Attorney Scott Settle joins producer/host Coralie Chun Matayoshi to discuss legislation including short term rentals, residential housing density, and residential housing on commercially zoned property and a Honolulu City Council proposal to significantly tax homeowners who leave their property vacant instead of renting them out. Other issues include the Department of Hawaiian Homeland “rent-to-own” and “paper leases;” progress on the ALOHA Homes program and Hawaii Public Housing Authority’s effort to replace 1,000 homes and build 10,000 new homes for low and middle income households and navigating Hawaii Coastal Zone Management regulations in rebuilding Lahaina.
Q. Lack of affordable housing was a top issue at the legislature. What bills passed to address this problem?
Three of the most high-profile measures include:
- Short Term Rentals – SB 2919 gives counties the authority to regulate short-term vacation rentals on their islands, including the right to ban them altogether. It clarifies that the transient accommodations are not considered a residential use and may be phased out or amortized by the counties. Beginning 1/1/2025, the measure also expands the scope of the transient accommodations tax law to include certain shelters and vehicles with sleeping accommodations.
- Residential Housing Density – SB 3202 directs counties to amend residential zoning restrictions to increase allowable density in urban areas by the end of 2026. Among other things, this measure requires all counties to allow at least two accessory dwelling units per residential lot, subject to certain restrictions. It also prohibits new private covenants that limit the number of accessory dwelling units on residentially zoned lots below what is allowed by State law. Part II requires the director of the county agency responsible for land use decisions to have full authority to act on subdivision, consolidation, and resubdivision requests for residential parcels, and Part III requires that impact fees assessed for new development be substantially related to the actual and anticipated additional demands on public facilities resulting from the development.
- Residential Housing on Commercially Zoned Property - HB 2090 allows residential uses in areas zoned for commercial use under certain circumstances beginning next year. It also requires each county to adopt or amend its ordinances and building codes to allow for adaptive reuse of existing commercial buildings no later than 1/1/2025.
Other affordable housing bills passed this session include:
- County Administration of Housing Projects – SB 2337 clarifies the authority of county administrators to exercise the same powers as HHFDC when constructing, developing, or otherwise providing low and moderate-income housing and mixed-use projects (such as acquiring land, providing loans, contracting with developers), with some limitations.
- Exemptions for Housing Projects – SB 2066 was intended to expand the range of housing projects eligible for exemptions from zoning and other rules and requirements. Previously, projects had to meet standards approved by a state housing entity to qualify for the exemption: HHFDC required the majority of the units in a project be affordable to households with incomes below 140% AMI, and some counties had additional, stricter affordability requirements for eligibility. Now, there’s some ambiguity in how this is going to work, but the statute ostensibly allows projects to receive exemptions if all units are restricted to Hawaii residents who don’t already own other residential properties, even if they are less affordable.
- Funding for Housing Infrastructure – SB 2133 allows HHFDC to issue bonds to finance housing and state infrastructure projects, and a related measure (SB 1099) allows counties to use county surcharge funds for housing infrastructure and county-appropriated housing infrastructure costs.
- County Affordable Housing Credits – SB 1170 requires counties to offer affordable housing credits to units developed under HHFDC programs.
- Preventing RHRF Grant Funding – HB 1763 repeals a previous authorization that allowed the use of Rental Housing Revolving Fund funds for grants to qualified affordable housing projects. It also bars “forgiveness” of RHRF loans unless the project has been foreclosed. This measure may have significant negative impacts for nonprofits that rely on RHRF funding to fill gaps in available financing for affordable housing projects.
- Bond Recycling – HB1760, on a more positive note, authorizes HHFDC to establish a “bond recycling program” which is something a couple other states have done with some success, including California and New York. Private activity bonds are a key source of financing for affordable housing projects, but states have a limited amount of funding available based on the size of their populations. Bond recycling allows the state to stretch that money by reusing proceeds from bonds that are only needed for a short time (such as during construction). These “recycled” funds can be used for other projects without it counting against the state’s total cap. That’s a very simplified explanation of how it works, but what it boils down to is that there will be more potential funding available for affordable housing.
Q. What about measures that were proposed but haven’t made it into law this session?
There were quite a few housing-related proposals this session that didn’t make it into law, including:
- HB 2361– would have authorized HCDA to assist state and county agencies on projects located outside designated community development districts (note this one is still pending and may still pass)
- SB 2344 – would have allowed HHFDC to consider using any available federal low-income housing tax credits to construct permanent supportive housing units for unhoused people
- SB2804 – would have allowed large landowners to petition the land use commission to allow the construction of housing for senior citizens on agricultural land
- SB3047 - would have broadened and codified an existing exemption from environmental impact statement requirements for certain affordable housing projects.
- SB2175 - would have allowed counties to reclassify up to 100 acres of rural, urban, and agricultural land for residential use if at least 75% of the units on the land agreed to create a set aside for housing restricted to people earning less than <100% AMI
- SB2976 - would have required water authorities to prioritize affordable housing over some other kinds of development when allocating freshwater resources
- SB 2204 - would have allowed counties to skip environmental review and other technical study requirements when petitioning for land use district boundary changes
- SB2335 - would have required cost benefit analysis before any updates were made to the state building code (but note HB2089 HD1, a very similar bill, is still pending and would also slow down existing processes for the mandatory adoption of international building code updates).
Q. Last year, the Honolulu City Council proposed a measure which would increase taxes significantly for homeowners who leave their properties empty instead of renting them out. Did this measure pass?
No, that particular Honolulu City Council measure didn’t pass, but this idea comes up fairly often. The immediate problem is that these proposals are basically impossible to enforce. You just can’t really tell whether people are living in their houses or not without seriously invading their privacy, and some kind of system where people have to voluntarily disclose that they are not full-time residents is just not that likely to work. Another approach is to apply higher tax rates when the same person owns multiple residential properties. Maui County has an ordinance, for example, that automatically applies short-term rental tax rates to second homes unless they are occupied by long-term renters. That approach is probably more likely to pass constitutional muster, and may move the needle a bit to increase available rentals in the short term. But over the long term, it can backfire and create more have and have nots, with high end housing just absorbing the additional RP tax cost and becoming even further out of reach to anyone other than the most elite. I think the better method for providing more homes to local families and kupuna is to incentivize building more for them in the urban core where infrastructure and services exist.
Q. Do you think the Department of Hawaiian Homeland’s “rent-to-own” and “paper lease” awards will help reduce the back log in the beneficiaries’ wait list?
DHHL traditionally has offered beneficiaries homestead lots through 99-year leases at $1 a year, but beneficiaries have to pay for their own homes. Out of the nearly 30,000 beneficiaries on the waitlist, more than half don’t qualify for mortgage financing. So, DHHL’s rent-to-own option is intended to provide another path towards home ownership. Rentals in the program are reserved for low-income beneficiary households. Although no portion of the rent is applied towards a purchase, after 15 years, participants can buy their homes at an affordable price based on their income when they first started renting. “Paper leases” are another tool DHHL has used to move people off of the waitlist – these are also called “undivided homestead leases.” They give the recipient property rights in a subdivision project where the land may not be ready for near-term use. One of the main advantages is that paper leases can be passed to family members with 25% Hawaiian heritage, while waitlist spots can only be inherited by people who are at least 50% Hawaiian. This helps families who may have been on the waiting list for decades make a succession plan.
Both of these programs have been around for a while but aren’t without critics. For example, there has been controversy over the fact that this effectively allows beneficiaries with lower incomes jump the line in front of wealthier beneficiaries who may have been waiting longer. Paper leases can be helpful for some families, but they also don’t guarantee that housing will be available anytime soon: some people have been holding them for over a decade. In short, neither of these programs is going to shrink the waitlist overnight, but that doesn’t mean they aren’t going to be helpful for some people. I don’t think we can get around the real problems, which are that there aren’t enough units available and many beneficiaries can’t get the loans they need.
Q. What is happening with the ALOHA Homes program that the Legislature passed as a pilot project last year?
The ALOHA Homes proposal was loosely based on Singapore’s public housing model. The basic idea is that the State builds low-cost residential condo units on public land and sells them outright to qualified residents, but keeps ownership of the land, which is rented to the owners under 99-year leases. A small scale pilot program was awarded minimal funding last year to allow HCDA to build an initial condo project within one mile of the Honolulu Rail Transit System. The project is still in very early days – so far, HCDA has mostly just done feasibility studies and consultations with real estate developers, but the agency has said it plans to issue RFPs to identify a developer to build the condominium (and recoup costs through unit sales) sometime this year.
Q. The Hawaii Public Housing Authority set an ambitious agenda of replacing 1k dilapidated units and adding over 10k new homes for low and middle-income households using a private master developer to reduce expenses and save time. What kind of progress have they made?
We’re already seeing significant progress being made. Earlier this year, HPHA broke ground on a new complex on School Street that as planned will be able to offer 800 units to seniors who are making 30% and 60% of the area median income. The Ka Lei Momi Redevelopment Plan includes nine additional redevelopment projects and planning is underway for them as well. Those projects are projected to replace 1,187 existing public housing units and add up to 10,880 affordable residences for people at a wide range of income levels. Some of those projects are still in early stages of development, and 10k is a very ambitious goal that would require years to complete and billions in funding even under the best of circumstances. However, I think we’re already seeing that redevelopment projects can be completed efficiently and cost-effectively through public-private partnerships where developers are given some flexibility and provided sufficient subsidies to allow them to restrict units to affordable rates.
Q. Hawaii’s Coastal Zone Management Act regulates building near coastlines and requires landowners in designated zones to go through an elaborate permitting process before building. How will this affect property owners trying to rebuild in Lahaina?
Most of the Lahaina burn zone falls within a “special management area” regulated by the Maui County Planning Department under Hawaii’s Coastal Zone Management Act. Building in this area is normally subject to an extensive permitting process, including, in many cases, the completion of a public hearing where anyone can voice objections to the project. Commercial and multi-family structures require even more steps. It’s not crazy to expect that getting a building permit could take upwards of three years, and likely even longer as the backlog grows. Governor Green temporarily suspended the Coastal Zone Management Act in Lahaina under his Emergency Proclamation Relating to Wildfires. Maui County now also has a recovery permitting center which can issue rebuilding permits. So far, it is only open for residential properties, but it should help accelerate processing while lots are being cleared and drinking and wastewater systems are restored. The rules for commercial properties are still up in the air. Another issue beyond the timing of permits is that many of the structures on Front Street were built before coastal setback rules existed. Many would not be allowed at all under modern regulations. Even if the County grants exceptions to let people rebuild structures as they existed before the fire, it may be very difficult to insure any rebuilt properties located within a flood zone. It’s possible that any exceptions granted will be subject to legal challenges. The emergency proclamation also won’t last indefinitely. Therefore, the short answer here is that while there are signs that permitting requirements are going to be loosened for people seeking to rebuild in the burn zone, there’s still quite a bit of uncertainty, and in the medium and long term we may need legislation at the county or state level to reflect the way the community wants to see rebuilding happen.
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Disclaimer: this material is intended for informational purposes only and does not constitute legal advice. The law varies by jurisdiction and is constantly changing. For legal advice, you should consult a lawyer that can apply the appropriate law to the facts in your case.