An AARP Hawaiʻi/Smart Growth America report about the potential danger of losing affordable housing in Hawaiʻi has triggered a defensive response from the Hawaiʻi Housing Finance and Development Corp., which is responsible for increasing and preserving the state’s supply of low- and moderate-income housing.

The AARP Hawaiʻi/Smart Growth America report estimates that 1,442 affordable rental and homeownership covenants will expire by 2030, and more than 10,000 units are in danger of losing their affordable status between 2030 and 2045 unless funding and/or incentives can be found to keep the units affordable.

Nearly three-quarters (71%) of the state’s affordable housing are in Honolulu, 11% are in Maui, 5% in Kauaʻi, and the remaining 12% are in Hawaiʻi island, Molokaʻi and Lānaʻi, the AARP study reported.

The initial report looked at publicly available data to estimate the number of affordable units—both rental and affordable homeownership programs—and when the requirements to keep them affordable expire. The report also looked at funding sources for affordable housing, ownership and location and what other jurisdictions are doing to provide incentives to keep housing affordable. A follow-up report will go into more detail.

“We commissioned these reports from Smart Growth America to help us and the public better understand affordable housing in Hawaiʻi,” said Kealiʻi Lopez, AARP Hawaiʻi State director. “We know, years in advance, when and which projects may lose affordability and so we shouldn’t be surprised when it happens and tenants in affordable rental projects need to find new places to live. We want to start the discussion about planning now to develop strategies to encourage owners to keep affordable housing affordable or find alternative ways to keep the residents housed.”

However, a statement from the HHFDC takes issue with a number of what it calls “several misstatements” made by AARP Hawaiʻi in the report. The HHFDC noted that the report commissioned by AARP was not provided to it prior to its release to the public, although AARP disputes that.

The HHFDC says its own count shows 2,082 units now affordable under the agency’s Low-Income Housing Tax Credit program that are scheduled to have their formal commitments end in 20 years.

HHFDC said: “The AARP report’s 10,000-unit estimate was based on a national data base which does not take into account that developers for most Hawaiʻi projects agree to a 61-year affordability commitment. HHFDC’s incentivizes the longer 61-year commitment period when making financing awards.”

The HHFDC later added that, after discussions with AARP officials, the state agency “understands that the 10,000-unit estimate includes units that do not receive assistance from HHFDC but from other public and private sources of funding.”

“It is likely that some of these units are owned by government or nonprofit agencies dedicated to providing housing opportunities and who therefore are not inclined to convert affordable units into market-rate units upon the expiration of affordability restrictions,” the HHFDC said.

Craig Gima, communications director for AARP-Hawaiʻi, said AARP did provide HHFDC with the report a week before it was released but didn’t get approval for a press release until Feb. 26.

“HHFDC is looking at its own count of the housing they are responsible for,” Gima said. “We learned that there isn’t really an inventory of affordable housing in Hawaiʻi. That’s the reason we initially commissioned the report.”

“What struck us from the initial findings is the number of projects whose restrictions are expiring,” he said. “Now it is true that we don’t know how many of these projects, if any, will become market when their restrictions expire. A number of projects are owned by nonprofits committed to maintaining affordable housing. We also didn’t include new construction of affordable housing as it goes online. This is just a look at what would happen if we do nothing.”

The scenario of tenants in an affordable housing project facing higher rents has already played out on Maui with the 142-unit Front Street Apartments, built in 2001 but destroyed in the Aug. 8 Lahaina wildfires.

The Ninth Circuit Court of Appeals ruled that developer Front Street Affordable Housing Partners could not unilaterally end rent restrictions that prevent it and subsequent buyers from raising rents or selling the project unencumbered by the rent restrictions.

The Front Street project was built to provide affordable rental housing to low-income residents. In exchange for $15 million in state-funded tax credits, the developer promised to keep the units affordable for 51 years.

However, after just 15 years, the housing developer asked the HHFDC for permission to end the restrictions 36 years early, and that was granted. A federal tax code loophole opened the door for the owners to put up the property for sale after 15 years. If they were unable to find a buyer, units could be rented out at market rates.

Renters faced a doubling or tripling of rents until they challenged the move in court and won, after years of litigation and much anxiety for Front Street Apartment tenants.

On Feb. 27, a Smart Growth America report with slides was presented to state lawmakers on the House and Senate housing committees. The presentation can be found in links to the public hearing notice. A videotape of the hearing is available on YouTube here.

According to the AARP, Smart Growth America looked at about 33 state and federal affordable housing funding programs. Many projects are funded using a mix of program money. The report found that more than half of the affordable housing units in Hawai`i (57 percent) have some form of state funding and 43 percent use federal funding.

“Funding for affordable housing ebbs and flows depending on political tides and the construction economy and the affordable housing timeline reflects that,” said Michael Rodriguez, director of Housing Research at Smart Growth America. “The housing boom in the ’60s through ’80s resulted in more affordable housing during that time. The housing market hasn’t had a similar period since then. We’re still relying heavily on subsidies initiated in the ’80s, ’90s and pre-2009 recession area.”

Rodriguez said he can see how HHFDC’s housing numbers don’t align with the AARP/Smart Growth study.

“HHFDC focuses on items strictly within their purview, as is understandable,” he said. “Our analysis counted units participating in any of a whole host of subsidy programs, including direct federal aid.”

AARP’s Lopez said: “We know that government, nonprofits and some private owners of affordable rental projects are committed to keeping their units affordable and will extend affordability even after the requirements expire. But, as buildings age, the cost of repair, maintenance and upkeep rises. So, funds—whether they be public appropriations, additional tax credits or private donations—must keep pace with the needs.” 

HHFDC projects that its programs will produce 6,497 affordable rental units in the next five years alone, with about 5,700 of those units affordable to households earning 60% of area median income or less.

“This will be achieved in part through additional Rental Housing Revolving Fund assistance from the Hawaiʻi State Legislature, which has provided the fund with significant infusions in recent years,” HHFDC Executive Director Dean Minakami said. “Additionally, HHFDC’s Finance Branch is prioritizing the issuance of RHRF loan awards based on project readiness and efficiency.”

The AARP study also reported that ownership of Hawaiʻi’s affordable housing stock is relatively concentrated with 26 owners accounting for half of all affordable housing units. Nonprofit and public sector (state and counties) own a little less than half of the affordable housing while private owners have slightly more than half. The HHFDC is largest owner with 836 units (5.6 percent of the state’s total), according to the study. No other entity owns more than 5%.

The HHFDC disputed that amount, saying it owns 32 units, not 826.

The HHFDC said: “Over the past decade, HHFDC sold in leasehold most of its affordable rental housing portfolio through a series of transactions that ensured affordability for 75 years while the new project owners committed to substantial renovation programs.”

Lopez said tax credits and state and federal affordable housing funds are used to extend affordability in projects that need renovation.

“Further discussion and planning may help us find the right balance of using funds to build new affordable housing and maintain the housing that we have,” Lopez said. “We should also be looking at what other states and jurisdictions are doing to incentivize keeping housing affordable, including consideration of how developers hope to keep housing affordable and/or transition to market as part of the process to grant tax credits and funds to developers building new affordable housing.”

“Hawaiʻi should work to preserve housing affordability through direct housing development, incentivizing affordability protection renewals, and pursuing Hope VI, HCV, and tenant-based assistance programs. Tax abatements, bonuses, and transfer of development rights programs can all nudge property owners to renewing protections and constructing public housing directly can bring new units online even during market downturn,” Rodriguez said. “The state should also consider approaches that lift up nonprofit housing providers and public-private partnerships that can increase capacity in the nonprofit sector to pursue more complex funding and development projects.”

HHFDC reiterated its commitment to affordable housing statewide.

“HHFDC will continue to work with other governmental agencies and non-governmental housing stakeholders toward achieving Governor Josh Greenʻs goal of providing as many affordable housing options for kamaʻāina families in the most efficient and effective manner as possible,” Minakami said.

Gima said the AARP’s initial findings, before taking a deeper dive, were aimed at starting the discussion about what to do about projects whose affordable housing restrictions are expiring.

“We think we were successful in that and that there will be further discussion,” he said.