LIHU‘E — Many affordable-housing developments are built using federal funds, which dictates the area median income a person can earn before falling out, often at 60%.
That income changes every year, but on Kaua‘i, 60% area median income is $40,850 for a single person and $58,300 for a family of four.
The Kaua‘i County Council and the County Housing Agency are currently tweaking the 36-page Housing Policy, known as Ordinance 860, through Bill No. 2774, and held a workshop last Wednesday to discuss with stakeholders the pros and cons of the policy, as well as brainstorm potential solutions.
The current ordinance is geared toward providing workforce housing for those making above 60% AMI and up to 140%, which is $99,800 for a single person and $145,550 for a family of four. These numbers are established using the federal Department of Housing and Urban Development calculations on income limits and what’s stipulated in the ordinance.
Part of what’s in debate is how to balance affordable/workforce housing units with incentives and requirements on developers to build such units. What’s been stated frequently since the county took up the issue is that the current ordinance, enacted well over a decade ago, has not netted any affordable-housing units.
Housing Agency Director Adam Roversi provided a breakdown of how developments start up and the challenges developers face. As it currently stands, a certain percentage of units built must be set at lower AMI and come with restrictions and marketing requirements to avoid investors buying up the unit and selling it for more.
Proposed projects on the island undergo a string of approvals and proposals. If a project triggers the workforce housing policy, the CHA notifies the Planning Commission, which then makes it a condition of the building permit.
A developer has a few options: provide physical units; pay a fee; or provide land and infrastructure instead. The land would require a further appraisal of the project and council approval.
Some incentives, like including workforce units mixed in with market-rate units, developers can reduce a 30% assessment in units to 25%. If a developer builds single-family homes instead of duplexes, they can reduce the 30% by another 25%.
“So you could in theory under the current incentives that are in the existing ordinance, you can reduce 30% assessment to 15%, but no lower,” Roversi said. “That’s the floor that’s allowed with all the incentives.”
The policy also outlines marketing policies as determined when the developer gets closer to completion of the project, the first-stage advertising to the 850 people on the county’s homebuyer list, before moving on to other Kaua‘i buyers. After that, they can move to the next income group. At the competition of the project, if there are still unsold units, they can become market-rate units without any restrictions.
“I wanted to highlight that because we’ve had some comments … that affordability periods, whether 20 or 50 years, as was proposed in the amendment, create unmarketable units,” Roversi said. “This tiered marketing program largely answers that problem.”
The county also has restrictions on these homes. One example Roveri gave was in Hanama‘ulu. The homebuyer, who Roversi said purchased the home 11 years ago, bought the house for about $178,000 “a drastically discounted price 10 years ago when he bought it.”
“The (current) ordinance requires or at least provides the county the option to buy that home from him today, our calculations about $192,000,” Roversi said.
If the county wasn’t interested in purchasing the property, the homeowner could take it to market. The county would then facilitate the sale, at or below $192,000, and the restrictions would restart.
The county owns 30 properties like this.
Another proposed project for a 46-unit development on the South Side with single-family two- and three-bedroom homes, went the incentives route, which required it to provide 10 workforce units. The total profit loss on workforce units would have been about $40,000 per unit, according to Roversi.
The currently-proposed ordinance eliminates the 140% AMI requirement. For this project, Roversi said, the 140% workforce housing requirement is almost the same as reducing the workforce units entirely.
“The overall project profit for the entire project is almost half a million dollars greater than under the current ordinance, with 140% AMI,” Roversi said.
On another model, if the homes were upward of $1 million, it’d be a different case. “That 140% requirement would have some impacts, but not in the model that I presented.”
However, eliminating the 140% category would be another increase in cost to developers.
Mike Serpa, a developer and founder of Concentric Development Group, shared that a 19% profit is “fantastic,” but there are “unpredictable risks” including liabilities, or if a pandemic hits.
“Your project that was at 10% to 12% quickly lost all its profit, but you’re still providing all the subsidiaries. The 120 to 140% categories helps to mitigate those risks,” he said.
•••
Sabrina Bodon, public safety and government reporter, can be reached at 245-0441 or sbodon@thegardenisland.com.
