Government's Affordable Housing Model Doesn't Work

May 12, 2017

Kaka'ako construction site (Keahou Place).
Credit Wayne Yoshioka

The Governor, the Legislature and the Counties all have plans to build more affordable housing. But as HPR’s Wayne Yoshioka reports, their developer-based financial model appears to be flawed.

The government model to require private developers to sell units above market prices to off-set lower-priced affordable housing doesn’t work.

“Well, if it worked, then we wouldn’t all be worrying about affordable housing today.”

U-H economics professor, Carl Bonham, is also executive director of the U-H economic research organization, UHERO.

“There’s very little evidence that I’m aware of that that model works anywhere in the country.  And the only time that it works is when you have demand for housing that outstrips supply so that prices can go up and developers are able to charge more than what they would in an unrestricted market, right.  That only works for very short periods of time during what we typically refer to as housing booms.”

Maui County enacted a workforce housing mandate in 2006 that required developers to provide a one-to-one ratio of market and affordable units.  Land Use Research Foundation executive director, David Arakawa, told members of the Honolulu City Council Zoning Committee last month, that ratio was too high.

“They put in a 50 percent affordable housing requirement; 25 years restriction.  Only one project signed up.  Fourteen houses were actually built as affordable; 11 had to be sold to market because people in that income level, they couldn’t qualify.  Only 3 houses were sold in 8 years at affordable housing rates.”

The Maui County Council cut these requirements in 2014 to 25 percent affordable and restricted at that price for 10 years.   Honolulu’s Transit Oriented Development Administrator, Harrison Rue, says the Mayor’s plan focuses on households at or below the 80 percent area median income (AMI) level, earning less than 80-thousand dollars annually.   He says a subsidy could also be offered.

“The subsidy only needs to cover the difference between what they earn and can pay and what the cost of construction is.  That’s the affordability gap.  So it’s around $70-thousand in subsidy to make a 80-120 (AMI) affordable; it takes $170-thousand to subsidize something below 80 (AMI).”

Real Estate Consultant Ricky Cassiday says the opportunity to address the state’s housing shortages is now.

“History has shown that every time there is a market upswing, there’s only a small window down at the bottom that you can do affordable and workforce.  This window it’s gonna close soon.  You’ve got interest rates.  The only time that housing costs come down is when you do housing supply.  Then prices actually go down.  So, ready, aim, shoot, let’s go do something; let’s not wait too long and let’s have a vision.”

In my next report, what first time millennial homebuyers face in today’s housing market.   Wayne Yoshioka,  HPR News.