AFFORDABLE HOUSING:
An analysis of issues facing Kaka'ako and possible solutions
May 7, 2012
Nicole Brodie, Mukarramah (NFN), Anthony Weersing, and Justin Witty
A report provided to HCDA on behalf of UH Practicum course PLAN 751
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Contents DEFINITIONS................................................................................................................ 4
SUCCESSES OF HCDA’S KAKA‘AKO PLAN......................................................................... 5
HCDA Vision .............................................................................................................. 5
Increase housing stock.................................................................................................... 5
Lower Construction Costs .............................................................................................. 6
Risks and Concerns .................................................................................................... 9
Provide community amenities .......................................................................................... 9
For Further Consideration .......................................................................................... 10
Non-Residential Ownership ........................................................................................... 12
Gentrification ............................................................................................................. 13
Homelessness ............................................................................................................. 13
For Further Consideration .......................................................................................... 14
Inadequate Economic Opportunities ................................................................................. 15
For Further Consideration .......................................................................................... 15
RECOMMENDATIONS .................................................................................................. 16
Lower overall cost of living ............................................................................................ 16
Housing cooperatives and niche housing ............................................................................. 17
Support community development credit unions and the state bank............................................. 18
GREENFIELD DEVELOPMENT IS EASIER AND CHEAPER THAN BROWNFIELD ...................... 18
CONCLUSION ............................................................................................................. 21
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INTRODUCTION As variable as the notion of “home” may be, most people can find truth in the old adage, “home is where the heart is.” If so, then making a home can be an emotionally charged process involving a myriad of choices and motivations. Is this is a good place to raise my kids? Can my mom stay with us and have her own space? Is there room to have everyone over to watch the game? Do my neighbors speak my native language? Can I feel safe leaving my kids next door? These questions and their answers are what help people define home. For most of Oah‘u’s residents, an urban setting does not fit into their vision of home. Many who profess a desire to “keep the country country” simultaneously eschew living in the city, even though doing so would alleviate sprawl and would help preserve said country -building more homes in the urban core would spare farmland, green fields, and rugged open space from being turned into single-family tract housing. For many years, the urban core has also been unable to satisfy of the most significant factors related housing decisions: affordability. Hawai‘i suffers from the third worst rate of homelessness in the nation. This sorry reality is just one expression of the high cost of housing, which affects everyone as well as every aspect of the economy. With households spending so much on housing and transportation, little money remains for discretionary spending on shopping, dining, or recreation, which thus impacts businesses. Inaffordability has forced people to compromise their vision of home and it may also hinder the Hawai‘i Community Development Authority (HCDA), the state agency overseeing the development of Kaka‘ako, from successfully fulfilling its. Kaka‘ako is an area of Honolulu, which for decades has been targeted for development opportunities. The timing, economics, and political conditions have finally aligned to the point where development seems more likely than ever. There is talk of mixed-use space—commercial and residential in the same building; mixed-income residences—low-income and high-income families on the same block; and a focus on reserved and workforce housing—housing for people who earn a decent living but still struggle with affordable housing. Increasing urban density, or in-fill development, if done intelligently, can encourage environmental sustainability as well as reduce transportation costs and traffic congestion. If Kaka‘ako’s potential is made manifest, it could be the ‘game-changer’ for Honolulu, which would finally be recognized as a city instead of ‘town.’ An examination of HCDA’s master plan for the mauka area of Kaka‘ako reveals sound policies and a progressive vision; however, if measured against definitions of sustainability commonly used in the planning field—a balance between environment, economy, and social equity—the plans could do even more. One of the greatest challenges facing HCDA will be convincing people who dream of white picket fences that “home” can be in an urban setting and affordable. Their current housing plans, however, are liable to create a surplus of market-rate residential units and a deficit of affordable ones. This paper will focus on the social equity element, particularly as it pertains to affordable housing. To make this vision of Kaka‘ako a reality, a robust plan that advises and instructs developers to provide genuinely affordable housing is essential.
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DEFINITIONS
Area Median Income (AMI) As measured by the US Department of Housing and Urban Development (HUD), the AMI is the median household income earned by a family of four within a particular area. The AMI for Honolulu County is $82,700 and this baseline is referred to as 100%AMI. From this, comparisons can be made of how much more or less other households make. Affordable Housing Affordable housing is defined as no more than 30% of a household’s income spent on housing payments, which could be rent or mortgage payments. Specifically, HCDA defines affordable as: “monthly rent and all utilities and other building operating costs (excluding telephone, cable television and internet service) shall not exceed thirty-three percent of the renter’s gross monthly income.”1 According to the Center for Neighborhood Technology (CNT) Affordability Index, 42.4% of Honolulu households are paying more than 30%, which means they are over-burdened by housing costs.2 Housing and Transportation Affordability (H+T) Because people often commute greater distances in exchange for a less expensive home, housing and transportation are inextricably linked. In August 2011, HUD contracted the Manhattan Strategy Group to develop a national Housing and Transportation Index. According to Kathryn Tholin, CEO of CNT, “Transportation costs are the second largest expense in a household budget, but they are often not considered when people choose where to live or developers choose where to invest.”3 Housing and transportation are considered affordable when they comprise no more than 45% of a household’s income. Using the housing-and-transportation metric, the percentage of households in Honolulu over-burdened by H+T is 59.5%. Increased lack of affordability is part of the justification for transit-oriented development. Mixed-Income Neighborhood A neighborhood is considered mixed when it has an even distribution of incomes as measured by the concentration of low and high AMIs, various levels of education attainment from less than high school to associate and higher degrees of education, and representation from five income categories.4 Mixed-income communities thus offer greater diversity and vibrancy. Inclusionary Zoning Inclusionary zoning requires private developers to ensure that a certain percentage of their units are affordable.5 HCDA requires any residential housing developer that builds multi-family dwelling units on a lot greater than 20,000 square feet to set aside 20% of the total residential floor area as affordable housing for low and moderate income residents.6 Inclusionary zoning reduces residential economic segregation by mandating that a mix of incomes be represented in a single development.
1 Kaka‘ako Reserved Housing Rules, 6 2 “H+T Affordability Index 2011.” 3 Gonzalez, “HUDNo.11-180.” 4 Spaid, Mixed Income Defined: An Examination of Income Diverse Neighborhoods and What Keeps Them Stable, 5 5 Schuet, Meltzer, and Been, Silver Bullet or Trojan Horse? The Effects of Inclusionary Zoning on Local Housing Markets, 6 6 Kaka‘ako Reserved Housing Rules, 6
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SUCCESSES OF HCDA’S KAKA‘AKO PLAN
Economically speaking, a limited number of mechanisms can improve affordability. These include increasing the supply of houses to drive down the price, reducing the cost of construction, publicly providing amenities that people would have to pay for otherwise, developing housing programs to support lower income residents, increasing wages, and mitigating the hardships of rising prices. HCDA plans outline many of these options. HCDA Vision The Mauka Development Plan states, “The Hawai‘i Community Development Authority’s vision is to ensure that the Kaka‘ako Community Development District becomes the most sustainable, livable urban community in the State, a place where people can work, live, visit, learn, and play.”7 This vision statement clearly outlines the values that HCDA espouses as it develops this area. In terms of affordability, their vision is vague but there is an emphasis on the desire for sustainable, mixed-income neighborhoods and the plans as described in this section demonstrate HCDA’s consideration of affordable housing development. Increase housing stock Following the laws of supply and demand, increasing the number of available homes increases competition between sellers and landlords, which in turn, drives down prices. Housing stock can be increased by: building new homes, renovating dilapidated dwellings, or increasing vacancies. Generally speaking, houses in Honolulu are neither old nor in great disrepair, so renovation would not be an effective means of generating stock.8 However, the creation of new homes in Kaka‘ako, however, could be an important step in lowering housing costs in Honolulu.
By 2030, Kaka‘ako is projected to grow by another 10,000 people, its housing supply will increase by 17,417 units, and 8,366 more jobs will be added (while the population will increase 33%, the number of households will grow at a slower rate as households comprise multiple individuals). Since 1982, 1,388 affordable units (rental and sale) have been built in Kaka‘ako for a total of 1,575 units, which is 1.1% of total housing units in urban the Honolulu CDP. Another 758 units are under construction or permitted (See Table 1).9 Kamehameha Schools plans on building 2,750
market rate units as well as 500 affordable units. However, affordable units are likely dependent on the successful construction and sale of market units. While market-rate units have been selling very well in Kaka‘ako over the past few years, multiple new developments occurring at once could flood the market beyond demand.
7 Hawaii Community Development Authority, Mauka Area Plan: Kakaako Community Development District. 8 SMS Consulting, LLC, Hawaii Housing Planning Study, 2011. P.10 9 Hawaii Community Development Authority, “Affordable Housing Map.”
0 10000 20000 30000 40000 50000 60000 70000 80000
Popula1on Housing Units
Jobs
2010
2030
33% 37%
12%
Figure 1: Projected Growth in Kaka‘ako1
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Table 1: Affordable Housing Supply in Kaka‘ako10
No Location # of AH
units Types
151 Senior rentals 1 Honoakaha (HCDA)
93 Reserved condo units
2 Keola La‘i (permitted) 63 Reserved condo units
3 Pohulani (HCDA) 263 Senior affordable rental units
4 Royal Capitol Plaza 28 Reserved condo units
5 Na Lei Hulu Kupuna (HCDA) 76 Senior affordable rental units
6 Kauhale Kaka‘ako (HCDCH) 268 Affordable rental units
7 Moana Vista (permitted) 124 Affordable units to be included
8 Kamakee Vista (HCDCH) 227 Affordable rental units
18 Affordable rental units 9 1133 Waimanu
264 Affordable condo units Aff
orda
ble
Uni
ts C
urre
ntly
in K
aka‘
ako
TOTAL 1,575
10 680 Ala Moana Boulevard (KS) 54 Affordable rental units for a
family of three with median-income of $75,000
11 Halekauwila Place Estimated to start in Q2 2012. Developer: Stanford Carr Development, LLC
204 Affordable family rental housing units to families earning 60% of AMI.
12 690 Pohukaina (HCDA) 500 There are three phases to this
project. Aff
orda
ble
Uni
ts
Pla
nned
TOTAL 758
Lower Construction Costs Table 2: Honolulu Construction Pro Forma
Out of 22 metro areas, Honolulu’s construction costs are among the highest in the nation.11 Obviously, when homes cost a lot to build, developers must raise the unit sale price in order for the project to make a profit or “pencil out.” Fortunately, there are ways to reduce construction costs, particularly when an agency like the HCDA becomes involved. Table 2 is an example of a developer’s pro forma or cost analysis for a high-rise residential development in
10 Star-Advertiser Staff, “Kamehameha Schools Begins Work on Kaka‘ako Apartment Project”, Hawaii Housing Finance & Development Corporation, 2011 Annual Report. 11 SMS Housing Conditions – Draft Report Jan 2012
Summary Categories Per Unit Per/Ft2 Total Cost Project Cost (%)
Land and Building $57,143 $63.47 $4,000,000 14.0%
Site Work $14,286 $15.87 $1,000,000 3.5%
Rehab & Construction $183,681 $204.02 $12,857,659 44.9%
Contingency $10,514 $11.68 $736,000 2.6%
Permits & Fees $643 $0.71 $45,000 0.2%
Architecture & Design $12,365 $13.73 $865,544 3.0%
Interim Costs $42,857 $47.60 $3,000,000 10.5%
Financing Costs $3,946 $4.38 $276,225 1.0%
Soft Costs $11,558 $12.84 $809,083 2.8%
Syndication Costs $0 $0.00 $0 0.0%
Developer’s Fee $61,264 $68.05 $4,288,498 15.0%
Project Reserves $11,099 $12.33 $776,956 2.7%
Total Costs $409,357 $454.67 $28,654,965 100.0%
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Unbundling Parking Cities such as San Francisco and Portland have gone even further by separating or “unbundling” the cost of parking from their housing. Not only does unbundling parking relieve the developers of a cost burden, but as San Francisco’s Transportation Commission explained, “unbundling parking is an essential first step towards getting people to understand the economic cost of parking and providing users with the opportunity to opt out of parking and make alternative travel decisions.” a San Francisco hopes to go even further and pass laws that will not allow individuals to own parking spaces, thus preventing owners from including parking in the sale or rental of their units. In some areas, this policy has allowed both cities to halve their resident parking. For Honolulu, the demand for parking will remain high if the city does not create or support viable transportation options. (Institute for Transportation and Development Policy n.d.)
Honolulu. It outlines how construction costs alone require houses to be sold at market or luxury rates for the project to pencil out. Reducing the costs of any or all of these items can reduce the overall cost of construction.
Reviewing the HCDA’s perks and exceptions for developers in Kaka‘ako reveals their understanding of the difficulties developers face. For developers building reserved housing, for example, HCDA has adjusted the minimum size of the units and lots in order to allow for smaller and differently configured units. Obviously, the smaller units require less material and are therefore less expensive. HCDA also waived fees and fast-tracked permitting. Shortening the construction period can save developers money by reducing the amount of time that the interest on their loans has to accrue. Another important step taken by HCDA to assist with development costs was to reduce the parking requirements. General development standards in Hawai‘i demand that a certain quantity of parking be provided for every building -everything from laundromats to hotels and bowling alleys all have regulations for how much parking they need to supply. While parking is a logical and necessary amenity, it can greatly increase construction costs. For example, a parking garage was recently built for the new Alapai Transit center in Kaka‘ako, and the estimated cost of construction was $20 million for 418 stalls, or $47,000 per space.12
Table 3: Parking Requirements13 Understanding this added cost burden, HCDA changed parking standards for Kaka‘ako. Table 4 shows the difference between standard requirements for parking stalls per unit and the modified standards of HCDA. Considering the number of large units slated to be built in Kaka‘ako, these changes will certainly make a difference in reducing the costs of housing construction. An added benefit will support the HCDA’s transit-oriented development plans by encouraging residents to consider alternative modes of transportation, which would also save residents money.
12 Heu, “City Breaks Ground on New Traffic Management Projects.” 13 Office of Council Services, Revised Ordinances of Honolulu 1990.
Size of the Dwelling Unit Standard * HCDA**
Under 600 ft2 1.1 1
Between 600 and 800 ft2 1.6 1.25
Over 800 ft2 2.1 1.5
* Each building requires 1 guest parking stall for every 10 units
** There is no mention of a guest parking requirement
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For Further Consideration At present, most building material is shipped from the mainland, thus adding another costly element to construction. With organization and coordination, this cost could be reduced. In a typical construction project, a great deal of waste is produced and this ends up in landfills or the H-Power plant. While some waste can be converted into energy, Hawai‘i would be better served if construction materials were reduced or recycled, thereby reducing costs. Adopting LEED standards is another effective tool for reducing waste. While waste reduction is obviously in a construction firm’s economic interest, the practice of re-circulating unused materials is uncommon and should be encouraged. A third-party such as HCDA or Re-Use Hawaii can help establish material-trading schemes or mandates to ensure that materials on-island get used more efficiently. HCDA should continue to find ways to reduce construction costs for developers, as this is clearly a widespread problem throughout Hawai‘i and contributes greatly to the lack of affordable housing. Local materials are also available. Bamboo, one of the world’s fastest growing plants, grows well in Hawai‘i and has a higher tensile strength than steel. It could contribute to self-sufficient, sustainable, and affordable construction in Hawai‘i. Exploration into bamboo architecture’s potential in Hawai‘i should begin today.
Modular housing is another option for reducing construction costs. Labor and land are so much cheaper on the mainland that even with higher shipping costs, buildings prefabricated there can be brought here and assembled for less. The shorter construction time in Hawai‘i would also reduce the accrual of interest on the development loan. Unions might not be opposed to such construction, because while it decreases how much money they make per job, it could increase the total number of jobs. Modular buildings could quickly
increase the housing supply in an affordable way and provide solutions to Honolulu’s affordability issues.
Use Shared Equity & Inclusionary Zoning HCDA has established a program of shared equity where the agency retains a percentage of ownership of the dwelling unit, which allows them to share both the risks and the rewards of buying a home with the homeowners. This program provides low-income families access to asset-building opportunities and equity, of which many families are in desperate need. Honolulu’s high cost of living prevents many residents from saving money and acquiring assets, which are essential for enabling families to climb the economic ladder and handle financial crises like unexpected medical bills or major car and home repairs. Shared equity
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programs also ensure that the homes remain affordable in perpetuity by allowing HCDA to retain a level of control over the unit and by having the first option to buy back the units from homeowners. Inclusionary zoning is not only a mechanism to provide affordable housing; it creates mixed-income neighborhoods a manner that is beneficial to the residents and the community. Middle and upper income communities often have many more amenities and services than those in lower-income communities. Increased access to these opportunities for lower-income residents can lead to better jobs, higher wages, and interracial friendships with neighbors.14 Integrated neighborhoods reduce stigma and disenfranchisement for low-income residents, increase connections to job opportunities and resources, provide models of economic success, and facilitate interactions between people of different cultural backgrounds. They cultivate social capital that can be essential to improving economic mobility opportunities and the overall quality of life for all residents. Risks and Concerns The intent of inclusionary zoning is laudable because mixed incomes are crucial to creating a vibrant community that genuinely celebrates diversity. Unfortunately, there are drawbacks to this particular mechanism. Municipalities such as Los Angeles and New York razed low-income housing in favor of inclusionary zoning, which resulted in a net-loss of affordable units. While this is not an issue for Kaka‘ako, inclusionary zoning presents other difficulties. In order to subsidize the cost of building reserved housing, developers will likely raise the prices of the market rate units, thus further inflating the median home price. Predicating the completion of affordable units on the success of market rate units brings greater risk. For example, when the demand for market rate homes is satisfied, new construction will cease and so will the creation of much-needed affordable units. Additionally, if developers leave building the affordable units until last, they may instead opt to pay the penalties outlined in the inclusionary zoning laws.15 While this could help HCDA subsidize other projects, it would ultimately leave the city without the housing it needs. Fortunately, HCDA is requiring that the majority of affordable units in the 690 Pohukaina development be part of the first phase of construction. However, the fact remains that the 20% designation for reserved housing is insufficient to meet the demand for affordable housing and will continue to encourage the purchase of homes by non-residents. HCDA should therefore exercise restraint in emphasizing inclusionary housing and ensure that there are other mechanisms available to satisfy the demand for affordable housing in Kaka‘ako. Provide community amenities HCDA states: “Neighborhoods shall include necessary public facilities including community meeting places, child care centers, educational and cultural facilities, recreational amenities and a good transportation system.”16 Community amenities can save residents money by dispersing or redirecting costs and by providing close and convenient services. Furthermore, places such as grocery stores, parks, schools, religious institutions, and commercial strips can be significant factors in maintaining a stable mix of people with different socio-economic backgrounds. Sometimes referred to as social seams, these are the places where diverse communities are sewn together.17 Social seams create opportunities for interaction among
14 Spaid, Mixed Income Defined: An Examination of Income Diverse Neighborhoods and What Keeps Them Stable. P.6 15 Hawaii Community Development Authority, Mauka Area Plan: Kakaako Community Development District. 16 Spaid, Mixed Income Defined: An Examination of Income Diverse Neighborhoods and What Keeps Them Stable. P.4 17 Ibid.
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people of different socio-economic backgrounds, foster relationships that might not otherwise have formed, and are significant factors in maintaining a stable mix of racial or ethnic populations. Providing nearby amenities like day-care can be a huge boon that far outweighs the costs to residents and the community. It makes sense, however, to “unbundle” or separate out other amenities such as parking. In addition, unbundling utility costs such as electricity (including water heaters) and water could provide incentives for people to reduce their usage by rewarding them with lower bills. For Further Consideration Some apartment buildings in Honolulu have so many amenities and so much security that the maintenance fees can run over a thousand dollars a month. Housing costs could be reduced if these perks were instead provided at the community level rather than the building level. As discussed later, cooperatives could offer a mechanism whereby people who live together can agree on which amenities (e.g., pools, gyms, rooftop parks, and building-wide wi-fi) would be worth higher maintenance fees and which would not. The key to potential cost savings is to determine which choices should be based on individual subscription and which should be provided to the community as a whole. Furthermore, opening up buildings’ rooftop gardens and tennis courts to public access could increase the amount of open space in the area without reducing the amount of land for development, thus adding a third dimension to the ratio of open space to buildings. SIGNIFICANT BARRIERS TO SUCCESS Unmet Demand Table 4: Financial Qualifications for Honolulu Residents:18
High land and construction costs, seemingly high incomes, and the desirability of homes in Hawai‘i create a market for very high-end units. In 2010, Hawai‘i had the highest rents in the nation with Honolulu ranked fifth out of 940 metropolitan areas.19 Many prospective homebuyers in Honolulu do not earn enough to afford a median priced home nor do they qualify for a mortgage. Hawai‘i’s median income is one of the highest
in the nation, but after adjusting for cost of living, Hawai‘i’s incomes are the lowest.20 San Francisco or New York may be more expensive cities but they also have higher median incomes to compensate. Table 4 illustrates the extent of the problem for Honolulu residents. A mere 13% of Honolulu residents would qualify for a mortgage on a median-priced single family home and have payments within the definition of affordable. That number only increases to 27% if homebuyers opt for condominiums.21 The vast majority of renters who would like to buy earn less than 140% of median AMI. Meanwhile, 43% of Honolulu households want to move from their current residence and 12% of those want to leave Hawai‘i, which leaves 31% or 97,429 of households wanting to find and make another home on O‘ahu. Clearly, there is a huge disparity between what people want and what they can afford.
18 Ibid. P.17 19 SMS Consulting, LLC, Hawaii Housing Planning Study, 2011. 20 Hawaii Appleseed Center for Law and Economic Justice, State of Poverty in Hawaii & How to Restore Our Legacy of Fairness. P.6 21 SMS Consulting, LLC, Hawaii Housing Planning Study, 2011. P.16
Single Family Home
Condos
Median Sales Price $570,000 $316,500 Down Payment Required $114,000 $63,300 Monthly Mortgage Payment $2,448 $1,359 Total Effective Demand for Buyers 24,355 14,309 Can afford monthly payments 35.6% 58.7% Have Adequate Down Payment 19.9% 31.6% Fully Qualified 13.5% 30.1%
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Since a household is defined as an occupied dwelling unit, there is another element that distorts demand –many people in Honolulu compensate for the high cost of living by sharing dwellings and bedrooms. Even with its comparatively smaller houses, Honolulu suffers from one of the highest rates of crowding (8.7%) in the country. In 2011, 22.9% of Honolulu households were crowded (more than 1.01 persons per room) or doubled up (more than one family group per housing unit). Considering that one third of people would like to move; the majority of people would eventually like to own a home; and so few people can actually afford one; more affordable housing is clearly needed for renters and buyers. An example from the past decade illustrates how the demand for affordable housing far exceeds supply. In 2005 and 2006, the developer Alexander & Baldwin offered 148 units priced between $275,000–$309,800 in their Keola La‘i condominium tower. They received 1705 applicants for an acceptance rate of 8.7%. This clearly left many families still searching for affordable housing.22 There are currently 9,000 applicants on the waiting list for public housing; meanwhile, the Section 8 Housing Choice Voucher Program, which was suspended indefinitely in May 2005, is accepting no new applicants.23 In reality, the target group for affordable units in housing projects in Kaka‘ako is households with moderate income. As examples, 690 Pohukaina, a proposed mixed-used housing project, would have 300 affordable for-sale units targeted at four-person households that make $80,000 to $100,000 annually; the 680 Ala Moana housing project owned by Kamehameha Schools would provide workforce rental housing for a family of three that makes a median-income of $75,000 (100% AMI); and Keola La‘i Tower, at the corner of South and Queen Streets, sold units at below-market prices in 2006 to those who had not owned a home in at least three years and did not earn more than $84,688 (over 140% AMI) for individuals, or $94,850 (over 140% AMI) for a family of two or more. These units are available to families with moderate-income, not low-income so this indicates that households earning 100% AMI are also in need of affordable housing.
Table 5: Levels of Affordability in Honolulu24
For Further Consideration Besides the absence of affordable housing for low-income people in Kaka‘ako, the prices of affordable units in Keola La‘i, for instance, range from $275,000 to $375,000. This is equal to 32% to 44% of the income for singles and 29% to 40% of the income for families, which is by definition unaffordable. A development such as 690 Pohukaina also raises the question of whether it will really alleviate the housing crunch. The track record of recent development in the area suggests that the main tower will be comprised of middle- 22 Gomes, “63 Win Chance to Buy for Less at Keola La‘i Tower.” 23 Hawaii Appleseed Center for Law and Economic Justice, State of Poverty in Hawaii & How to Restore Our Legacy of Fairness. P.10 24 Hawaii Community Development Authority, Mauka Area Plan: Kakaako Community Development District.
HCDA Income Group Household Income Range Need in Kaka‘ako
in 2005
Very low income
Less than $46,349 (50% AMI)
12%
Low and Low-Moderate
$46,350 to $74,159 (50%–80% AMI)
26%
Hula Mae $74,160 to $89,319 (80%–120% AMI)
7%
Reserved Housing (less than
140%)
Workforce Housing
(100%–140% AMI)
Unserviced, Unassisted
$89,320 to $104,200 (120%–140% AMI)
55%
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to-luxury priced condos. To be able to afford a unit such as this, a household earning the median income would likely need, at minimum, $100,000 in cash (for down payment, closing fees, and moving costs) and an annual income of $97,000. Without very generous government subsidies and incentives, it is likely that the bulk of housing stock added in Kaka‘ako will comprise up-market units. The likelihood of this is taken up in another practicum paper. A likely result is that the community will go through pronounced gentrification, which raises property values. According to Wells Fargo Bank and the National Association of Home Builders, 43.4% of homes in Honolulu were affordable for median-income households in the first quarter of 2011.25 If residents cannot afford to purchase these condos, who can? Studies find that costs are persistently high in part because of non-resident buyers. Non-Residential Ownership The mismatch between residential incomes and unaffordable housing prices indicates that other forces besides the high costs of construction are driving the market prices and demand. Clearly, people are buying homes and continuing to drive demand. Ironically, the state’s biggest industry—tourism—exacerbates one of its biggest problems—lack of affordable housing, which makes lasting solutions all the more difficult to achieve. The appeal of Hawai‘i’s oceans, mountains, and weather, combined with its modernity leads people from all over the world to want to visit and live in Hawai‘i. Meanwhile, the state spends tens of millions of dollars every year advertising these attractive features to boost the tourism industry on which the state depends economically.26 Unfortunately, as Hawai‘i draws more and more people to its shores, more non-residents purchase properties, distorting housing demand and pushing up the market rate and prices for residents. In the US, Hawai‘i has one of the highest levels of housing stock reserved for seasonal use. Non-residents own 15.4% of all condos, and 8.4% of all housing.27 In 2011, Prudential Locations reported that 25% of Honolulu homebuyers are non-residents.28 Hawai‘i is the second worst state in the nation in terms of local homeownership, and only 56% of people in Honolulu own their homes.29 When people own their residences, they have a greater stake and interest in the property and a greater sense of rootedness in the community than if they were renting, and certainly more than if they merely visit a few times a year. If Kaka‘ako is to thrive as HCDA hopes, local homeownership must be an integral element of that vision. This past legislative session, a proposed bill would require property that is not occupied by the owner local be managed by property managers. The intent is to ensure that non-residents pay the taxes on real estate earnings but this legislation stirred up controversy and great opposition among non-resident homeowners who claimed that these new requirements would be so costly that it would no longer make sense for them to own their property. In addition, fewer non-residents will be attracted to investing in Honolulu real estate (this could have a similar effect on resident owners and could push rents up). If this is true, such legislation could help increase the supply of housing by deterring non-resident ownership. If Honolulu were successful in reducing the cost of housing, there would be little to stop mainlanders from making Hawai‘i their permanent residence and dominating the housing market. As immigration restrictions cannot apply to residents of the United States, if people from the mainland choose to make Hawai‘i their
25 Umberger, “Tourism Propping up Honolulu Market.” 26 SMS Consulting, LLC, Housing Conditions. 27 SMS Consulting, LLC, Hawaii Housing Planning Study, 2011. 28 Scontras, “Local Investors Still Lead the Way in Purchasing Oahu Real Estate.” 29 SMS Consulting, LLC, Hawaii Housing Planning Study, 2011.
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permanent residence, it will be difficult to stop them from buying or renting the affordable housing. While it might make sense to reserve the affordable housing specifically for long-time residents—for instance, by requiring proof of kama‘aina status for five years—such restrictions could hinder Filipino and Micronesian immigrant populations from housing their families affordably. Carefully constructed eligibility requirements for purchasing or renting affordable housing are recommended. Gentrification As neighborhoods are revitalized, residences and businesses almost inevitably increase in value as the area becomes more attractive. This, unfortunately, often leads to locals being priced out through increased rents and property taxes. As more affluent people move into the community, they may change the mixed-income and multi-cultural traits that made the neighborhood so interesting and vibrant. Ironically, an increase in property values is not only unavoidable; it is desirable. While gentrification seems counter to the vision of a mixed-income neighborhood, the increase in revenue generated for the state is how revitalization projects create returns on investments. However, the HCDA appreciates the importance of building a mixed-income community, which means they have to strike the right balance between allowing for growth and improvements while also stabilizing and maintaining a level of affordability to preserve diversity and accessibility. Affordable housing programs would mitigate the effects of this contradiction by keeping rents lower in perpetuity and allowing lower-income people to thrive in spite of economic changes. The agency is also working with businesses to help them relocate and provide them with resources to better handle the changes ahead. Homelessness Hawai‘i suffers from the third highest homelessness rate in the nation and the majority of homeless families have at least one adult working full- or part-time.30 Not only does this underline the need for affordable housing, but with 2,556 homeless citizens in Hawai‘i living without shelter, there is the risk that a renewed Kaka‘ako will find itself with even more people living on its streets with no way of fitting into the community as it is currently planned. The homeless are understandably attracted to safe places to sleep, public furniture to rest on, facilities to maintain hygiene, and high-traffic areas to ask for money or food. The State government and HCDA are working on solutions. Governor Abercrombie has formed the first interagency task force on homelessness and Senator Chun Oakland is working on developing a housing and services partnership. Both initiatives are designed to find long-term solutions to Hawai‘i’s homelessness problems and help people get back on their feet. However, the HCDA should consider more innovative options specific to Kaka‘ako. If they do not explore more proactive and varied approaches, they may find themselves clearing encampments every six months, which could be significantly more expensive than providing shelter.31 Plans for Kaka‘ako include working with the local shelter H5 to create a work-to-housing program that will provide work opportunities to help people eventually afford housing. Unfortunately, it is unclear what type of work opportunities will be provided and how these will be better than the employment that many homeless families already have. While most shelters in Honolulu are already filled to capacity, with scores of people lining up every night for a bed, not all people want to stay in group shelters. Some do not feel it is safe for their young children to be around so many strangers. Some shelters can have leaky roofs, bed bugs, roaches, or rats. Many
30 Hawaii Appleseed Center for Law and Economic Justice, State of Poverty in Hawaii & How to Restore Our Legacy of Fairness. 31 Hawaii Appleseed Center for Law and Economic Justice, Addressing Homelessness: New Approaches to Affordable Housing in Hawaii.
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shelters do not allow people to leave their possessions there, and places that do sometimes do not allow the residents to stay there during the daytime hours, thus separating people from their possessions.32 Most shelters do not accommodate pets, which often provide therapeutic sources of companionship. Homeless people and families can be seen every night asleep on the streets of Chinatown, Waikiki, and Kaka‘ako. The police often sweep them into other neighborhoods or parks, but that is both a short-term and costly answer. If Kaka‘ako is to be a safe and welcoming place for residents and families, then finding a place where homeless people can live legally and safely should be a top priority for the HCDA. For Further Consideration People without homes are much more likely to settle for very small, rudimentary accommodations if it means they have a semi-permanent place to sleep and keep their belongings. Simple, inexpensive dwellings could be experimented with in order to provide homes for those people who have to choose between rent and food. Other cities are exploring innovative groupings of temporary shelters that will allow people to have safe places to live, maintain hygiene, and even cook food.33 Some of them offer social services and resources to help people transition into permanent housing.
32 Blair, “Hawaii Homeless Shelter in Kaka‘ako Is ‘A Mess’.” 33 Steph, “Housing for the Homeless: 14 Smart & Sensitive Solutions | WebUrbanist.”
Bamboo huts in the Philippines offer a local, inexpensive construction solution for small, simple dwellings. Source: State of Poverty
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King County Tent City in Seattle, Washington and Dignity Village in Portland, Oregon (pictured below), are all examples of temporary encampments that allow people to live safe, healthy, independent, and self-sufficient lives. Similar encampments could provide a solution to the homelessness problem in Kaka‘ako. If HCDA were to provide living spaces that were dignified, even if rudimentary, for people of our community without permanent homes, it would benefit the entire community by creating safe and sanitary conditions for everyone in the neighborhood.
Inadequate Economic Opportunities Another means of improving affordability is to increase incomes. Honolulu’s two largest industries are tourism and government, which are not only unsustainable but offer few possibilities for economic mobility and achievement. The Cancer Research Center in Kaka‘ako makai should provide more economic opportunities in Kaka‘ako, but more consideration should be given to the area’s economic development. Without economic opportunities, local professionals may opt to seek jobs and homes on the mainland, where they can get better pay and are better able to afford housing. This brain drain exacerbates the shortage of opportunities for those people who stay. For Further Consideration As reiterated by Wei Fang of R/D, young professionals feel a dearth of opportunities here in Hawai‘i, and some are leaving the islands while others are starting their own businesses. By fostering job growth for young professionals, HCDA can bolster the economy. Office sharing, business incubators, subsidies for commercial spaces, and shared retail space such as indoor flea markets and kiosks are possible solutions. A cooperative commercial kitchen could disperse expensive restaurant overhead. Lemongrass in Chinatown is an example of a restaurant incubator that helps local cooks practice running a restaurant and building a clientele before going off on their own. Business cooperatives and shared space offer solutions to the lack of affordability while also spurring economic activity. HCDA can play a role in encouraging these ventures and bringing together people whose interests coincide in a way that could be mutually beneficial.
Dignity Village in Portland, Oregon presents a humane and socially just solution to homelessness. Source: historyofartandsocialpractice.tumblr.com
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RECOMMENDATIONS
Credit institutions being more cautious with their loans is a bad sign for developers on two fronts: one, it is now harder for them to get loans for construction, and two, it is harder for the prospective buyers to get loan approval.34 The credit crunch along with the economic downturn has eroded consumer confidence and constrained their ability to buy homes.35 However, considering the demand for housing and the opportunity to develop Kaka‘ako now, there are ways to mitigate these problems. Lower overall cost of living The general high cost of living in Honolulu adds to the difficulties faced by residents. The following chart illustrates how Hawai‘i compares with California and New York, two other expensive states. The average for the United States is set at 100. Hawai‘i’s costs are clearly the highest in the country (second highest was Washington, D.C., at 147). Table 2: Cost of Living Comparison36
While housing is a significant cost that needs to be addressed, utilities, groceries, and transportation are also large expenses. HCDA could emphasize the cost savings of living close to work as a recruitment message to attract residents to Kaka‘ako. Transit options such as rail could provide great relief for many residents, but until the Honolulu rail becomes a reality, reducing commute times by living closer to work is the next best option. The H+T formula for affordability will allow for slightly higher-cost housing components as long as that is offset by a significantly lower transportation component. The cost of groceries in Hawai‘i is the highest in the nation, and as the vast majority of food is shipped to the islands, this trend is likely to worsen as oil prices increase. Therefore, urban farming could serve as a mechanism to reduce grocery costs. Community rooftop gardens or building-wide garden clubs could help to reduce food costs by including the costs of garden maintenance in the housing fees and by relying mainly on volunteer labor. People could have access to inexpensive, organic produce, which they help to grow, within an urban setting.
34 SMS Consulting, LLC, Hawaii Housing Planning Study, 2011. 35 Ibid. 36 “Cost of Living 4th Quarter 2011.”
0 50 100 150 200 250
COMPOSITE INDEX Grocery Items
Housing U1li1es
Transporta1on Health Care
Misc Goods & Services
Cost of Living in 2011
Hawaii (167)
New York (134)
California (131)
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Electrical generation also being tied to oil, Hawai‘i’s electrical costs are the highest in the nation.37 With so much potential for renewable energy sources in Hawai‘i, they should be more aggressively pursued, along with more energy efficient building construction. An HCDA project in Kalaeloa seeks to build housing that produces as much energy as it consumes, which is exactly how all construction in Hawai‘i should be done for the sake of keeping island life sustainable, environmentally friendly, and cheaper. The company, Honolulu Seawater Air Conditioning LLC, is expected to build a facility that uses deep seawater to cool buildings in downtown Honolulu. This is another way that utility costs could be reduced for residents. Housing cooperatives and niche housing Cooperative housing is becoming increasingly popular and can be used for a range of incomes and shared interests. Cooperatives empower people by giving them control over their living space. With a financial stake in the property and the chance to vote on changes, the risks and rewards are agreed upon and shared. Artspace Hawai‘i is an example of cooperative housing run by a non-profit “to create, foster, and preserve affordable space for artists and arts organizations.” HCDA, having leased a 30,000 square-foot site to Artspace for the next 65 years, has demonstrated its understanding of the importance of these investments and should further promote this type of housing arrangement.38 This concept could be used to create cooperatives of university professors, computer programmers, or even cultural huis that emphasize Filipino or Samoan lifestyles. Cooperatives must ensure that anti-discrimination laws are followed, but within those parameters, residents can articulate their shared vision of home by providing the features that are most important to them. Owners can also dictate the type of amenities they want to pay for, whether it is a library, study lounge, building-wide wi-fi, or a communal kitchen and dining room. Such customized development creates greater choice in asset allocation and the possibility of cost savings through intelligent design. For example, minimalist styles, such as exposed brick and pipes, can reduce construction costs and create an eclectic and trendy space. Some people may even choose to share bathrooms and kitchens in exchange for lower monthly costs. The key to making these cooperatives successful is facilitating the processes that are needed to see these visions to fruition. HCDA should support the formation of new cooperatives by providing information, space, consultation services and other resources and incentives at its disposal. On the other end of the spectrum, some residents might be willing to pay extra if it means their home were fully self-sustaining or in a net-zero development. While such buildings are more expensive on the front end, this kind of construction could have lower operating costs, making them less expensive over the long term. Honolulu could gain a new, international reputation by incorporating cutting edge environmental and sustainable technologies into Kaka‘ako’s architecture. This could create new attractions for tourists and conventions. Pursuing a policy of ecological balance could also attract new enterprises from the mainland and abroad. This would strengthen the state economy and provide broad social and environmental benefits. Because affordability in Honolulu is such a severe and complex problem, it will require innovative solutions. HCDA already has a strong vision and thoughtful programs to provide affordable housing. Emphasizing cooperatives could bolster their efforts for a culturally diverse and vivacious community in Kaka‘ako—one that thrives on the creativity and synergy of its residents. Most importantly, cooperatives can attract households to the city by providing the opportunity for people to self-determine their version of home in an urban setting. Cooperatives do not need to be limited to housing. Worker-owned businesses, co-
37 Hawaii Appleseed Center for Law and Economic Justice, State of Poverty in Hawaii & How to Restore Our Legacy of Fairness. 38 “Artspace Hawaii | ArtPlace.”
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op grocery stores, child care, and many other services are sites where people can pool their resources and ideas meet their needs in a cheaper, more social, and efficient manner. Support community development credit unions and the state bank Community Development Banks, which provide access to capital and banking services to low and moderate income communities, are increasingly in need as the traditional financial institutions have further tightened their lending restrictions in response to the recent housing crisis. As discussed earlier, many Honolulu residents do not qualify for loans to purchase homes even at affordable prices. A community development bank is designed to work with individuals and families to provide them with capital in a manner they can afford and successfully pay back. For many residents who want to be homeowners, a community development bank may be their only access to such lines of credit. The Coalition of Community Development Financial Institutions is a good resource for learning about how the HCDA can help to establish a community bank in Honolulu.39 State banks are looking increasingly attractive during this credit crunch. Currently, only North Dakota has a state bank, but 13 other states, including Hawai‘i, are exploring the possibility of starting one.40 Again, the focus of these financial institutions is the betterment of the community—a different motivation than that of privately owned, profit oriented banks. Using revenue generated from taxes, state banks are able to invest in community projects, provide low-interest mortgages, and grant student loans. While most private institutions invest in the stock market and other mechanisms that generate returns, state banks invest in economic development programs within the state that both enhance future revenue streams and improve the quality of life for residents. As Hawai‘i explores a state bank option, HCDA should support such an institution for all that it could provide a growing community like Kaka‘ako and its residents. GREENFIELD DEVELOPMENT IS EASIER AND CHEAPER THAN BROWNFIELD
“The problems simply put is that greenfield locations have a competitive advantage over vacant or underused sites in existing urban areas. Greenfield locations are cheap; they are big; permit processing is easy, relatively speaking; and the financial markets are oriented around them. So-called infill sites, even in distressed neighborhoods, are expensive, small, and complicated to deal with.”41
This quotation from William Fulton suggests that suburbanization could be as much a factor of economics for developers as perceived location preferences of homebuyers. Today however, with most of the peri-urban greenfields having been developed in the last 50 years, the proverbial low hanging fruit is nearly picked out. Environmental and agricultural movements, higher infrastructure costs for overstretched city governments, and a higher level of Not In My Backyard (NIMBY) attitudes are making greenfield development much more difficult. As the urban fringe area gets more expensive and more prohibitive to build upon, should we not look back to the city as a means of recycling land or becoming smarter users of the space we have already developed? When comparing greenfield development with urban infill, it is easy to understand the reasons for this disparity with the suburbs. Greenfield development has lower site preparation costs and lower densities, which allow for auto-centric and family oriented features. By implementing economies of scale and offering fewer design constraints, developers can utilize unskilled construction techniques and minimize complexity in the context of the housing unit. All this boils down to a lower price per square foot for the local 39 “Coalition of Community Development Financial Institutions.” 40 Vekshin, “North Dakota’s State-Run Bank Adds Millions to Treasury, Spurs Imitators.” 41 Fulton, “Comment on J. Terrence Farris’s ‘The Barriers to Using Urban Infill Development to Achieve Smart Growth’.”
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homebuyer. Greenfield development has been expanding for some time now, so developers, local planning offices, and realtors are all very familiar with this type of development, which eases the progress of conception to final sale. In contrast, brownfield development or urban infill is contentious, usually involving a pre-existing community with diverse needs, multiple landowners, and a complex context for design. High site preparation costs along with high land values necessitate high density, so the relative profit margin decreases for developers. Generally, urban settings require unique design solutions to solve unique local problems such as historic landmarks, amenity creation, or parking. This means that out of necessity, brownfield redevelopment usually creates a better use of utilized space and a sense of place with a connection to the surrounding community, even though it costs more. Given the improvements in urban design and utilization of space, even greenfield developments are utilizing them to create LEED certified neighborhoods and more sustainable communities. Although sustainable suburban development is laudable, the environmental, economic, and social costs of building single-family homes on large lots argue for pursuing higher density housing in a more urban setting. To facilitate the latter, HCDA should weigh in on the current permitting process and help make it easier to build in the urban core and harder in open green space or agricultural land. Stiffening the zoning regulations so that agricultural land is not converted to urban would go a long way to both saving our farms and steering development toward urban infill. Changing tax rates and zoning for urban and suburban properties could also help push development back toward the urban core. State or regional incentives combined with Smart Growth principles have also been proven to encourage urban infill. Many of these choices are entangled in the local politics and leadership of city and county officials. Visionary leadership by elected officials and developers is desperately needed, but unfortunately there is an overriding fear of change. Change is also hampered by a growing mistrust of elected officials at the national, regional, and local levels, and regarding the degree to which they benefit the local community; developers’ plans are viewed with much skepticism. Community Benefits agreements have proven to be one way to build some amount of trust between developers and community residents. In addition, making urban infill projects more attractive to developers by changing relevant regulations and codes to speed the urban permitting process or making it harder to convert agricultural land to urban may have some positive effect.
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Messaging: Blue Green & Gray Affordability is a key component of where and how people live. Inclusionary zoning is one means of providing affordability and it could redefine urban living for Honolulu, Hawai‘i, and beyond. If market-priced units are built, the money people pay for them could subsidize cutting edge, service-oriented architecture, such as buildings that function as urban gardens.
Environmentally, HCDA has demonstrated its commitment to sustainability with its Kalaeloa net-zero energy project. That same forward thinking should be applied to Kaka‘ako, where development would not just add more people but vision and identity as well. Honolulu could become a “Green City” in the visceral sense of the color. That concept can extend to buildings, as Honolulu’s climate allows for a much wider range of architecture that can utilize greenery. The Ford Foundation Building in New York is an example of a high-rise office building with interior courtyards that allow occupants to see green and each other when they look out their windows, fostering a sense of community and humanity within the physical space. Signs of progress in Kaka‘ako can be found in its green walled parking garages. Many people who live in Hawai‘i care about the environment and want to see it preserved and restored. By emphasizing the environment in their
Built in 1967, the twelve-story Ford Foundation Building in New York City is an example of how architecture can create a people-focused space and still be functional and attractive. An office building for one of the largest philanthropic organizations in the country, it also attracts visitors to its one-third acre sized indoor public space. With windows facing the atrium as well as the street, there are very few offices without views. The people working inside can see each other and the lush flora, creating a humane space. Photo source: http://irishamerica.com/2012/03/kevin-roche-americas-irish-architect/ford_2/http://irishamerica.com/2012/03/kevin-roche-americas-irish-architect/ford_2/
Vertical Farms. Source: La Tour Vivante, SoA Architects,
France http://www.ateliersoa.fr/verticalfarm_fr/pa
ges/images/press_urban_farm.pdf
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plans, HCDA can better sell redevelopment and density to all residents of O‘ahu. Kaka‘ako has a chance to connect all of the dots: provide affordable housing; allow people to pursue their American Dream in an urban setting; preserve the green and blue of the country; show how the gray of a city can incorporate green; and demonstrate how building heights can make ocean blues more visible. Kaka‘ako’s redevelopment presents a once in a lifetime opportunity to look at a neighborhood holistically through water and energy use, transportation infrastructure, urban gardening, community vision, and other best practices to ensure that residents treat the island’s resources with care while enjoying comfort and vitality. Hawai‘i is thousands of miles from the mainland. On a very basic level, Honolulu’s ability to incorporate the latest sustainable technologies is a matter of survival. The city could become a visitor destination in its own right through leadership in the things that matter most to its residents and the ‘aina. Many people on O‘ahu are in denial that Honolulu is a major metropolis, demonstrated by the fact that they still refer to it as “town.” People who moved to Hawai‘i most likely came here to get away from cities and to enjoy the vibrant colors -the greens and blues of Hawai‘i’s flora and ocean. They perceive cities as crowded spaces filled with big, gray, and impersonal buildings. Simultaneously, many of them cling to a concept of the American Dream that includes a detached single family home, a two-car garage, a lawn, streets for kids to play in, and a sense of community. The reality is that many people live in tract housing developments that do not have lawns or safe streets for kids to play on and can be extremely isolating, as people are dependent on cars to get anywhere. Living on an island makes the limitations of resources all the more apparent. It also makes clear that tradeoffs are inevitable. Hawai‘i is the best place to start building a new American Dream. HCDA has the chance to bring city planning to the people through a process of genuine engagement to use their ideas of community and sense of home. Kaka‘ako can help redefine people’s sense of the American Dream, and it can redefine how people see Honolulu and Hawai‘i. CONCLUSION
The Hawai‘i Community Development Authority has demonstrated vision and leadership in their plans for Kaka‘ako. However, issues with housing affordability in Honolulu are so extensive that it must go even further. This paper discusses the great demand and undeniable need for affordable housing in Honolulu and explores methods for supplying more of it. This includes reducing construction costs, finding ways to alleviate other expenses, innovating economic mechanisms for people to be able to rent or own their own homes, and finding ways to temporarily shelter those most in need. USEFUL RESOURCES Innovative construction techniques and materials Openbuildings - www.openbuildings.com
Ways to address homelessness Hawai‘i Appleseed Center for Law and Economic Justice - www.hiappleseed.org/policy-research Report: Addressing Homelessness: New Approaches to Affordable Housing in Hawai‘i
Housing cooperatives National Association of Housing Cooperatives (NAHC) - www.coophousing.org
Community development banks The Coalition of Community Development Financial Institutions - www.cdfi.org
State banks Center for State Innovation - www.stateinnovation.org/statebanks.aspx
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Lawlor, Shem. “Transit-Oriented Development in Kaka‘ako and Along the Honolulu Rail Corridor.” PowerPoint, Honolulu, HI, March 12, 2012.
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Vekshin, Alison. “North Dakota’s State-Run Bank Adds Millions to Treasury, Spurs Imitators.” Bloomberg, November 16, 2011. http://www.bloomberg.com/news/2011-11-17/north-dakota-s-state-run-bank-adds-millions-to-treasury-spurs-imitators.html.
