How to make housing affordable in Hawaii (Oahu presentation)
from Grassroot Institute of Hawaii, June 20, 2022
Unreasonable. Irrational. A travesty.
And those were some of the nicer terms used to describe land-use planning by Stanford Carr, president of Stanford Carr Development, and David Arakawa, executive director of the Land Use Research Foundation, at a no-holds-barred but laughter-filled Grassroot Institute of Hawaii presentation on June 17, 2022.
In no uncertain terms, the two blamed government regulations, the state Land Use Commission, the Council on Water Resource Management and each of the four counties for Hawaii being No. 1 — or No. 50, depending on how you categorize it — in the country in terms of housing regulations. Which is why median home prices in Hawaii are two and a half times the national median average.
According to the speakers, in the early 1970s, there was such an overabundance of housing inventory that many developers could not sell their units. Then in 1975 the state Land Use Commission was created, and in no time, the housing industry “flatlined,” according to Carr.
Since then, things have only gotten worse, with layers and layers of regulations being piled on to the point where, in many cases, developing and financing housing projects has simply become infeasible.
“I remember 15-plus years ago, the [Maui Council] imposed a 50% affordable-housing requirement,” Carr said. “The Council members felt they [had] championed for the people. I said, ‘You didn’t get [them] anything, because nothing’s going to get built.’’’
Just last week, the state Commission on Water Resource Management added another layer of regulation for Maui, declaring West Maui, the Lahaina aquifer, as a water-management district. Arakawa said the action means, “Every development on West Maui … is going to go to contested case hearings in order to get permission to get water.”
Among suggestions Arakawa offered to increase housing supply:
>> Look at successful legislation from California, housing by right, incentives and waivers and tax-increment financing that will help build infrastructure.
>> Align all city and state departments with a goal to facilitate housing.
>> Implement a commandment: “Thou shall not increase the cost of housing with new regulations.”
Carr said he would really like to see “a housing policy that each of the four counties can adopt,” to bring certainty to the development process.
“When we take a project and we break down work, we’ve invested millions and millions of dollars. So it’s important that there is certainty along the process,” Carr said.
“The other challenge,” Carr said, “is the systemic regulatory oversight and approvals to obtain building permits. Thirty years ago, I could get a building permit within weeks. Today, you’re lucky if you get one within a year. So we need to peel back the layers of regulatory approvals through the building-permit and plan-review process.”
See the entire presentation below, including questions from the audience. Keli‘i Akina, president and CEO of the Grassroot Institute of Hawaii, moderated.
* * * * *
6-17-22 Stanford Carr and David Arakawa at Grassroot Institute presentation
Keli’i Akina: Well, aloha.
Akina: It is so wonderful to be back here live with each other. Isn’t it better than Zoom?
Akina: I want to thank you so much for being here. What you represent is the future of Hawaii. I really mean that. You represent the intelligence, the capital, the creativity, the concern, the heart that will bring about change in our state. And I’m hopeful. There are many people who’ve lost hope. Maybe some of you know of our project “Why [we] left Hawaii.” It chronologs hundreds of people who’ve decided to move out of our state.
The No. 1 reason they give is that our cost of living is too high. And the No. 1 reason for our cost of living being so high, they say, is housing.
The way I look at that is with hope. And the reason I say there’s hope is because there are people who have the answers, and the answers are not difficult. If we look at the real causes of the problems that we face, we can find the real solutions and then add one more component, which this room represents. And that is, we’ve got to work together. We’ve got to take the solutions and leave behind the differences that separate us. We have to practice what you just heard about called “E hana kākou” — Let’s work together. Regardless of political party, regardless of background, all of us need to work together.
That’s why I am so impressed with who’s in the room today. This room today represents our community. It crosses boundaries politically. It crosses boundaries socially. It crosses all boundaries. It brings people together who want to see Hawaii better for our children — isn’t that the case — and for generations of children to come.
That’s also why I’m so glad to have two friends on the panel today. At Grassroot Institute, we produce the highest level of research possible in terms of looking into the problems. Frequently, we call upon experts from across the world. We look for best practices, but we don’t ignore the fact that there are people who are in our community right now who have the experience of working in the problem areas, who have solutions.
And when it comes to providing housing for Hawaii, there are individuals that we think know what they’re talking about, and I’m so glad you’ve come today to listen to them as they share.
The first friend today who’s going to be presenting is Stanford Carr. You know him because he’s president of Stanford Carr Development. But you may not realize that he’s been responsible for putting nearly 4,000 families into homes during his career here in Hawaii. That’s incredible, in a state in which there’s a tremendous shortage, that we talk about in terms of housing.
This is taking place in his work on Oahu and Maui and the Big Island, and he’s won dozens of Hawaii and national building awards since the founding of his company in 1990. We’re so glad to have you today to pick your brain, Stanford. Give a big hand to Stanford Carr.
Akina: Glad you’re here, Stanford.
Stanford Carr: Glad to be here. I’m honored to be here. Thank you for having me.
Akina: Thank you. Next to Stanford, we’ve got David Arakawa. David and I have known each other since his days of legal service as corp counsel in the City and County of Honolulu. He’s been in many public offices serving.
Today, he’s the executive director of Land Use Research Foundation. And in that role, his mission is to research, educate and advocate for reasonable, rational and equitable land use planning. And that may sound like an anomaly, “land-use planning” and “reasonable” and “rational,” [audience laughter] when you look at what has taken place over many years in Hawaii.
But once again, remember, we’re here to be hopeful. We’re here to be hopeful that there is a way to find solutions. David is going to share some of his experience.
David Arakawa: Thank you, Keli’i. And Keli’i is right. Land-use planning is unreasonable and irrational, but that’s why I have a job.
Akina: So we’ve come together to make a difference in our state. And you do so by the conversations you have with us, by your financial support of the Grassroot Institute, by your own advocacy in bringing about the education of our public and our policy leaders.
I want to jump right into it. I’ve asked Stanford if he will open us up by giving us a little primer, a little bit of education. What would we want our public officials to know about the process of land use and development? What do we want them to understand that perhaps they may not understand fully? What does the public need to understand?
Stanford is going to concisely share with you some of the insights he’s gained practicing in that field. But as you do this, Stanford — and I’m going to let you make a presentation, it’ll be the only presentation we have today for about 10 minutes — would you make sure that you answer at least a couple of questions?
The first one is an easy one. The first one is, you know, when people go around the islands, they see that the majority of the land mass is not developed at all whatsoever. At Grassroot Institute, we know that that’s 95% of all the landmass, and yet we say there’s not enough land for housing.
We have a shortage of supply. I’d love it if you explain why that may not be the case. That’s one thing. You think you can do that, Stanford?
Carr: Sure. Yes, Doctor.
Akina: Absolutely. Then the second one is a little more pointed. It’s kind of targeted at you. You know I love you. We love you. But I was on Maui yesterday and a lot of people on Maui don’t love developers.
Carr: Yes. And I’m born and raised there.
Akina: So a tough question you may face from time to time has to do with is why are our developers — in the minds of some — only developing for the wealthy, the rich, those who can afford? Why aren’t they interested in building housing that the people can afford?
Tough question, but I know you can handle that. So I’m going to give you the time for about 10 minutes. As you share, we’ll ask some questions of you and David afterwards, and then I’ll open it to the public.
Carr: OK. Thank you, Doctor. I mean, to answer your first question, less than 4% of our lands in our state are urbanized and that’s one particular reason, and the creation of the State Land Use Commission in 1975.
I want to bring up to all of you that it was a territory of Hawaii in 1935 that recognized through studies that the regulatory constraints added to the cost of housing. And that caused them to pass Act 105, which created the Hawaii Housing Authority.
Subsequently, the Hawaii Housing Authority — it’s now known as Hawaii Housing Finance and Development Corp; that was created in 1976 and HHA became the Hawaii Public Housing Authority.
You know, every public servant — this is an election year —one of the priorities is affordable housing. I always feel that affordable housing is an abused term, because what’s affordable to one person is not affordable to another.
So I’d like to show the first slide that I had that we use in our business. We categorize it by area median income, household income distributions.
The housing ladder starts from the homeless to the extremely low-income or households that earn 30% of the area median income. What does that translate to? That’s a single person making $26,000 a year, paying $650 a month towards their rent.
I’ll highlight a project that serves households in this income category that we built. Above the very low incomes are households that earn up to 31% to 50% of the area median income and thereafter, 51% to 80% of the median income as low-income households.
Moderate income is categorized as 81% of the median income, up to 100%. And this is the gray area where if someone is fiscally responsible, they take up some financial literacy, homeownership counseling, households earning between 80% and 100% of the area median income have the opportunity to become first-time homebuyers, especially with the first-time homebuyer programs that we offer throughout our state.
Thereafter is the workforce housing, households that earn between 100% to 140%, and then the market-rate homes.
So we concentrate all of our efforts from between the extremely low income in the rental households up to the 60% area median category.
A couple of years ago, we bought a portfolio of six properties from the state, consisting of 1,221 apartments that served households earning between 80% to 100% of the area median income on Oahu, Maui and the Big Island. We have, over the last two years, reinvested $85 million into those six properties in order to preserve it as affordable housing for the next 75 years.
And then we do a lot of first-time homebuyer developments, starting from 32 years ago on Maui. We did over 1,000 units in Kapolei under the Waihe’e administration. They embarked on a very aggressive, ambitious endeavor to do a master-plan community in Kapolei called The Villages. And we were fortunate to be awarded to do two villages, Village for Kekuilani and Ivalani, developing mixed-income, mixed-use communities of rentals, entry-level for sale and market homes.
Now, back then, we were selling entry-level condos for $90,000 a unit. We were selling single-family homes for $175,000. This is for first-time homebuyers. And the market-rate homes are about $320,000.
When I first moved to Oahu in 1980, the median home price for a single-family home here was $78,000. Today, our median home price is $1 million and I’ll show you in a little bit why.
So we focus on both rentals as well as for sale. And we utilize some powerful tools that were created by the Legislature, as well as the 1986 Tax Reform Act, that allows us to reach deep affordability and to be able to address a broader spectrum of our household needs and our community.
I’d like to go to the next slide. Recently, the Grassroot Institute highlighted the University of Hawaii Economic Research Organization study utilizing the Wharton Residential Land Use Index. And Hawaii is No. 1 in the country for government regulations, which resulted — you know, one thing we’re proud of, we’re either No. 1 or No. 50, depending on how you categorize it, right?
But when it comes to government regulations, we’re No. 1, which is why our median home prices in Hawaii, it’s two and a half times the national median average. And it’s a travesty, but how did it all get started? Next slide?
This illustrates the creation of the state Land Use Commission in 1975. At its peak, prior to the creation of the state Land Use Commission, we built as much as 13,000 units a year. That dropped off the cliff starting from 1976.
In fact, in the ’76 era, Mike McCormack will remember, there was an overabundance of inventory. A lot of developers couldn’t even sell those units because they overbuilt the marketplace and there was a great opportune time to buy then, right?
We have John Jacobson here, who’s head of Locations research, that we have worked with, the research company, for about the last 32 years on market studies within different neighborhoods, and utilize that in our informed decision-making process.
This is what flatlined our housing industry. It was the contested case hearing in urbanizing land, which is why only 4% of our lands have been urbanized.
Next slide. This gives you another chart with respect to the creation of the state Land Use Commission, but also overlays the different economic cycles that we experienced, starting with the Great Recession, the credit crunch, the inflationary period of 1980.
If you recall, 1980, the prime rate was 18%. I remember borrowing working capital at 20%.
In 1984, I purchased my first investment condo. It was a 12% one-year adjustable-rate mortgage, and that’s the world we lived in back then.
Then we experienced, I call it the impulsive shopping spree of the Japanese investment, that you saw the run-up through the ’80s until the bust of 1990.
Then we had a very long protracted recession. And I’ve got the scars on my back to remind myself, but fortunate to have survived it all, but have learned a lot being in this business for over 32 years now.
Then the economic collapse of 2008, because some investment bankers came up with some great ideas on negative amortized loans and subprime non-income verification loans.
So we had the Great Recession of 2008 and it’s unfortunate: The opportune time for families to attain a home is usually during an economic downcycle. When people are worried about still having a job, job security, and actually those are the times that we have an excess of people that leave Hawaii for opportunities elsewhere. Because they’ve given up any hope of ever having the opportunity to buy a home and to get into the housing market here.
The next slide.
So with a supplied constrained market, you can see this graph of how the housing market has performed over the last 40 years. Today, our median home price for a single-family home is over $1 million and our median home price for a condominium is $500,000. Like I said, in 1980 when I moved here, the median home price for a single-family home was only $78,000.
So why is this? Government regulations, state Land Use Commission, but also each of the four counties are responsible for where we are today. I call it the experimentation of housing policy that has gone on over the last, basically, six decades.
Next slide, please.
Let me tell you about Maui in 2006 — and you’ve got to remember where we were in 2006: With the subprime non-income verification, the housing market was hot. It was running on all 12 cylinders. So Kauai and Maui adopted new housing policies. They overhauled their housing policies and Maui adopted Chapter 2.96 in 2006. It basically flatlined their housing industry for eight years.
You couple that with the 2008 financial collapse and the added policy that if you don’t have your own source of water, we’re not going to issue you building permits. Now, how many communities can afford to develop the source wells for water, the county-standard pump stations, tanks, transmission lines and so forth? It’s cost-prohibitive. So in essence, Maui did a self-inflicted moratorium on housing.
Kauai did the same in 2007. In fact, today, their policy is, if you purchase an affordable housing project on Kauai, you are not entitled to any more than 1% per year appreciation, OK? That’s called socialized housing.
The City and County of Honolulu’s 201H policy has the same conditions. You’re limited to a 1% annual appreciation, and so is the state level on the HRS 201H that was created really in 1976 to give Hawaii Housing Authority the authority to develop housing projects that are exempt from all statutes, ordinances, charters, provisions and rules of any subdivision development standards, provided they did not compromise health and safety.
Today, that powerful tool is called HRS 201-38. And our First Lady of Honolulu, and her husband, Mayor [Rick] Blangiardi, has been hearing a lot about 201H-38 and private activity bond financing from me for the last 18 months. But fortunately, our mayor here is committed to get back into the private activity business to build affordable rentals.
Honolulu has been out of that conduit business now for 20 years. The last issuance was done in 2002, on Moanalua Hillside, but Mayor Blangiardi is committed to get back into that business.
These are the unintended consequences of policy-making. This is just an illustration of how we use the 1986 4% and 9% low-income housing tax credit created by the Department of the Treasury to develop lower-cost rentals by this monetization of federal and state tax credits and private activity bond financing.
I want to speed it up a bit. Next slide, please.
This tool has allowed us to build, starting 10 years ago, Halekauwila Place, the first high-rise in this past cycle to serve households earning below 60% of the area median income.
We first embarked on our tax credit deal with Pam Witty-Oakland back there when she worked with the Sisters of St. Francis. We developed 150 senior rentals off Renton Road and did a bond issue in 2009, right in the midst of the worst recession that we’ve seen since the Great Depression.
That just illustrates the demand for housing in Hawaii that the bond underwriters give us AAA rating in order to obtain tax-exempt bond financing to build rentals. It keeps our professionals as well as our workforce gainfully employed in the industry.
This is Hale Kewalo This project, we completed in 2019. This serves households earning 30% of the area median income. That single person makes $26,000 a year, paying $650 a month.
So in the affordable rental housing, the renter households do not pay any more than 30% of their adjusted gross income towards their rent. This allows them to start saving money to eventually become a first-time homebuyer.
And with that, my last slide is, this is indicative of developing in Hawaii. It’s an uphill battle. It’s a very complicated process with land-use regulations, housing policies. We need to start peeling back the onion to break down the regulatory constraints.
And what we really need to do is to focus on housing production, because we need to increase the housing supply, which is fundamental in order to lower the median home prices.
Akina: Thank you, Stanford. Let’s get Stanford a hand. That’s a good primer.
Akina: Now, Stanford, I’m going to come back with some questions for you. But first, I want to bring David into the conversation of it as well. What you’ve given us, Stanford, basically are some of the basic facts that we need to be looking at if we’re going to look at the cause of the problem, as well as potential avenues for solutions.
With that in mind, David, one of the things that is absolutely apparent is that there is no shortage of land in Hawaii to satisfy the needs for housing. Could be as simple — as professor David Callies has mentioned at the University of Hawaii before he retired — could be as simple as taking the 5% of the landmass that we develop on now, which is where we’re urbanized, and maybe adding 1 more percentage point? That would add 20% to the land supply, or maybe 2 more percentage points, which would add 40%.
Could it be that simple? Or could that be part of the process, but would we also have to deal with certain regulatory issues? What are your thoughts on this, David?
Arakawa: Whew. OK, Keli’i, I got your list of questions, so I’m going to do it. I need to apologize to you, folks. I’m a former career criminal, organized crime prosecutor. I’m used to standing up and talking. That’s one thing. The other thing is that people know that attorneys always have their head up their you know what? So I’d rather stand than sit on my brain.
Arakawa: First, I’d like to recognize two mentors, or two sensei, that are in the room through my career. That’s Mr. Mike McCormack. Let’s give Mike McCormack a hand.
Arakawa: I worked on his projects and Wendell Brooks taught me so much. He was a consultant on many other projects I worked on. So let’s give a hand to Wendell Brooks.
Arakawa: These are the deans of development and housing in Hawaii. And we’re so lucky that they were able to teach generations of leaders and attorneys and homebuilders.
Anyway, on that question on the urban land-use districts, the answer is no. Just by adding 1% to, I guess, the urban area is not going to solve the problem. For those of you, I don’t know, I got to speak very carefully because somebody might be recording this and I might use my law license.
I will say that the urban area of Honolulu, because Stanford used to be president of LURF [Land Use Research Foundation] — I have to agree with him — is between 4%, but more like 6%. OK, between 4% and 6% urban, about 45% agriculture and about 45% conservation lands. That’s the entire state. That’s the breakdown of all the land and the land-use districts.
If anybody’s taking notes, you know that that does not add up to 100%, but that is why I’m a lawyer and I’m not in science or math.
So all of that means that we need a comprehensive land-use planning approach, which allows homebuilding or houses on all types of property, except for conservation — leave conservation conservation — and facilitate that kind of housing.
So just by increasing at 1% is not going to solve that. We need streamlined entitlement processes. Right now, we have a two-tier system. You guys are going to be blown away: For a green field, for a project that was sugarcane or pineapple, it takes 21 — 21 — public hearings in Honolulu to get that project approved. Twenty-one. At least 21 to the state and county processes. And so Castle & Cooke took almost 15 years to get their Koa Ridge project approved through three lawsuits, the whole bit. So that’s how long it takes.
We should have — and there looks like there might be — there have been bills at the Legislature, housing by right in urban districts. This is what California does, and it’s part of the YIMBY “yes in my backyard” legislation. There was a YIMBY bill this year that passed. So it’s looking up.
Right now, the Legislature is going to create a task force to look at regulations and how to amend those regulations to facilitate — actually, believe it or not, facilitate — housing. That’s a great thing. That bill passed this year and they’re looking at how to remove regulatory barriers.
There’s one problem with that YIMBY taskforce. Can you guys guess what that problem is that’s created by the Legislature?
Audience Member 1: NIMBYs.
Arakawa: No, no, the problem with that is– Anybody want to take a guess? I’ll take one guess. What’s the guess?
Audience Member 2: The regulation with the employees, the people who are already–
Arakawa: Close. Close. That task force is not made up of any developers that actually build housing. That task force is made up of legislators and state departments. Hello? Right?
So anyway, but they’re opening up and part of the legislation is they don’t have Stanford’s name in it, but it’s in invisible ink. They say, we are going to consult with Stanford and other developers. So that’s the good part about that bill. So look forward to that bill.
On rural lands, only 1% of the land in the state is rural. We got to look at being able to build homes on rural lands.
On ag lands, many of the counties are trying to abolish or stop any housing on ag lands. On the neighbor islands, we have our neighbor island Council members here, and they know that a lot of people can live on ag land and still have a robust ag industry.
So those are some of the things we can do with the land-use districts, Keli’i.
Are there other regulations that could be relaxed? Of course: the affordable housing ordinances and regulations, the non-health and safety mandates that are aesthetic, that are related to new urbanism that call for huge setbacks — up to 50-foot setbacks.
Honolulu had a TOD [transit-oriented development] ordinance — until we got a moratorium at the city maybe two years ago, three years ago, at the very end of Mayor Caldwell’s campaign — they had a requirement for TOD where you have a 10-foot setback from your property. and then they lopped on another 40-foot setback. So a 50-foot setback around your property, you cannot use.
We asked them why and they said, “Oh, aesthetics.” And we asked them, “Have you ever enforced this? Have you ever implemented it?” They go, “No, we’ve never implemented this 50-foot setback. We just use it as a threat to make you give up other things to us.”
So we were lucky that the County Council and the mayor were able to put a moratorium on that. But those are examples of regulations that really stymie us.
Akina: David, those are examples that illustrate what Stanford pointed out in the recent Wharton study, and that is that Hawaii is the most regulated place when it comes to regulations pertaining to housing development.
Now, while you’re still standing, let’s look at another issue. Having come back from the neighbor islands this week, we’re full of stories of people trying to develop, but telling us they’ve been told there’s not enough water.
Is there enough water to develop housing that we need on the island of Oahu? And what are your thoughts on what enough water really is, how that should be determined?
Arakawa: The short answer is yes, there’s enough water on Oahu. And believe it or not, yes, there’s enough water on Maui.
I’m too old to do this, but on Monday night, I pulled an all-nighter. I was up 40 hours from Sunday to Monday to get out testimony for the Commission on Water Resource Management on Tuesday morning. They declared West Maui, the Lahaina aquifer, as a water-management district. And part of it should be a water management district. But before they declare it a water management district, they should do further studies.
The Department of Health said, “Not ready yet, premature.” The Maui County Department of Water Supply said, “No, it doesn’t meet the qualification to be declared a water-management district.” To be declared a water-management district, that means every development permit is a contested-case hearing. Every development on West Maui is going to have a contested-case hearing.
So, you know, Maui, Oahu, I think they pump about 190,000 gallons — excuse me, 190 million gallons a day, something like that — and capacity is over 200 million gallons a day. So there’s a lot of water available, but we need the infrastructure to take it out of the ground or to treat it. There’s a lot of things. And We need to keep some of that water in the ground, so we cannot pump it all.
Maui has over 400 million gallons of water a day available. They pump 97 million, one-fourth of what they got surface. But again, they don’t have the facilities to take it out of the ground, to transport it and to treat it.
Akina: So David, you’re saying that in addition to all the existing regulation, developers in West Maui, in particular, are going to have to go to contested-case hearings in order to get permission to get water. Now, how often does a developer win such a hearing?
Arakawa: They end up winning, but it takes a really long time, Keli’i.
I’ll tell you, there’s a way to prevent that and to shortcut that. That is, if Grassroot Institute sues the Commission on Water Resource Management, and there are a cadre of attorneys and you’ll get the support of the Department of Health, who said in writing, “This does not qualify,” right?
And on one of the issues, one of the six criteria the Department of Health weighs in on, and they said on that one criteria, criteria No. 2, these areas in Lahaina do not qualify, and the Maui Department of Water Supply. So you would have those as your experts.
Akina: Well, David, I’ll find you someone who has standing in such a case if you provide the pro bono….
Arakawa: There you go, there you go.
Akina: Thank you, David. Now, Stanford, I’d love to hear what your thoughts are on the overregulation. Are there some particular regulations that really stand in the way of developers providing housing that is affordable?
Carr: It’s … well, policies by each of the four counties.
Harry Saunders, the president of Castle & Cooke, and I are co-chairs of the Hawaii Business Roundtable housing committee, and we’re working on forming the framework of a universal housing policy because each of the four counties has their own set of rules.
We feel that we’ve both respectively been in this business long enough to have witnessed and experienced what works and what doesn’t work. So what we really want to do is define a housing policy that each of the four counties can adopt.
You know, when you have uncertainty, uncertainty equals risk and risk is mitigated by budgeting and having more contingencies. We need to eliminate the uncertainties so that people can confidently expend.
When we take a project and we break down work, we’ve invested millions and millions of dollars. So it’s important that there is certainty along the process.
The other challenge is the systemic regulatory oversight and approvals to obtain building permits. Thirty years ago, I could get a building permit within weeks. Today, you’re lucky if you get one within a year. So we need to peel back the layers of regulatory approvals through the building-permit and plan-review process.
Akina: Well, thank you, Stanford.
David, when I look at proposals that are being made by many political candidates, as well as those who’ve been in office for a while, we see the same things proposed over and over again. Rent control is one of them, or increasing the percentage of affordable housing units that developers have to include in their projects, sometimes up to 90% or 100%.
These kinds of proposals, how do they ultimately impact the availability and the cost of housing that’s affordable?
Arakawa: They negatively impact the availability of housing. When the policymakers or elected officials pile on these requirements — like they did on Maui, right? — across the state, we call it inclusionary zoning. So if developers like Stanford build 100 units, depending on the county, they will say, “Well, 20% of those units must be affordable,” or they’ll say, “30% of those units must be affordable in Honolulu.”
And on Maui, they say, “Well, if 20% and 30% is good, 50% is better.” So they required 50% being affordable, right? They pulled that out of their you know what.
Then they said, “You know what, and it has to be affordable for 25 years. If you’re a young couple and you buy a starter home and you want to resell it, guess what, you got to give your profit all back to the county, and you can only resell it for this amount. Just not quite the amount we bought it for, but in that range at the time.”
So that was ridiculous. Maui passed that kind of law, Keli’i, and that’s three from eight years from 2006 — I know because we had to research — from 2006 to 2014, they had that law in effect, Maui did. “Oh, 20% is better, 25% is good, 50% will be better.” They piled on that.
In eight years, they built and sold three — three— affordable housing units at affordable prices. Three in eight years. That’s the impact of those kinds of laws.
And how many of you are from Kauai? Anybody from Kauai? OK. Kauai beat Maui. Kauai passed their law in 2006. For 10 years or more, they had that impact. Guess how many affordable units they built and sold at affordable prices?
Audience member: Zero.
Arakawa: There you go. Right here, front row. Zero. Zero. So, built and sold under that of county affordable housing law. You can build on 201H, you can, but under that county law, zero on Kauai.
Akina: Thank you. I’ve got one more question I’m going to ask each of you, gentlemen, but I’d like to open up the question-and-answer session to the entire audience. So we have a microphone up here. Kevin will be holding it right here to my right, and we’d love for you to come up to the stage area here and speak directly into the microphone. We need you to do that because we’re going to be broadcasting this, and we need you to be up here.So just come and stand in line here and let me throw my last question out to David.
Given everything that has been presented today, David, what is your thought on this? What is it that Hawaii urgently has to do in order to turn us into an environment that can produce more housing, housing that is needed? What would your counsel be to our political leaders?
Arakawa: First off, I didn’t know that this was recorded.
Arakawa: My presentation would be very different if I knew that this was recorded.
Arakawa: But, nevertheless, what I said I believe is true. This is something that we’ve talked to the mayors about and the governor’s office about. So the solutions. And Mayor Blangiardi — thank you, Mrs. Blangiardi — actually said, “Yeah, I support this as did Mayor Roth.”
We haven’t been able to have a face-to-face with the other two mayors. But the solutions would be No. 1, make housing a priority and set aspirational goals through a proclamation or resolution, just like we have a renewable energy [proclamation], right? Remember all the mayors and the governors signed Aloha agreement or whatever, the Aloha-ʻĀina agreement or whatever, on that. There’s also one for agriculture. Do the same thing, use the same successful playbook.
Follow and look at successful legislation from California, housing by right, incentives and waivers; tax-increment financing that will help build infrastructure. We didn’t talk about infrastructure. That’s a whole new thing.
Align all city and state departments with a goal to facilitate housing.
And another thing: Thou shall not increase the cost of housing with new regulations.
Often, the building codes — and we have the queen of state building codes here; this woman is a Council member on Big Island, Sue Lee Loy. She vehemently fights against building codes that are unnecessary that are not health and safety but increase the cost of housing. So thank you, Sue. Let’s have a hand for Sue.
At one point, there was a bill, the City and County Bill 25, that called for energy efficiency, and it would’ve increased the cost of one single unit by $25,000 — one unit! — and it was not health and safety, arguably.
But the good news is we’re working with the state Energy Office, Howard Wiig and his boss, Scott Glenn, and Hawaiian Electric and the developers and everybody were in one room. We worked out a great solution to that, and we’re going to continue working this summer on energy-efficiency codes that will help Hawaii reach its sustainability goals.
Then infrastructure funding. That’s tax-increment financing, and all of that.
So those are some of the things that need to be done.
And if your county like Honolulu County does not have a housing department — so if you don’t have a housing department, create a housing department.
So those are some of the things that we’ve talked to at least two mayors about as solutions and the governor’s office, and they think those ideas are good solutions to start.
Akina: Although you said let’s create another government department, I’m going to forgive you. Thank you. Let’s give a big hand to David. Those are some great ideas. Those are some great ideas.
Akina: Stanford, I’m not going to ask you to repeat the list that David gave. I know you support many of the measures that he mentions, but on your wish list for our Legislature, what do you see?
Carr: Let me augment it by the fact that there’s multiple projects throughout our state that have entitlements. The problem is they were imposed with too many conditions that made it infeasible to develop. They’re urbanized. They got zoning, but they’ve got conditions that are onerous that are unable to finance the project.
Mike McCormack entitled the project called Wailea 670 35 years ago. That property has not turned a spade of dirt till today, 35 years later, because the county continues to impose other conditions. I remember 15-plus years ago, they imposed a 50% affordable housing requirement. The Council members felt they championed for the people. I said, “You didn’t get anything, because nothing’s going to get built.” And that’s still unbuilt today.
So I think many of those properties need to be revisited, dust off the ordinances that entitled it and try to put it back on track so that it can be built and produce the housing.
Also, in 2016, Gov. Ige formed a task force. I was one of the private developers on the task force, working with all four county planning directors and housing directors, and we did a comprehensive inventory of both state and county lands, categorized them by Tier 1, 2 and 3, Tier 1 being within the urban core and having or nearby infrastructure. That 10-year housing plan is under the DBEDT [Department of Business, Economic Development & Tourism] site. Go there.
It’s comprehensive. It’s the first time we collaborate with the Office of State Planning, so there’s a resource there that identifies county lands, each of the four counties, as well as state lands that could be developed.
Akina: Very good. Thank you, Stanford. I appreciate that.
Arakawa: Just one. I don’t mean to interrupt you, but that project he talked about Wailea 670, Mike McCormack. Guess who the attorney for that project was?
Audience member: You.
Arakawa: Yes. I was the attorney for that project. At the time we passed it, it had the absolute best — absolute best — land-use conditions for developers at the time we passed it. But then Maui County kept on adding, adding, adding, so now you cannot build it. Now you cannot build it.
Akina: That’s a tragedy, and I’m glad that we’ve been able to look at both causes and potential solutions.
Now, we’d love to hear your questions. Go ahead and please, Tim, introduce yourself to the audience if you would, and go ahead and ask your question.
Tim Richards: My name is Tim Richards. I’m a County Councilman from Big Island. A question I have concerns the AMI. On the Big Island we’ve had a big influx through the pandemic of higher-income members, which is adjusting our AMI, I believe. And typically, with the affordable housing, we have a portfolio of 50% to 80%, 80% to 120%, and 140% AMI.
How is this affecting that portfolio, because we have different percentages of that? I think we’re sliding that whole AMI up the scale, which may mean we may not be developing enough affordable housing in the right pockets. And has this been looked at?
Akina: Thanks for your question, Tim.
Carr: The area median income is annually published by HUD, U.S. Department of Housing and Urban Development. Unless the people that are migrating to the Big Island become full-time residents and pay taxes, only then will they be part of the census that HUD will gather and extrapolate out for the annual median incomes that they publish, that we’ve used as a tool to formulate housing prices as well as rent caps.
The Big Island is the most challenging, because of the four counties, it has the lowest median incomes. Each of the neighbor islands are a little bit more challenging to build because the cost of constructing on those islands are higher than Oahu, for a number of reasons.
So, and on the Big Island, it’s like an island with two islands within an island. You got East Hawaii and you’ve got West Hawaii, with respect to, relative to jobs and incomes. So I don’t think the AMI should be skewed by the people that have moved there, unless they become taxpayers and full-time residents.
Arakawa: So I think the AMI, our view is that the AMI should stay aligned with what the state AMI is, the state HHFDC, or what the state uses, and this is why — just a quick story: I was in an office with a former state director of two departments and a very influential state legislator who controls the state budget — controlled one-half of the state budget at the time — and that former director said, “You know what, everyone in Hawaii should own a home. And we should reduce the AMI to 15% or 10%. We should be building homes for those people, because those people are my grandchildren.”
So the legislator went, “Well, your grandchildren, where do they work?”
And the woman said, “Oh, my grandchildren don’t work. They’re unemployed.”
“So they should be able to buy a house?”
“Yes, of course.”
And that legislator said basically, “No, we should actually be building houses for people who make 140% AMI and above, these young professionals, because that’s the way we keep them home in Hawaii.”
They pay taxes. They pay income taxes. They pay the real property tax when they buy their homes. Those taxes will go to the state and county, and they could use those taxes — sorry, Keli’i, I know you don’t like taxes — to build affordable housing, right?
So instead of squeezing developers on the front end by the AMI, e komo mai, let people build and encourage people who make more than 140% AMI to build and live in Hawaii, because then we keep our talent pool here of professionals. They pay higher taxes — sorry, sorry, Keli’i — and we can build more affordable housing without money.
Akina: Great. Another question. Go ahead and introduce yourself and ask your question.
Laron: My name is Laron Tamaye. My question is a little bit different from [unintelligible]. For the upcoming generation, generally, the people that oppose a lot of development, the stereotype is that they already have a home, they’re already well-established, they’re protecting their property values, whether they own it or not.
And the people who don’t have a voice are the ones that want to see development, the younger generation who want to purchase a home, for their families. For that generation, the younger generation now, what advice or recommendations, what insights would you give to them for them to be involved [unintelligible]
Akina: Thank you, Laron, for your question.
Carr: So there’s a young group of people here of all well-educated Ivy League graduates that are from Hawaii that moved back home. They’re all in their early 30s now. And they’re forming a group. A lot of us in the home building industry contributed towards their organization to help them seed the money to do the research. They’re called Housing Hawaii’s Future. Sterling Higa is leading it. I’m sure you’ve met him. It’s refreshing to see the younger generation coming out to advocate for housing and speak about changing policies so that they have the opportunity.
So we are assisting them and providing our mana‘o, our guidance, as well as financially supporting them towards their efforts, because they really are making an effort to open up the opportunity so that they can afford to buy a home and stay here and not have to leave. We’ve had four consecutive years of people moving away from Hawaii, giving up hope of ever owning a home here.
Akina: Laron, that was a very good question. It was not only geared to make us think about the fact that there are young people who may not be in the same situation as those who have equity, but there are people at different levels of the economic stratum. So very often, there’s this tension between those who have and those who don’t have when it comes to the values we look at for development and so forth.
So what I like about Housing Hawaii’s Future, the group that Stanford referred to here, is that these are young people who are looking beyond protesting on the basis of various values. They’re looking at exactly what we’ve been talking about today. What are the causes of the problem, what are the solutions and what policies can bring about that change? That’s a conversation we want to encourage.
Please introduce yourself and ask a question.
Joelle Seashell : Thank you. My name is Joelle Seashell … and I’m running for House of Representatives for District 21. …
I’m trying to wrap my head around it. I understand the negative aspects of why people aren’t allowed to have water-catchment systems. I grew up on water-catchment system. We had to filter all our water, and it worked out well for us.
So I asked [an official at the Honolulu Board of Water Supply] what his thoughts were to encourage people on the island to maybe start using that mindset to catch the water and use that to maybe supplement some of, even if it’s just growing their food or watering their lawn. But he directed me to the Department of Health. So I understand that there are safety issues related to it. I think if we educate people correctly on how to properly treat their water, then it could be a really beneficial thing.
Carr: I grew up on a water catchment as well, growing up in Kula, Maui. So if you have your own private source, it’s not regulated, but if they’re selling water, it falls under the purview of the state Health Department. So he’s correct in that sense. Yes, it is regulated by the state Health Department.
Audience member: You don’t need a permit?
Carr: … Not if you’re in a catchment. Yeah, if you’ve got a water tank and you’re using it, consuming it yourself.
Arakawa: Sorry, I grew up in Waipahu and no more water in Waipahu, only the red dirt. Water is only for the sugarcane.
Akina: Thank you. Thank you very much. We have another question over here. Come on up. Here we go. Just introduce yourself please and go ahead and ask the question.
Chris Daniel: Hi, my name is Chris Daniel. And I noticed there was one slide where you showed how the housing prices have increased over the past 30 years, and they continue to increase now. This is great for people who own a home, but it also makes it difficult for first-time homebuyers to break into the market.
So what do you think is some good ways to balance both sides of the coin? And as a follow-up question to that, what do you think is a good rate of appreciation for houses in Hawaii?
Carr: So both of your questions, it’s a supply constraint. We need more production, period. And we need both for-sale and rental housing, both platforms.
One of the difficulties that policymakers make the mistake of is speaking of affordable in one breath, rental housing is distinctively different than that of for-sale. They’re both underwritten differently. They’re both financed differently. So one needs to understand how this all works when you’re creating policies for the future.
But again, we’ve never been keeping up with household formation with population growth as well as in-migration. So every year, we’re undersupplying the market, which is why it’s supplied-constraint and the median home price continues to go up.
We go into a recession, and people lose their jobs, and people move away, you start seeing the median home prices drop. It happened in the ’80s, it happened in the mid-’90s.
History repeats itself, but unfortunately, you’ve got to go through the pain of those economic downcycles to realize it.
Akina: Thank you, Stanford.
Chris: All right. Thank you.
Akina: Any other questions before we conclude today? Yes, one more question, thank you so much. Come on up please, good to have you with us. Aloha.
Leatrice Maluhia Kauahi: I was trying not to say something.
Akina: Please introduce yourself, Leatrice.
Kauahi: My name is Leatrice Maluhia Kauahi. I’m retired, and I was a banker for 42 years. I was a banker in Hawaii. I was born and raised in Hawaii, and I’ve met Stanford, and I met Mr. Brooks, and I met Mr. McCormack years ago, and I’m listening to all of you, and especially you two. And I’m thinking to myself, “I remember this, I remember that.” But I don’t hear that from you.
I hear that there are so many things that are stopping us from developing, and we need to change it. But as an old lady, the old lady brain, I’m thinking, “There were reasons why things were changed.”
I remember State Savings & Loan, I worked for State Savings & Loan. We gave the commitment for Mililani Town: Ginnie Mae, Fannie Mae, Freddie Mac.
We gave the commitment to [development] out in Kapolei, all of these. And we have to do affordable housing.
There were reasons. I remember looking at a deep restriction for Maui that it had to be resold, and I remember thinking, “How come? How come the county of Maui is not exercising their rights to check this because it was being resold higher than what the restrictions were?” And thinking, “Why?”
I’m very passionate, as you can tell but, Stanford and Dave, we have to go back and know the reasons why.
As an old lady, do you know the reasons why it was done? Why did Mililani Town, we couldn’t provide financing because we had to meet the continent’s ruling; 25% of the housing income, you could not exceed that. Our people in Hawaii were allocating 30% to 35% of their income towards housing to talk to somebody from the mainland and say, “How come we have to follow your rules?”
And they didn’t want to live in condominiums because the people of Hawaii live 20 to 40 years in one condo, one apartment building, and they said that was negative. Negative, my ass. That’s how we live. Our buildings were taken care of.
Are we fighting? Are we looking at the mortgage lenders and saying, “Hey, are you talking to your lenders and saying this is how things are done in Hawaii? Why do we have to do it the way you do it in California, if there’s a good reason?”
I just think we need to seek why. Why did we have affordable housing in Kapolei, one house market, next house, next door affordable? And now we’re saying we cannot do that because of all of these rules.
Stanford and David, let’s look at why we did it, and then work together to come up with solutions.
Akina: Leatrice, mahalo for your analysis. Let me give you a hug. Leatrice, aloha. Aloha, Aunty.
Kauahi: Are you keeping track of ceded lands? Excuse me.
Akina: I look forward to that seminar when we come back. Leatrice, mahalo and mahalo for all your years of service at the Office of Hawaiian Affairs and for the heart that you expressed. And you know, this is such a poignant way to end our program today because this issue is not simply about the research, about the causes and the solutions. It’s also about the heart. We are, as a society, torn right now because people don’t have a basic need, and that’s the housing that they need.
One of the things Leatrice brought up is the influence of the federal government, which I recognize we did not make the focal point today. And we could invite our speakers back, and we could invite others to address some of the changes that not only have to take place here in Hawaii, but in terms of federal regulation that is involved in this whole picture.
Suffice it to say it’s a complex issue, and there needs to be a group of people, and I’m so proud to say that I believe you are, with Grassroot, that group of people, who are coming together to produce the intellectual capital, which is the research needed so that our policy leaders know what’s going on. And for that reason, I’m grateful for some of our experts today who are contributing to that, Stanford and David.
We need the intellectual capital. That’s what we produce in our research at Grassroot Institute, but we also need the advocacy. And this year, I’m very pleased that we’ve taken steps forward in increasing the engagement we have with the Legislature and with government organizations.
We’re out there. Hundreds of people on behalf of the work we’re doing are writing letters, are being equipped to communicate to their leaders, and we’re down there at the Capitol, we’re at the county councils. We’re so pleased for the Council members who are with us today.
We’re bringing together a growing group of public officials who are saying, “OK, this is the problem. Here’s the solution. Now, let’s e hana kākou. Let us work together to find a way of bringing to Hawaii or turning Hawaii into the place it needs to be.”
So with that, I want to thank you for your support of the Grassroot Institute. We want to stay connected. If you’re not receiving our weekly newsletters, please simply sign up today. It’s very easy to do so on one of these cards. You will receive the latest research on issues ranging from housing to government transparency to the functioning of the economy to our liberties and freedoms.
We’re at the cutting edge of providing the information you need. You’ll get that as it’s produced on a weekly basis. And also, I write a column every week, which has become one of the most-read columns in Hawaii. It will help equip you to discuss the full range of issues. That comes out weekly.
We want to give that to you. We want you to be part of that conversation. We also would love you to be part of the 450 local people who provide the finances to keep our operations going and growing.
We want you to be with us as we attempt to become the most influential voice in public policy. We truly believe it’s important to have an independent voice that receives no funding from political parties or from the government, and that’s what the Grassroot Institute does by design. We are not beholden to any special interests. We exist because there are people like yourselves who say, “We’ve got to have an independent approach to transforming Hawaii.”
So I want to thank you for being part of that. I invite you if you’ve not filled out a card like this to do so before you leave. Get one at the table. I want you to join me now in thanking Stanford Carr and David Arakawa for a wonderful presentation today.
Akina: Go up and see them, ask questions to them. To all of you, a big mahalo. Until next time, aloha. Aloha.