This article was originally published in The Maui News on April 23, 2021.
If you need more of something, the last thing you want is a lot of new regulations limiting how it’s made.
That’s as true for affordable housing as it is for more mundane products such as ice cream and running shoes.
No matter what it is, when something is more difficult and expensive to make, fewer people are willing to get involved in producing it. Before long, the supply goes down and the price goes up.
Unfortunately for Maui, the Maui County Council seems to believe it is immune from the laws of supply and demand. As a result, it approved an ordinance that is almost certain to slow down the growth of affordable housing on Maui.
Much to his credit, Mayor Michael Victorino has vetoed it, aware that the bill is likely to exacerbate Maui’s housing crisis. But the County Council has indicated it will try to override the veto.
If enacted, the bill would change the rules for 201H affordable housing projects in the county. These are projects that get to take an expedited path through the state and county approval process because a certain percentage of the homes built in a 201H project are sold below market price to qualified buyers.
Currently, the Maui requirement is that 50 percent of the homes in a 201H project must be set aside for affordable housing. The new bill would raise that percentage to 75 percent, giving Maui the second-highest inclusionary zoning requirement in the country behind three Mainland municipalities that have 100 percent affordable housing requirements.
Somebody on the County Council should ask why so few municipalities have embraced a high affordable housing requirement. They would discover that at a certain point, it is no longer profitable to build affordable housing unless you’re being subsidized by the government. They also would learn that the three municipalities with a 100 percent affordable housing requirement saw housing growth decline by more than 60 percent after passing the new rule.
The council also could use the Grounded Solutions Network’s “Inclusionary Housing Calculator” and see the limits of such requirements in action. The calculator doesn’t even go up to 75 percent because it presumes that no one would take on such an unprofitable project. Even with Maui’s earlier requirement of 50 percent, a low-rise 30-unit apartment project costing $18 million would net a loss of $7 million.
What happens when it’s not profitable to build affordable homes because the government limits the number of homes you can sell at market value? Developers stop building 201H projects and start looking for other opportunities.
The “fast track” approval process for 201H projects typically takes three to five years to navigate. Meanwhile, the standard “slow track” can take 10 years or more. If you want to build affordable housing in less than a decade, you need the advantage of the fast-track process.
But putting heavy restrictions on 201H projects means they’re too unprofitable for developers that aren’t getting money from the government or able to work at a loss. That shrinks the pool of developers willing to take on 201H projects. And that means housing growth will slow or stagnate.
Ironically, the council’s heavy-handed approach to creating more affordable housing may have the unintended effect of incentivizing the building of mansions instead. Mansions do not require zoning changes because of their low density, so they’re easier and faster to build.
But that doesn’t mean developers would prefer to build mansions instead of affordable housing. We’ve spoken with developers who say that 201H projects are actually more profitable than mansions — but only when the affordable housing requirement is 50 percent or less.
Thus, the bill intended to increase affordable housing could have the unintended consequence of making Maui into an enclave for the wealthy, reducing the growth of affordable housing and increasing the number of mansions.
If the County Council overrides the mayor’s veto of this bill, it will be the ordinary men and women of Maui who will suffer the most. They are the ones who need more affordable housing but will have to watch Maui’s housing growth shrink and stagnate due to well-intentioned, wrong-headed regulation.