How red tape defeats the goal of ‘affordable’ housing

The commentary below was Keli’i Akina’s weekly “President’s Corner” column for Feb. 26, 2021. If you would like to have his columns emailed to you on a regular basis, please call 808-864-1776 or email info@grassrootinstitute.org.

Good intentions not only make bad material for paving roads, they’re also not a great foundation for building houses.

At both the county and state levels, Hawaii’s policymakers are trying to address the state’s housing crisis. Unfortunately, they’ve chosen to focus on only one part of that crisis: the lack of affordable housing.

Generally speaking, affordable housing means homes priced at below the market rate. On Maui, the County Council is considering a proposal that would require 75% of the housing developed under that section of the law to be “affordable” — or priced at below market rate.

Unfortunately, laws like the proposed Maui ordinance are counterproductive. Instead of creating more affordable homes, they reduce development and cause prices to go up.

As the Grassroot Institute of Hawaii explained in testimony on the Maui proposal, research into the effects of affordable housing laws has found that developers tend to respond by building fewer homes. What’s more, these requirements raise the prices on market-rate homes as developers try to recoup the costs of the “affordable” ones.

At some point, it simply becomes too costly for the builder to even bother. Using an “Inclusionary Housing Calculator” developed by the progressive Grounded Solutions Network, we found that it is impossible to make a profit with a 50% affordable housing requirement, if you’re building on Maui. The only way for such a project to be profitable is through government subsidies.

This is relevant to the ALOHA homes proposal now being considered by the Legislature. Its sponsor says it would be “revenue neutral,” but if it follows strict affordability requirements, it will lose money and ultimately cost Hawaii taxpayers.

When the costs don’t balance, development stops. That’s why the only three municipalities in the U.S. with affordable housing zoning requirements of 100% have seen housing growth decline by more than 60% in the past decade.

There’s no question that Hawaii needs more housing — at all levels of affordability. But instead of approaching the issue with a single-minded focus on “affordable” housing, state and county policymakers should look at ways to increase the supply of housing across the board.

Streamlining the approval and permit process for all projects — without “affordable” requirements — would be a good first step. So would reforming zoning laws and regulations to allow for more options in terms of lot size, density and types of homes.

There are many different ways to help spur housing growth in Hawaii. By simply increasing the supply of homes in our state, we would help improve affordability for everyone.

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