Webinar: ‘How affordable housing rules discourage homebuilding’

The Grassroot Institute of Hawaii’s free webinar on how affordable housing rules hinder home construction in Hawaii, was a great success.

The presentation on March 8, 2021, was viewed by many key members of the community, including government officials, business executives and journalists.

3-8-21 Webinar: “How affordable housing rules discourage homebuilding”

Featuring David Arakawa, Stanford Carr and Pamela Tumpap.

Keli’i Akina: Aloha mai kākou to everyone. We want to welcome you today to the Grassroot Institute. By the way, it’s the 20th anniversary of the institute serving Hawaii, fighting for individual liberty, free markets and limited accountable government.

I want to thank you all for taking time today to tune into today’s program. As always, we’ve got a dynamic program full of lots of information that’s good for Hawaii. Our topic today is “How affordable housing rules discourage home building.” That sounds kind of counterintuitive, but it happens a lot. The very rules that are designed to encourage affordable housing tend to make housing less affordable.

We all want housing that’s affordable, and we want it for everyone. But what’s the very best way to create it? Lawmakers today are considering many measures intended to create housing.

Some of them actually are counterproductive; for example, on Maui, the County Council is considering a proposal that would require 70% of 201H affordable housing to be “affordable.” Now that sounds like it’s a good intention, and indeed the intention is good. We want housing priced at below-market rates, but the intentions of that may end up causing developers to develop less housing. Some experts say that regulations like that could actually hinder all of the development of housing in Hawaii, including affordable housing.

Today I’ve got three friends who I’ve gotten to know throughout the years. They’ve got a diverse background in the public and private sector. We’re going to learn a lot from them. They are David Arakawa, Pamela Tumpap, Stanford Carr. We’ll be talking with them in just a moment.

David, welcome to the program. I’m glad you’re here with us today.

David Arakawa: Hello and good afternoon, Dr. Akina. Happy 20th anniversary to the Grassroot Institute. We’re glad to be here on this webinar. Thank you.

Akina: Thank you so much, David. I appreciate you being here today. David is the executive director, David Arakawa, of the Land Use Research Foundation of Hawaii. He serves as executive director there. It’s a private nonprofit research and trade association, and its members include major Hawaii landowners, developers, resort operators and a utility company. He previously served as senior vice president and general counsel and corporate secretary for Hawaiian Airlines, corporation council for the city and county of Honolulu — that’s where you’ve probably heard his name — and is a partner in private practice for the law firm Fujiyama Duffy & Fujiyama, and of course, as a deputy prosecuting attorney. He’s been involved in many aspects of the public and private sector. Once again, David, thank you for being with us today.

Arakawa: Aloha.

Akina: Our next guest today, our next expert, is Pamela Tumpap. She’s the president of the Maui Chamber of Commerce. Pamela, welcome to the program all the way from Hana.

Pamela Tumpap: [chuckles] Actually, no. I’m in Pukalani, but Hana is my background. Thank you, Dr. Akina. It’s great …

Akina: Right above your head there we see a beautiful background of Hana.

Tumpap: That’s right, it’s Waiʻanapanapa, beautiful place in Maui. One of my favorites, and congratulations to the Grassroot Institute on your anniversary. That’s wonderful. Thank you for doing forums like this. I’m happy to participate.

Akina: Thank you so much, Pamela. Pamela has been the president of the Maui Chamber of Commerce for nearly 15 years. Before joining the chamber, she was president and CEO of Maui United Way, the director of marketing for Oceanic Time Warner Cable, and vice president of the Maui Economic Development Board.

Her efforts with private and nonprivate organizations during the past three decades have focused on business, community and economic development, which included an extensive interaction with government. Thank you so much for being with us, Pamela, all the way from Maui.

Tumpap: Thank you, Dr. Akina. My pleasure.

Akina: Our third guest today is an expert in the field of development and a tremendous practitioner with much contribution to Hawaii. I’m so glad that he’s back on the program with us today: president of Stanford Carr Development, Stanford Carr himself. Stanford, aloha. Welcome to our webinar today at the Grassroot Institute.

Stanford Carr: Aloha, Keli’i. Happy and proud to be here. Thank you for inviting me. Thank you for the opportunity.

Akina: Good to have you. Stanford is president of Stanford Carr Development, where he oversees extensive portfolio projects ranging from master-plan communities to resort-style living and affordable housing. As a locally and nationally recognized leader in business, Stanford is known for building communities on a foundation of family living, the spirit of the islands and respect for the land.

Stanford’s projects have earned numerous local and national awards from the U.S. Department of Housing and Urban Development, The American Institute of Architecture and the Governor of Hawaii, among others. Again, Stanford, we’re looking forward to hearing from you today.

Carr: Great, thank you glad to be here.

Akina: Well we’re going to jump right into it. What I’d like to do is field a few — well, give a few — questions to our panelists today, and ask you if you’d be so kind to limit your response to two minutes because we have a tremendous audience in the wings.

When I’m done, I’m going to open up so that we’ll be able to take your (audience) questions, and we look forward to the things you have to say and the questions you have to ask.

First, let me ask David Arakawa this question: Let’s get some definitions right off the bat. We have a process here in Hawaii called inclusionary zoning, and we have other regulations as well that are designed to ensure that we have the housing that is necessary and the affordable housing.

In particular, what exactly is inclusionary zoning? You may also want to let us know about any other regulations. David, we need you to turn on your microphone there, because we want to include you in the conversation. Go ahead.

Arakawa: Good idea.

Akina: Terrific. Go ahead David.

Arakawa: Dr. Akina, inclusionary zoning is a regulatory tool or policy that was first developed in the 1970s, and its purpose was to include lower-income families into housing developments that were exclusive or kept out low-income families and families of other ethnic backgrounds. Right now, it’s used to require developers to include a certain percentage of low-income housing in their developments, with a percentage of units; and sometimes, it is the government also [giving] benefits or [increasing] the density if you include affordable housing in your project. Basically, it’s a tool to get the private market to subsidize affordable housing.

Some developments will describe it as the “Corolla effect”: Government requires you, if you’re talking about cars — if you’re a car manufacturer — it requires you to produce 30% Toyota Corollas, and because you’re producing 30% of Corollas under cost, below cost, you then have to produce 70% or 60% Lexuses to make up for the costs that you’ve lost. Then what happens to the Camry families? The Camry families are left out, or they’re only 10% — developers can only make 10% Camrys. So that’s the Corolla effect. The last thing about inclusionary zone is no other industry has this building business model, no other industry.

When you go to the supermarket, does a supermarket clerk look at you and says, “Oh, are you low income? OK this head of cabbage costs $1,” then for somebody else, “Oh, you’re high income. OK, this costs $3 for you.” Same with a car. When you buy a car, same car. When you go to the dealer do they say, “Wait let me check your income, oh, you’re low income, OK this car costs $10,000.” If you’re higher income the dealer will say, “Oh, you’re high income, OK, this car, same car, will cost you $50,000.” Nothing else works this way. Thank you.

Akina: David thank you very much for pointing out how unique inclusionary zoning is with reference to housing. It’s the antithesis, it seems, of the free market, where the government itself determines quite a bit about supply and demand.

There’s someone who knows quite a bit about that, that’s Stanford himself, because you have to work in that environment in order to carry out your work as a developer.

Stanford, we use the phrase “affordable housing,” and you’ve got some thoughts about that. When politicians use it in reference to development, what exactly do they mean, and what are your thoughts about that?

Carr: Well, in response to that, I think, I feel, that “affordable” is an abused term because what’s affordable to one person may not necessarily be affordable to another. In many cases, when policymakers speak about affordable housing, they’re speaking about for-sale and rental housing in the same breath, and they’re very distinctively different on how you underwrite the feasibility, the financing. So they’re very distinct. You need to separate rental housing from for-sale housing.

When we speak about affordable housing, we like to define it as how the U.S. Department of Housing and Urban Development does, by area median income, which is defined by different counties.

We have four counties in this state. With Maui County, an affordable household starting from very low income, to low moderate, to moderate, to market — we call this the “housing ladder.”

[For] the very low income, we develop rental housing. On Maui, for example, that would be a family of four earning $30,750 a year. That’s a very low income. That straddles up to 60% AMI, which is the 60% area median income households earn $61,500 per year for a family of four. Now, as we creep up to the 80% household, now you’re talking about potential homeownership, from 80% and above.

For a family of four in Maui, that’s a household income of $82,000 per year annually. Typically, any household below 80% are renter households. However, people’s incomes rise as they get promoted, and they can start preparing to improve their credit scores and debt-income ratio so that they can get into the housing ladder and work their way up the housing ladder.

Akina: Thanks for that insight into what is typically called affordable housing — which clearly is not always the same thing as housing that’s affordable. One of the recent studies across the nation shows that in Hawaii, we have one of the highest percentages of household income needed even to cross that line and own a home. Stanford, we’ll come back and ask you a few more questions about that a little later on.

I want to go to Pamela right now because you are on Maui, and you’re watching the Maui County Council. That bill I referred to earlier in the program today has been of deep concern, especially as a means of government to try at least to fulfill the intention of providing affordable housing. You and the Maui Chamber and many others have some serious concerns about it. Tell us about the bill.

Tumpap: Thank you so much, Dr. Akina. The bill proposes to change a statewide 201H process, which was meant to streamline and help build affordable housing and rentals. Basically, what the Maui County Council is looking to do is increase the percentage of affordable units from “50% plus one” to 75%. As you mentioned earlier, that would sound great.

How does that, though, actually happen? The good news is — I’ll share a little bit about what occurred last Friday, and then I’ll talk to you about the challenges with the bill — last Friday, the bill was on second and final reading, and at the County Council, two amendments were made. One was to include above-moderate income levels.

That’s a level of 121% to 140% AMI. That’s what Stanford was just talking about. That had been pulled out. That includes affordable housing for teachers, nurses, police, firefighters, government employees and others. That was a great amendment to add them back in.

They also amended the bill to grandfather projects that were already in the pipeline, which is a great amendment, but because of these two substantive amendments, the bill is now back at first reading, with second and final reading scheduled at the next regular council meeting on March 19. People still have time to educate and share with community members and talk to County Council members about their intent on this bill. The intent was really to address Maui County’s affordable housing and rentals crisis, and to get more units built.

However, as you point out, we’re tweaking something that already was created to exist to help. When you listen to what’s being said, and we’ve listened to a panel of industry experts, they’re saying this bill will do just the opposite. They’re saying, in fact: Leave the legislation alone. Why is Maui County trying to tweak the statewide ordinance and come to a higher level on Maui County?

The home builders we’ve consulted with said it will make many projects not “pencil out,” because it’ll take us up to a 75% level. [For] homebuilders who may have projects that were at the 50% plus one, who maybe had projects that they were looking at down the road — to get a project to go before the council, there’s a huge investment, and if they know that the council only is really targeting 75% or above, why make that investment? Because it’s just really a gamble, and many projects won’t pencil up.

Does that mean all projects won’t? No, but what it means, by increasing the standard, is we will take many of the home builders who would otherwise have come to the table off the table because the risk is too great.

Akina: Well you create a situation where a lot of people think that a certain measure in a government in a certain bill is going to increase affordable housing, and when you do the analysis it’s actually not going to do that. It may actually become a disincentive. This often causes conflicts in terms of the relationship between those who are for developers or development, and those who seem to think that developers are trying to be stingy and greedy. I don’t mean to put Stanford Carr into that category, but I’m just coming back to Stanford.

Tumpap: Absolutely not. But you’re right. It does create conflict.

Akina: That’s right. Stanford, you’re very familiar with this as a developer. Tell us, just frankly, how do developers make money from housing projects, and how do these affordable housing mandates, like the one Pamela is talking about, make it difficult for developers to make a profit? A reasonable profit?

Carr: Sure. Again, for-sale housing is very different from rental housing. We have utilized this state statute 201H for over 15 years primarily for the development of rental housing, where we utilize a federal low-income housing tax program along with private activity bond financing, to build lower-cost rental housing that serve households earning 30% to 60% of the area median income. So you’ve got federal and state subsidies that assist in creating the sale of tax credits that generates about 40% of the total development cost. And then we utilize tax-exempt bond financing to construct these rentals. In return for these types of programs, we commit to keeping them as affordable units for at least a minimum of 30 years.

In many cases, because we use a gap financing program called a Rental Housing Revolving Fund, which is generated through the conveyance tax, we serve households down to the 30% area median income, and we commit to keep those units affordable for at least a minimum of 60 years. That’s on the rental housing platform.

We’re just finishing up a project in Front Street Lahaina on 21 acres called Kahoma Village that we processed the entitlements through 201H back in 2014, where we developed 101 single-family homes and 102 townhouses.

With that, we utilized 201H in order to entitle the property. It was the last undeveloped piece of property next to the Cannery Shopping Center along Front Street Lahaina across Mala Wharf. There, we finally had the first opportunity to provide primary housing to families that commute from central to upcountry Maui to West Maui to work in the resorts. This was an opportunity for them to actually live and work and play in Lahaina. Our starting prices there were in the low $300,000s to high fours to the low fives for a single-family detached home, and so we’re just finishing up the project right now.

In that case, we provided 50+1 as affordable units to households earning 80% to 140% of the area median income, and it worked. I called Mike Molina when he was introducing this bill to increase it to 75% to say to him that, “This is going to cause for-sale projects to be infeasible. It just does not pencil out. If there has to be sufficient profit in a project, at least 10% to 12% of a profit margin before the lenders will induce them to finance your project.” No one’s going to finance the project to break even.

The risks are too great,  and in the event you experience unforeseen circumstances of cost increases — delays, we’ve seen tradesmen strikes — that adds cost to the project, unforeseen, that can make the project lose money. There’s got to be enough meat on the bones in order for the lenders to be able to underwrite the risks and to finance the project.

Akina: Stanford, it seems that a lot of political activists, as well as politicians, just don’t understand the basic economics. Why do you think that is?

Carr: It’s a matter of education. We’ve been in this business for 33 years now, and policymakers do come and go. They get turned out, and then you need to reeducate the policymakers. Now, I will say this: that a lot of the policymakers have good intentions. They want to create mandates for more affordability, higher percentage, and reaching a deeper affordability, but not understanding the economic impacts is a dangerous endeavor. It needs to make economic sense, or nothing will be built.

Take, for example, on Maui. I remember in 2008, Holualoa was entitled. [In] 2008, the council members were very proud of the fact that they championed for affordable housing.

I laughed because I go, “They championed for affordable housing but what they just imposed on the developer, on the inclusionary conditions, nothing’s going to get built because it’s not financeable.” Here we are today, 13 years later, and not one spade of dirt has been turned. Those are the unintended consequences as a result of adopting policies that have a negative economic impact on the feasibility of any one project.

Akina: Stanford, that story is something that many developers tell over and over. I’ve had the opportunity to talk to most of the larger developers on the island of Maui, and it seems that for all of them, it takes a very, very long time to go from the process of permitting and approvals through the finishing of a project, if they ever are able to get that far.

David, you’ve got the regulatory background. How long does it take, and why does it take so long?

Arakawa: The straight answer to that is every project is different, but we’ve had some major, major projects. The largest projects in Honolulu for housing have taken between eight to 10 years, and that includes a series of hearings and lawsuits.

Dr. Akina, let’s just give the listeners an idea: In Honolulu, it takes more than 22 sunshine meetings to get a project approved. You have to go through eight sunshine meetings just to get your county general plan approved. It’s the EIS [Environmental Impact Statement] scoping meeting, a neighborhood board meeting, planning commission meeting, five council hearings. Then you get your general plan.

Then [you’ve] got to get your development plan or community plan. This setup is similar, not exactly, but similar to the neighbor islands. That, in Honolulu at least, takes another seven hearings. Maybe [there’s] no need [for] an EIS hearing, but then neighborhood board — one; planning commission, another one; five council hearings again. All of these publicly sunshine meetings, and then you go to a state Land Use Commission. You’re lucky if you have one hearing at the state Land Use Commission. We appreciate that. Then you’ve got to go to zoning. That’s the fourth series of meetings you have to have, publicly approved meetings and council votes.

Again, you may need an EIS scoping meeting if your project has changed a bit, neighborhood board, a planning commission, and then five council meetings again. Again, seven to eight hearings — total 22 or more. And then you still have to go through subdivision.

So in answer to your question, Dr. Akina, it could take 22 or more public hearings in Honolulu at least, and maybe on the neighbor islands between 12 to 15 or so, depending on the setup of your neighbor island approval process.

I’d like to show a slide if possible and I think Joe has a copy of the slide [inaudible 00:24:26] regulatory process.

Akina: Sure. We’ll bring up that slide right now.

Arakawa: OK. These [are] slides … by Paul Brubaker in anticipation of this presentation. The first slide shows, for Oahu, just for Oahu, the drop-off in housing when the state Land Use Commission law came into effect in 1975, and they required quasi-judicial hearings where everybody had to have an attorney and it was operated like a courtroom. That’s what happened to building homebuilding from 1975 when the state Land Use Commission came into effect.

Next slide: This is what happened in the neighbor islands — not as dramatic, but still yet, it went up and down and up and down after 1975.

Then the last three slides — and you folks have talked about this: This is what happened on Maui in 2007 to 2014, when the affordable housing ordinance was changed, and there were onerous requirements and developers said, “You know what? It doesn’t pencil out, we’re not going to do this.”

In that span of time, between 2007 and 2014 — seven years — approximately 17 dwellings were built for affordable housing under that ordinance. Only three dwellings were sold at affordable prices to affordable buyers. Only three homes under this policy, under this ordinance, were built on Maui and sold on Maui to affordable home buyers.

Next slide, please: Kauai tried to do the same thing in 2008. Their law stayed in effect from 2008, and it may be still in effect ‘til today. You see the downturn when Kauai tried to impose inclusionary zoning requirements on developers, on home development, and both of these situations, the developer said, “You know what? It’s going to hurt building. We’re not going to be able to build. It’s not going to be able to pencil out.”

Next slide, last slide. This is the last slide: This is to show, during the same period in Honolulu, builders were building. It wasn’t the economic downturn. It was not the economic downturn, because in Honolulu, builders were building and they were under much less stringent, or more friendly, inclusionary zoning laws.

That’s how long it takes, and that’s the impact of strict inclusionary zoning laws.

Akina: David, thanks for that answer. Thanks to our friend, Paul Brewbaker, for the slides. That’s fascinating information and good insight.

One of the things that I often hear in defense of the regulatory scheme that is in place now, is that the real problem in terms of getting enough housing and affordable housing is the lack of infrastructure and water supply by government. While there certainly is a lack to some degree, isn’t it the case, David, that the regulatory structure itself is the biggest problem in terms of limiting the actual supply of housing that gets produced?

Arakawa: Yes, the maze of permits and approvals that developers need to get to build a development is mind-boggling, and in fact, I had another slide on that, and I’ll submit it to you folks. But the maze of requirements — and the requirements keep on changing.   Every year, the county councils and the state add on, and the state building code, add on more expensive requirements.

Back maybe about four or five years ago, the developers added up all these costs. It comes up to over $200,000 additional costs to the price of a home, and so it makes it very, very hard to pencil out, and these are regulatory requirements for off-site infrastructure, for infrastructure that the county and the state should be providing, should be providing in the first place.

And when we look at equity, it’s very interesting in Honolulu. I apologize to my Maui family and friends about talking about Honolulu, but you know what? The people who live in Kahala, who live in Waialae Iki, who live in Manoa — all the areas where the affluent live — they aren’t hit with these costs to build infrastructure. In the old days, the government, the county and the state put in the infrastructure, put in the schools, but now — over the past 15, 20 years — now the developer has to pay for all of this infrastructure upfront. It burdens developments up to $200,000 a unit.

Akina: That cost is also exorbitant because of something Stanford mentioned earlier.  When you’re talking about this period of waiting 10 years for a project, there’s the cost of financing as well that goes into that, the cost of money.

David, I’m going to move on now. We can hear more from you later on, but thank you very much for your insight.

Pamela, there are certainly unintended consequences of the problem that David talked about, of the interference of government with the actual production of housing. Those consequences often appear socially in terms of relationships between parties in the community or in the economic impact itself. You’ve observed a lot of that in Maui. Why don’t you tell us a little bit about that?

Tumpap: Thank you, I have. The bottom line is, that affordable housing rules have a big impact on our community, and it can hurt or it can help. We all agree that we have an affordable housing and rental crisis, but where we seem polarized is the view that developers can pay more. Meaning a government view that developers can pay more, and developers trying to educate the elected officials and community [on] how these projects work, and what pencils out and what doesn’t. We’ve seen this for a very long time.

I’d like to just share real quick some past, present and future things we need to consider.

In 2006, we talked about Chapter 2.96, which was passed. At that time, the development community had participated in a task force and said they could do 20% to 25% affordable units. 2.96 raised that to 50%, and we saw, as it’s already been mentioned, a significant decrease in a number of units being [built]. Then when the ordinance was amended in 2014 to 25%, we saw things change and come up again. So we know this bill is different, but if you look at how it’s being discussed, where development views are being ignored, [it shows] people want affordable housing. Well-intentioned people want affordable housing, so they think, well, we’ll just up the requirement and the industry will comply.

As Stanford mentioned, things don’t always pencil out. We’ve seen going in 2000 to 2007, we were getting 1,000 to 1,600 units consistently built a year. That then dropped in 2008 to less than half, about 790. In 2009 to 2016, we were looking [at] 200 to 515 a year. Then when the policy changed, we came back up in 2017 to 935, but still not at previous levels. Then again, we start seeing — and  you know, it continued on for a while. It tapered off from 2018 to 2019, but what we know is unilateral government mandates do not help. It slows future construction, which impacts jobs. Ultimately, it increases the housing prices, because delays equate to higher costs in the long run.

There’s less government funding as we move forward, because government funding is drying up, and government cannot collect what they could otherwise collect if those homes were built in real property taxes. And it increases homelessness and the cost of social services.

Let me just share something that we presented back in October of 2019. It was a housing projection on where the median home price would go if there was a very low 4% annual increase in the median home price. When we said 4%, I did some research on this to get the lowest possible number that people couldn’t contest that was based on industry standards.

When we said 4%, we had developers in the front row just balking at it knowing that 4% was very low — meaning housing would go up higher than that. This year, we saw Maui’s median home price rise in January to $980,000 — the median home price.

Based on the 2019 figures, we projected that we would hit a median home price … [of] $2 million median home price in 2042. If you have a 20-year-old today who’s looking for a house, the median home price right now is $980,000, and it’s going up with COVID and what’s happening with new people moving in. If you have a baby today and in their 20s, they may want to own their own home, we’re looking at over $2 million.

What we’re saying is we need to look at policies that work. We need to not artificially take a policy that is working and then add to it to make it not pencil out. We want all partners at the table, whomever they may be, including government, looking at the lands that they own and looking at new ways to develop it.

If you want higher levels, incentivize that. Streamline processes further, because those processes are what contribute to projects not penciling out. But to artificially come up with amounts without working with the home builders, we know, history has shown us, it simply doesn’t work.

We need a different process because we need it for our economic development, our workforce development and for future housing for our children. We are losing families now to the mainland, and our children are not coming home. What is the future of future generations if we don’t fix this and fix it now?

Akina: Thank you, Pamela, and as you know, the Grassroot Institute has a series called “Why We Left Hawaii,” featuring hundreds of stories of people who’ve lived in Hawaii for their lifetimes but have found it necessary to move away. They’re telling their stories, and the No. 1 factor that they mention is housing. You can find those stories on our website at grassrootinstitute.org.

Now we move to the place in our program where we’re going to take your questions and answers from the audience. I want to just say thank you, again, to David Arakawa and to Pam Tumpap and Stanford Carr for being on board. Now, we will have fielding questions, our executive vice president of the Grassroots Institute, Joe Kent.

I’ll hand the helm over to him at this time. Thank you for being here at Grassroot Institute. You can get a copy of today’s program at grassrootsinstitute.org. Now, Joe, let’s go to the audience questions.

Joe Kent: OK, we have a lot of audience questions rolling in, and keep the questions rolling. These are great.

First, from councilmember Tasha Kama. She asks: In a previous discussion, cost of land has been one of the barriers to the development of housing, and another is infrastructure. If the county were to put in the infrastructure, would developers be willing to come to the table with the 75% requirement? Any thoughts there? I guess she’s asking if the county provides the infrastructure and perhaps land, then would the 75% thing work?

Carr: I’ll respond to that. Of course, yes. But I don’t foresee any county installing the infrastructure. We’ve been building on Maui now for 30 years. We not only have to install the infrastructure for our on-site development, but in many cases, we’re also responsible and obligated to solve off-site problems that exist.

For example, Kahoma Village, which we’re nearing completion: There was no on-street parking on Kenui Street, nor were there any sidewalks along Front Street. Their sewer line was inadequate on [unintelligible 00:38:08]. We did about $2 million worth of off-site infrastructure along Kenui and Front Street to help the county, that we were obligated to do so in return for entitling this project utilizing a state statute.

So I don’t foresee the county ever installing infrastructure. All of the counties, all four counties, have basically left it with the responsibility of the developer to do all of their on-site and, in many cases, off-site infrastructure improvements.

Kent: I see. OK, moving on, there’s questions for David. Mark asks: You mentioned in your Corolla example, you mentioned ethnicity and low income in the same sentence. Is ethnicity part of inclusionary statutes?

Arakawa: Not in Hawaii, but on the mainland, that was one of the prime movers when cities on the mainland wanted integration, wanted to prevent segregation and wanted a mix of ethnicities in certain neighborhoods. They used inclusionary zoning requirements, and the inclusionary zoning requirements were not based on ethnicity. It didn’t say you had to provide so many units for a certain ethnic group, but they made the requirements around income levels. They felt that by doing it through income levels, they could get a better mix of ethnicities in neighborhoods. That’s in the literature, then I researched it. I go, “How did this thing happen?” That was the original intent.

Kent: OK, this is an anonymous attendee [asking] Stanford: If you’re receiving credits to build the lower-income units, how much do you have to raise the sales price of the regular homes to make a profit?

Carr: The recipe is basically from your affordable and your market, you need to make a minimum, as I stated earlier, 10% to 12% profit margin. It’s got to balance out. When you’re delivering homes at 80% of the area median income on for-sale housing, you’re literally subsidizing, because you’re selling it below what it actually costs.

Arakawa: You’re taking a loss, right?

Carr: You’re taking a loss.

Kent: Also a follow-up, is there an infinite ceiling to how high you can charge for the high-end homes to pay for the low-end homes?

Carr: The market will dictate what kind of sales prices you can achieve. It depends on what neighborhood because, on Maui, you’re not going to get the same price for, say, a single-family home in Central Wailuku, Maui, versus Kapalua, Wailea, or Makena. There’s a big disparity because every neighborhood is different, and there’s higher demands in certain geographical areas of the island than others.

Policymakers have to understand when they’re adopting policies, that it’s not one-size-fits-all because our zoning ordinances are for the entire county, across the board, whether you live in Hana or Kapalua.

Kent: A question from Haldane asks: What is the cost of a home in Hawaii to be considered affordable? Basically, what does affordable mean to you, I guess? How would you answer that, Pamela?

Tumpap: Well, again, as Stanford was sharing earlier, and I might defer to him because I know he’s got that chart in front of him. But again, it gets back to your income level. We’re looking at affordability based on your income level, and that’s where Stanford was also talking about where you’re looking at affordable rental. Also, when we talk about affordability, we’re talking about rentals and then also homeownership, as he pointed out. We’re going back and we’re looking at the AMI chart and looking at people’s income and saying, “Where do they fit within the chart?”

Most people don’t realize —and the development community knows this chart really well — people don’t understand that you have to look at the HUD housing data, and you’re comparing income levels with this housing data. For the community, it’s a very complicated chart.

When we saw the higher levels of affordability, the 121 to 140 cut out of the 201H bill, we were highly concerned because that was taking a large segment out of our community who needs to be included in housing options: the firefighters, the teachers, the police, and others. We were thrilled with the amendment to put it back in, because we have a crisis, but we need all levels of affordable housing and rentals, and as many partners who can come to the table.

Carr: Let me elaborate further on that because it’s not only household income, but household size. Under HUD’s indexes, a household shouldn’t pay more than 30% of their adjusted gross income towards their housing needs, meaning their mortgage, their rent, including utilities.

But the reality is in Hawaii, most people are paying 40% to sometimes as much as 50% of their adjusted gross income for their housing needs, and that’s where there’s a disparity and imbalance because of a supply-constrained market. I don’t think we ever can, practically speaking, be able to build enough homes with the workforce that we have to bring equilibrium into the marketplace, but every bit will help.

Kent: Do you think that without government mandates, that affordable housing could still be built or would still be built?

Carr: Again, our supply-constrained market is a direct result of decades of regulatory constraints. The regulatory policies that have been adopted year after year, have further exasperated the extent of the regulation and the conditions. It has gotten worse.

Thirty years ago, when I was building in Maui, I could get a building permit within a week. Today, you’re lucky if you can get it within a year, and during that year’s time, you have spent millions of dollars of architectural, engineering impact fees, all of these indirect fees that are attributable towards building a community. Until you break ground and you get that building permit and finance the project, then you have to build it out. Then you’ve got construction costs, challenges as well as risks until you finally complete the project, close the unit, close the sale, provided that the buyers can still qualify to purchase the home, that they still got the job. They have to have a job. This COVID pandemic just completely torpedoed a lot of families’ expectations and their dreams of buying a home. Most all of our people in the hotel visitor industry in Kahoma Village lost that opportunity due to this pandemic.

Arakawa: Joe, this is David.

Kent: Go ahead, David.

Arakawa: I just want to interject here. For Stanford, for Pam, and Haldane: Stanford, for Maui, myself in Waipahu: Would developers build if there were less onerous regulations? When I grew up, there were no requirements. There was no inclusionary zoning, and developers built to the market, built for teachers, people who worked for the government, firefighters, nurses. They built to the market.

When you folks say, “Without these requirements, would developers build for regular people and not just for millionaires?” Our experience where I grew up, it was — and I know, Stanford, you and Pam could talk about that, but builders are there to build and make some profit. Otherwise, they’re not going to build, but they’re there to build. They’re not there not to build.

Kent: I think the fear, though, for a lot of people, is if we reduce the regulations, though, then there will be no housing built for low-income folks. Is it profitable, I guess, is a better question, to build low-income housing without government mandates?

Carr: I would say it’s all risk-adjusted. No different than how you underwrite investments, whether it be an equities portfolio or a mutual fund, it’s all risk-adjusted returns. Being born and raised here, we have a responsibility to keep up with the housing supply and to address the entire housing ladder. We build low-income rentals utilizing federal and state programs, but we do make money off of it, very little. But in the long term, we’re building it to add to the housing inventory that’s much needed in our community. I like to say that 100% of our residents that live in our rental communities make up 80% of our population and our workforce.

You need to build for the demographics or you’re going to continue — we’re going to continue to see the brain drain as people leave. They get discouraged of ever having the opportunity to purchase a home, and they move elsewhere, where the cost of housing is so much less. It’s usually a direct result, because they don’t have the same regulatory constraints and land-use laws as we do here in Hawaii.

Kent: I’m sorry, I got to go to a little speed round here. There’s a lot of questions rolling in. OK. Carol Ryman asks about the county council. She says, “Where were all these great experts when the council was meeting and testifying?” She asked how do we educate people?

I’m going to go on to Mark’s question: What practical purpose is served by requiring an environmental impact statement for a residential project? Anyone care to answer that?

Arakawa: If the residential project is built on lands that are not zoned or not designated as urban already — say it’s on agricultural lands, yes, an environmental impact statement is necessary. Environmental impact statements are necessary for large housing developments and maybe even small housing developments that are in a sensitive environmental area. We’re not knocking that, but it’s part of the process, and yes, accepted.

Kent: Going forward, Gary asks: Should all requirements for affordable housing be eliminated?

Arakawa: Gary is a land-use commission member, and he sees a lot of this. There are certain health and safety requirements that are necessary, and there are also concerns by the state Department of Education, Department of Transportation. Taking into all of the government concerns, you’re going to need to address some of those. But as Stanford knows, and Pam, maybe you don’t have to impose all of these costs upfront and you can pay for them, and Stanford has all these ideas about financing the infrastructure over a period of time.

Where I grew up, in the subdivision I grew up, your lawn, your grass in your yard grow all the way up to the road, the asphalt. You cannot do that anymore. Nobody died in our subdivision because the grass grew up to the road, so now we have the curbs, gutters, street lights, all great things. All great things, all things we should have, but we need to take a look at certain areas — if it’s in a rural area, maybe we don’t have to require those, so health and safety is No.1.

Kent: Councilmember Tasha Kama asked another question; she says: If a household earns $50,000 a year, can homeownership be achieved for a family of four. How about $70,000 or $80,000 — can they own a home? Is this realistic, or how much housing can be purchased with these incomes?

Carr: I would say from $80,000 is attainable, and again, because we are in the very low-interest rate environment that we’ll probably never see again in our lifetime, people can afford a lot more for a mortgage today. But again, usually, the separation is 80% of the area median income. Below that, you’re looking at rental households, and above that, you’re looking at homeownership opportunities based on the assumption that 30% of your adjusted gross income is being used to pay for your housing needs.

Kent: Peter asks: Is the Land Use Commission still needed?

Carr: That’s been a very long debated subject for many years. David, you want to take that one on?

Arakawa: The Land Use Commission serves a purpose in protecting or making sure the state’s interests are handled. But I think we all need to look at a more streamlined process, and maybe it’s through the Land Use Commission, or maybe it’s through the counties, but somewhere where both the state’s interests in land-use development and the counties’ interest in land-use development and the public’s interest in land-use development are all heard in one hearing, so we don’t need these multiple layers which could be duplicative.

I think there is a place for state interest, whether it’s solely at the state Land Use Commission, I think we need to work on that. Stanford, you’ve been — I’ve been at the state Land Use Commission process since 1983. 1983, that’s when we started working at the State Land Use Commission as a petitioner, as an attorney for the developer.

I’ve seen it all, and we have well-meaning folks on the state Land Use Commission, well-meaning staff, but we need to find a more streamlined way if we want to build affordable housing and housing for all as soon as possible.

Kent: Either way, Grassroots Institute a report that we wrote on the Land Use Commission and how to streamline it bette,r getting to your point there, David. That can be found on our website at grassrootsinstitute.org.

Tumpap: Joe, if I could comment real quick. This is something that comes at the state Legislature every year. It’s a known problem, it’s a cog in the wheel. It doesn’t mean it’s not needed, it is needed. It’s a question about how do we balance this and get to the relevant points and process things as quickly as we can.

This is where people can have a voice. As the legislation moves forward, of course, at the Maui Chamber of Commerce and even others, we track important legislation and try and encourage people to ring in.

Back to Carol’s comment about, “OK, we need people ringing in at the county level to provide expertise as well,” we have a voice and when we see things that are holding up what we critically need, like affordable housing and rentals, as a community, we need to come before the state and the county and share our voice, and let them know we want them to revisit these systems, so we can positively move forward.

Kent: There are so many, there’s 15 more questions here to get to. I don’t think we’re going to be able to do it.

Carr: Joe?

Kent: Stanford, yes.

Carr: Can I ask you to put up the slide that I sent you that says — titled — “Maui County — the Perfect Storm”? Because as you said —

Kent: I think I have it right here.

Carr: A picture speaks a thousand words. I just want the audience to see this graph. This is what happened to the county affordable housing for — this is the number of units that were built through the Department of Housing and Human Concerns, and how it flatlined the affordable-housing industry when they adopted and amended Chapter 2.96 in 2006. As you see, it takes time for the momentum to drop, but from just after 2007, affordable housing — these are projects that are within an agreement with the Department of Housing and Human Concerns — it flatlined the affordable housing.

Again, 201H, which they’re trying to propose to amend to increase, is a state statute, and the spirit of that statute that was passed by our Legislature was to encourage the development of affordable housing, which is 50% plus 1. I always say if it ain’t broken, don’t try to fix it. Here, Maui is introducing a bill to increase that inclusionary to 75%. What they’re doing is, history is going to repeat itself. If they adopt this policy as drafted, you’re going to see this same graph again from 2021 on.

[crosstalk]

Tumpap: Many of our councilmembers don’t believe the historical data, and they attribute all of the loss we saw in the building of units to the recession itself, without understanding that yes, the recession had an impact, but to say that the recession was solely responsible is not an accurate portrayal. We have to find the sources and data to share with them to help them better understand this.

Arakawa: This did not happen on Oahu or Kauai during that same period. This did not happen, this flatline did not happen during that same period. Joe, can you put up a quick look at the charts prepared by the Office of Housing and Community Concerns and [unintelligible 00:57:24]?

Kent: I think I might have it right here, but we’re going to have to wrap up here soon. Let me share this, and then we’ll close. Go ahead, David.

Arakawa: Carol Ryman and the color’s not so good here, but if you look at the pink areas, all these pink —

Kent: I don’t see any pink here, David. I’m sorry.

Arakawa: I think it’s the graph, we can — We got to do a better —

Kent: Yes, I think we’ll have to skip this one. I’m sorry.

Arakawa: OK, this chart shows all the projects that flooded in after the Maui County Council changed the affordable housing ordinance in December 2014. This shows the flood of projects that came in right after that change.

Kent: I see. There are a lot more to talk about on this topic, and I’m sorry I didn’t get to all of them. There’s actually now 20 questions here that I haven’t gotten to. People are really passionate about this topic. Final words, Stanford?

Carr: Like I said earlier, if it’s not broken, don’t try to fix it. In the spirit of a state statute, the county should not be superseding a state statute that was created for the whole purpose of creating affordable housing.

Kent: Pamela?

Tumpap: Again, we need all partners and players at the table who can help us move positively forward. This is a crisis situation, and we don’t want history to repeat itself. We need to look at the data, and we need to understand it, and we need to move forward with new models. There are lots of great suggestions that we should move forward with, but I agree with Stanford. It’s not broken; developers say it’s harmful. Why are we spending all this time trying to fix something that’s not broken?

Kent: David?

Arakawa: I have — sorry, I’m going to make this really quick, five points. No. 1: Please, wait until the study, please wait until Jeff’s study comes out, and there’ll be a comprehensive plan. That’s what we need. We need a comprehensive plan. We don’t need a Christmas tree where lawmakers keep on adding ornaments on. The Christmas tree will tip over if all of those ornaments are on one side. We need ornaments on both sides. We need incentives. We need things to facilitate housing.

The second thing is: Please listen to the experts. We would not ask elected officials to prepare the requirements for heart surgery, right? We’d ask a heart surgeon. So, please, if everybody is well-meaning, it’d be good to listen to the experts, and that’s what Honolulu does, Hawaii Island does.

Third is that we need housing for all, all the housing ladder. We can talk about that later, we need housing for all.

The fourth issue is that inclusionary zoning has repeatedly failed, and when I was Corporation Counsel on Oahu, we had to rescind and do a moratorium on our (?) twice, two times, because it was too onerous. And it’s failed on Kauai, it’s failed in the past on Maui. It has a record of failure, but if we work together, we can come to something that will work, and that’s the last thing: We need to facilitate instead of mandate.

Maui is at an important crossroads, and Maui is not the most handsome developer at the prom, handsome guy at the prom, or the cutest girl at the prom. If it becomes too onerous and you cannot pencil out your project, developers will just go to Hawaii island or Oahu to do their affordable housing projects. Thank you.

Kent: Thank you again for joining us, and thank you, audience members, for joining us. This video was recorded, so you can get it on our website and on our email list. Thank you so much. Aloha.

Tumpap: Thank you. Aloha.

Arakawa: Thank you.