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Testimony on Maui ‘affordable housing’ proposal, Part 2

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The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Maui County Council on Feb. 19, 2021.
__________

To: Council of the County of Maui
Alice Lee, Chair
Keani Rawlins-Fernandez, Vice-Chair

From: Grassroot Institute of Hawaii
Joe Kent, Executive vice president
Grassroot Institute of Hawaii

RE: A proposed bill for an ordinance amending section 2.96.030, Maui County Code, relating to workforce housing and 201H Hawaii Revised Statutes housing projects.

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on this proposed bill for an ordinance amending section 2.96.030, Maui County Code, relating to workforce housing and 201H Hawaii Revised Statutes housing projects.

The bill would increase the inclusionary zoning requirement to from 50% to 75% for certain so-called affordable housing projects, unless a lower percentage greater than 50% is approved by the Maui County Council.

A large body of research shows that inclusionary zoning makes housing less affordable, since developers respond to such mandates by building fewer homes.1 To make matters worse, the mandates force developers to raise the prices of market-rate homes to make up for the so-called affordable homes.

Our research using an “Inclusionary Housing Calculator” developed by Grounded Solutions Network shows that in housing markets like Maui that have a 50% inclusionary zoning requirement, it is nearly impossible to make a profit building housing without a government subsidy.2 The housing calculator does not even allow calculations for a 75% requirement, presumably also because it would be nearly impossible to make a profit.3

For example, according to the calculator, a low-rise apartment project with 30 units costing
$18 million would incur a net loss of $7 million, if built in an area with an affordable housing requirement of 50%.4

Virtually all housing projects on Maui that are 100% affordable are given government subsidies of one kind or another, according to Linda Munsell, deputy director of the Maui Department of Housing and Human Concerns.5

A 2020 survey of 1,030 municipalities across the U.S. showed that only three had inclusionary zoning requirements higher than 75%: Santa Paula, Calif.; Oxnard, Calif.; and Aquinnah, Mass.6 All three require 100% affordable housing, and all saw housing growth decline by more than 60% during the decade after the policy was adopted, compared to the previous decade.

Change in units built after 100% affordable housing requirement

Municipality Policy adopted Units built 2000-2009 Units built 2010-2019 % change
Santa Paula, Calif. 2012 350 118 -66.29%
Oxnard, Calif. 2012 6,948 2,642 -61.97%
Aquinnah, Mass 2016 82 27 -67.07%

Source: Selected Housing Characteristics,” U.S. Census Bureau, Table DP04, 2019. Inclusionary Housing Database,” Grounded Solutions Network, 2020.

The proposed 75% requirement would likely hinder developers from providing housing and shift the cost of housing projects to taxpayers, since the only projects that could pencil out would be those that received government subsidies, and this would increase Maui’s already high cost of living.

Meanwhile, Maui County’s burdensome housing regulations have slowed the development of housing, resulting in the “fast-track” process taking three to five years to get approval,7 and the “slow-track” taking more than a decade. This effectively makes Maui’s affordable program mandatory for developers who want to provide homes in less than a decade.

As noted by economist Carl Bonham at the Economic Research Organization at the University of Hawaii, inclusionary zoning, “reduces incentives for developers to produce all forms of housing, and will reduce the overall supply of housing units and increase the price of housing.”8

A 2004 study by the Reason Foundation found that inclusionary zoning led to reduced housing growth in the San Francisco Bay Area region.9

Instead of boosting the inclusionary zoning requirement, Maui County Council members should consider reforming the county’s regulations to allow for more housing to be built, as outlined in the report “How to Build Affordable, Thriving Neighborhoods,” produced by the national State Policy Network.10

Late last year, the Grassroot Institute of Hawaii distributed copies of the SPN report to all legislators and county council members statewide. But in case you didn’t see it or haven’t had the time to read it, here is a summary of proposals from it most applicable to Hawaii:

>> Allow smaller housing. Let housing be as small as builders, buyers and renters want.

>> Allow smaller lots. Minimum lot sizes have no clear health or safety justification.

>> Allow residences in commercial districts. Allow office parks and malls to build housing. Allow vacant downtown storefronts to convert to residential use.

>> Allow taller buildings. Remove limits on height. Where fire department capabilities might be affected, ensure that new buildings can provide for their own fire response.

>> Allow subdivision of existing structures. Historically one of the most important sources of low-cost housing has been single-family homes that were turned into boarding homes or subdivided into apartments. 

>> Allow single-room occupancy buildings. Housing with shared bathroom and/or kitchen facilities benefits low-income residents, especially near dense employment districts.

>> Legalize the “Golden Girls.” Remove or loosen restrictions on the number of occupants or nonrelated persons allowed in a housing unit, except for fire code restrictions.

>> Waive some building code requirements for temporary homeless shelters. Imperfect housing for unsheltered homeless populations is better than the status quo.

>> Allow extra kitchens. Permit homeowners to add additional kitchens to adapt to their evolving needs.

>> Allow accessory apartments. Accessory dwelling units add more housing and often can make it possible for the homeowners to better afford their own housing costs.

>> Allow larger “house” on the same land. Reduce setback, floor area ratio and lot-coverage rules.

>> End single-family-only zoning. Many people cannot afford a large, detached house. Allow duplexes, triplexes or fourplexes in places zoned for only single-family houses.

>> Enact a “Permit Freedom Act” for building permits. Require clear permitting standards, defined response time and the option for independent judicial review.

>> Publish pre-approved plans. Pre-approve plans for common projects like ADUs or single-family homes, then permit expedited review for projects using these plans.

>> Reduce political approvals. If a project complies with existing zoning, it shouldn’t require more than a planning department approval and building permits to proceed.

>> Set up one-stop, parallel-process permitting. Let applicants submit all permitting documents in one place. Allow departmental reviews to happen at the same time. 

>> Outsource building permit application review. Outsource plumbing, electrical, mechanical and structural code review when demand peaks. 

We urge the Affordable Housing Committee to shelve any proposal that would increase the cost of housing in the islands, such as this current inclusionary zoning proposal. 

Instead, please consider the reform options listed above, which would be more likely to succeed in increasing housing supply and easing housing prices for Maui residents seeking a home.

Sincerely,

Joe Kent
Executive Vice President
Grassroot Institute of Hawaii
___________

  1. Tom Means, Edward Stringham and Edward Lopez, “Below-Market Housing Mandates as Takings: Measuring their Impact,” The Independence Institute, November 2007; “Inclusionary Zoning: Implications for Oahu’s Housing Market,” The Economic Research Organization at the University of Hawaii, Feb. 12, 2010; “How land-use regulation undermines affordable housing,” Mercatus Research, November 2015; Paul Kupiec and Edward Pinto, “The high cost of ‘affordable housing’ mandates,” The Wall Street Journal, Feb. 12, 2018; Benjamin Powell and Edward Stringham, “Housing supply and affordability,” Reason Foundation, April 1, 2004; and “Inclusionary zoning primer,” National Association of Home Builders, August 2019.
  2. Inclusionary Housing Calculator 2.0,” Grounded Solutions Network, 2019.
  3. We asked Grounded Solutions Network, a nonprofit that advocates for inclusionary housing, about why they did not include the option to calculate project feasibility for inclusionary zoning requirements over 50%, but they have not yet commented.
  4. Project Summary,” Grounded Solutions Network, accessed Feb. 9, 2021.
  5. Linda Munsell, testimony to the Council of Maui Affordable Housing Committee, Feb. 1, 2021, video at 3:18:46, “The vast majority of the projects that are 100% are all subsidized by some other fashion either through the state or through the county.”
  6. Inclusionary Housing Database,” Grounded Solutions Network, 2020.
  7. Anonymous survey of Maui developers by the Grassroot Institute of Hawaii.
  8. Carl Bonham, “The Unintended Consequences of Affordable Housing Policy,” The Economic Research Organization at the University of Hawaii, Sept. 8, 2013.
  9. Benjamin Powell and Edward Stringham, “Housing supply and affordability,” Reason Foundation, April 1, 2004.
  10. How to Build Affordable, Thriving Neighborhoods,” State Policy Network, Local Government Working Group, 2019.

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