While Hawai‘i may need to build, build, build to meet housing needs, even if developers wanted to construct tens of thousands of affordable housing units, rules exist to limit residential development – also known as regulations.
Assumably, the intention of regulation is to serve the interest of the public. Regulation helps to ensure housing development does not exceed local infrastructure capacity – think sewers exploding or severe traffic. Regulation also helps to preserve the environment, to ensure homes are safe (i.e., against fires and hurricanes), and to encourage an ideal mix of housing and commercial types for the community (i.e. zoning).
In Hawai‘i, the county or island governments are typically responsive for overseeing the regulations. For example, on Oʻahu, the Honolulu City and County Department of Planning and Permitting oversees approval for permitting building projects and regulating their construction. It is estimated that the Department of Planning and Permitting issues between 15,000 to 20,000 permits per year.
While regulations assist in achieving safe homes, neighborhoods, and environments, they have an affect on the real estate market and affordable housing supply as well.
According to a report on the burden of housing regulations by the Economic Research Organization at the University of Hawai’i (UHERO), “One of many factors that may explain the incredibly high home prices in Hawai‘i is that government regulation has severely limited the ability of the housing market to create the units necessary to meet demand.”
In this 2019 UHERO study, the authors utilized the Wharton Residential Land Use Regulatory Index, which was created by economists at the University of Pennsylvania’s Wharton School as a standardized way to measure how regulations restrict home building. To assess the burden of housing regulation in Hawai‘i, the authors surveyed public officials in all counties.
The results? “Even among the nation’s most expensive counties, Hawai’i’s counties have some of the highest regulatory burdens,” says the report, while also mentioning Hawai‘i County (The Big Island) is rated in the top 1% for housing market regulation.
When all the county data was averaged, “…average regulatory burdens in Hawai’i are significantly higher than those found in any other state,” states the UHERO authors.
When delving deeper into the subcategories of the regulations and UHERO survey, almost all regulations in Hawai‘i rank worse than the national average (except supply restrictions), and the subcategories of approval delay, density restriction, and open space rank more than two times more burdensome than the national average. However, the most-burdensome-rated subcategory was Hawai’i’s affordable housing regulations – rating more than seven times more burdensome than the national average.
“Developers in Hawai’i are much more likely to face affordable housing requirements as compared to other locations,” says the report. “Many jurisdictions in the US have no affordable housing regulations at all, but even compared to highly regulated markets, Hawai’i counties stand out for pervasiveness of affordable housing requirements.”
And how do affordable housing regulations affect the housing market? They can provide an added burden to potential affordable housing developers – adding additional costs for extra reports and surveys, causing long wait times, and limiting designs and potential for multifamily development.
“Regulation can be counterproductive if it places a large burden on developers. While we might prefer developers to provide large units with generous amenities at low prices, requiring developers to meet overly rigid guidelines will result in many projects failing to go forward at all,” the report notes.
“The slow permitting process continues to be a major problem for our industry. In construction, more than in most industries, time is money. A six-month or longer delay to receive a permit can endanger a project and the jobs and other economic impacts that follow,” says Pacific Resource Partnership, an advocacy, consulting and representation firm for the building industry in Hawai’i.
Many ordinances and laws have been passed and revised over the years regulating affordable housing, with most of them having the intention to increase the affordable housing inventory in Hawai‘i (and having varying results).
Inclusionary zoning requires developers to build and sell/rent a percent of the project’s new residential units at "affordable" rates (area median income at least lower than 140%), often for a specified amount of time under a restrictive covenant.
Honolulu, Kaua‘i and Hawai‘i counties as well as state real estate agencies, have implemented separate inclusionary policies. These regulations often dictate the percentage of ‘affordable housing’ that must be offered in a project, along with buyer/renter requirements, price restrictions, and the amount of time they must remain affordable.
The following is the summary of some of the affordable housing inclusionary zoning regulations in Hawai‘i. All of these examples have production quotas of the number of affordable homes that must be built in a development:
“By its nature, inclusionary zoning relies on private development to produce affordable housing so if development is not happening, no affordable housing gets developed,” summarizes Susan Kunz, Hawai‘i County Housing Administrator. But is inclusionary zoning an incentive for private developers to construct affordable housing or does it add another burden?
ADUs or accessory dwelling units were a regulation introduced as a way for single-family homeowners to add another “dwelling unit” to their lot. While there is a checklist of items to qualify for an ADU and regulations governing who must live where for the lifetime of the property, ADUs – along with property tax credits for properties that have ADUs – were touted by Former Mayor Kirk Caldwell as a way to add more affordable housing to Oʻahu’s inventory.
This regulation has resulted in a little over 850 permitted ADUs on Oʻahu. And the size of the units ranges from 400 to 800 square feet maximum, which Caldwell says will promote affordable rent rates.
“In addition to Oʻahu’s 852 units, more than 1,392 ADUs have been built in Maui County, 4,051 on Hawai‘i Island and 1,442 on Kaua‘i,” according to data from a Hawaii Business article in June 2022.
While ADUs are known to add home value, offer an increase in income for homeowners, and add to the affordable housing inventory, some people have not been able to construct an ADU due to additional regulations surrounding parking, fire hazards, and wastewater. Also, high construction costs are restrictive to some homeowners (despite building permit fees being waived on O‘ahu and Kaua‘i).
However, illegal rental units or people renting out rooms in single-family homes exists throughout Hawai’i, alluding to homeowners’ desires to provide additional rentals in their homes and the demand for such units.
“If there are black markets for homes, that means there are actual government regulations that prevent that supply from meeting its market,” Ka‘āina Hull, Kaua‘i County Planning Department director says.
Multifamily dwellings can be developed in accordance with Bill 7, allowing 5,000-square-foot lots to build up to 25 affordable rental units. The bill, which is set to expire in 2024, allows developers to build affordable rental units on apartment, apartment mixed-use, and business mixed-use zoning lots.
The buildings can be up to 60 feet tall and do not require off-street parking, elevators, or loading zones. 80% of the units must be rented to families earning 100% or less than area median income, and a waiver of building permit and wastewater hook up fees, plus property tax exemptions, incentivizes the build.
“It’s just a great opportunity,” says Derek Lock, a principal and co-owner of HNL Development, who developed one of Honolulu’s first 25-unit buildings on 5,000 square feet in the Nuuanu neighborhood at 311 Puuhue Place. “And there’s not a lot of cities that up-zone the land, but this was a very genius piece of legislation that can increase our housing and help with the affordable housing costs.”
But do these walk-up apartments have enough regulations to ensure the neighborhood’s sustainability? Or are they a great example of lessening restrictions to promote affordable housing development? While regulations are necessary, finding the balance for Hawai’i’s housing market is tricky.
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