm of the Church of Jesus Christ of Latter Day Saints, announced that it had decided to shelve plans to build hundreds of affordable homes between Laie and Kahuku on the North Shore of Oahu.

The head of the company cited a host of cost and regulatory factors in addition to a gloomy outlook for the local economy. That, coupled with lukewarm support from the community, convinced company officials to terminate any further work on the project, disappointing a couple of hundred families who had expressed interest in the project.

While the assessment of the economy is right on target with the slowing of the national economy and the recent closure of two airlines and the ranch operation on Molokai, the comments on the cost and regulatory environment were thinly veiled. For example, officials alluded to the fact that it might take between five and ten years to change the zoning of the land on which the homes were to be built. The infrastructure required by the city building codes would have added substantial costs to each home. And if the developer wanted to lessen those costs by like eliminating gutters and sidewalks, they would have to get a city ordinance changed even though most rural neighborhoods on Oahu built years before the city building code was adopted have no sidewalks or gutters.

While most permitting requirements are designed to insure the health and safety of the homes, it seems everybody recognizes the twisted bureaucracy one must deal with in obtaining those permits. In the case of a 14-unit development on a Neighbor Island, it is reported that it took nearly five years to obtain all the necessary permits before the first spade could be put in the ground.

As the head of Hawaii Reserves Inc. noted, it is the combined costs of the land, infrastructure, permitting/zoning, labor, and materials that contribute to the high cost of housing in Hawaii. Add to that the rising cost of energy that has affected all sectors of the economy and, in particular families, and it is no wonder the cost of housing, as well as the cost of living, is so high.

So what are some of the things government can do to actually encourage the building of affordable housing short of subsidizing the construction costs or mandating that developers build a certain percentage of their development as affordable housing units? This latter strategy just means that the market or residual units end up subsidizing the affordable units as the cost of construction has to be recovered if the developer is to stay in business. This is the strategy that the Waihee administration adopted in the late 1980’s only to have it backfire by having the 40% market units subsidize the 60% below market units creating the situation where there were a whole lot of people who could not qualify for the below market units but then could also not afford the market units because the prices were inflated to subsidize the below market units. This is what is happening in Kaka’ako where 20% (soon to be 25%) of the units have to be affordable units.

Certainly one of the challenges has been attempts to streamline the permitting and zoning process, something that seems insurmountable as developers and builders have for years struggled to fix this problem. Certainly public officials, both elected and administrative, need to make some very major decisions about the allocation of land in Hawaii. Someone has to make the difficult decision of how Hawaii will be developed over the next 50 years. If the intent is to preserve the natural beauty of the state, then a decision has to be made to concentrate the development of urban areas to specific areas of the state. If future growth of the population is to be in Honolulu, leaving the Neighbor Islands to harbor the natural beauty of Hawaii, then officials have to make the decision to increase the density by building future developments vertically. Indeed, as the baby boomers age and tire of the yard-work that goes with living in a single-family home, they will welcome moving to a multi-family facility allowing the next generation of young families to purchase their home.

The bottom line is that the more new units that can be built, the greater the likelihood that prices will begin to stabilize, if not moderate. While current homeowners and investors may not want to see the values of their investment decline, an increase in the number of new units built at a lower cost should create a market of affordable housing.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.