The testimony below was submitted by the Grassroot Institute of Hawaii for consideration Feb. 11, 2022, by the House Committee on Consumer Protection and Commerce. Ted Kefalas’ oral testimony follows.
To: House Committee on Consumer Protection & Commerce
Rep. Aaron Ling Johanson, Chair
Rep. Lisa Kitagawa, Vice Chair
From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President
RE: HB1840 HD1 — RELATING TO DISTRICT BOUNDARY AMENDMENTS
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on HB1840 HD1, which would change existing restrictions on the authority of the counties to amend district boundaries.
Under this bill, county decision-making officials would be permitted to amend district boundaries for certain land areas greater than 15 acres, but not more than 50 acres, if the county has adopted an ordinance that includes certain enforcement provisions and limitations on land use, such as that the amendment be consistent with the community development plan). Moreover, at least 60% of the development must be dedicated to the development of so-called affordable housing.
In raising the acreage cutoff to 50 acres, HB1840 HD1 would make an important stride toward streamlining the decision-making process and encouraging the growth of the housing pool in our state.
However, the bill includes unnecessary limitations, namely, the restrictions contained in the prescribed ordinance and the requirement that this special consideration will be given only for proposals where 60% of the land will be dedicated to the development of affordable housing. Known as “inclusionary zoning,” this high-percentage set-aside for affordable housing will frustrate the intent of the bill by making such projects financially unfeasible.
A large body of research shows that inclusionary zoning makes housing less affordable, since developers respond to such mandates by building fewer homes. 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 the “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. As the requirement goes up to 60% and more, it becomes even less feasible to build new housing.
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%.
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.”
A 2004 study by the Reason Foundation found that inclusionary zoning led to reduced housing growth in the San Francisco Bay Area region.
While well-intentioned, the inclusionary zoning requirement and other limitations may frustrate the intent of the bill by creating another regulatory roadblock to the increase of the housing supply.
Fortunately, there are ways to encourage the growth of affordable housing that would not hobble development before it even begins.
Regarding this bill, we urge you to remove the 60% requirement. Beyond that, focus on reforming the state Land Use Commission and streamlining the development process.
That said, this committee should be commended for addressing one of the root causes of the state’s housing crisis: the excess of regulation and bureaucracy that can delay and frustrate development.
A Grassroot Institute report on the problem, “Reform the Hawaii LUC to encourage more housing,” discussed how state policymakers could encourage the growth of housing by reexamining the role and purpose of the LUC.
The report included two recommendations that relate directly to the intent of HB1840: raising the acreage cutoff for LUC review of district boundary amendment requests, and allowing the counties to handle all DBAs for urban and agricultural lands, leaving the LUC free to focus on statewide environmental issues and DBAs of conservation lands.
Enacting bill HB1840 HD1, without the unnecessary limitations, would go part of the way toward achieving those recommendations.
Thank you for the opportunity to submit our comments.
Executive Vice President
Grassroot Institute of Hawaii
 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.
 Carl Bonham, “The Unintended Consequences of Affordable Housing Policy,” The Economic Research Organization at the University of Hawaii, Sept. 8, 2013.
Ted Kefalas’s oral testimony:
Ted Kefalas: Aloha, Vice Chair, members of the committee. I’m Ted Kefalas of the Grassroot Institute. We’d also like to offer our comments on HB 1840 [HD1].
We stand on our written testimony that this bill would streamline the decision-making process. However, we are concerned that the bill includes unnecessary limitations, like the 60% inclusionary-zoning requirement for the development of affordable housing.
Our research shows that [for] housing markets like Maui, that have a 50% inclusionary zoning requirement, it’s nearly impossible to make a profit building housing without a government subsidy.
As that requirement goes up to 60% or more, it becomes even less feasible to build new housing.
UHERO has also previously noted that inclusionary zoning reduces incentives for developers to promote all forms of housing, and will reduce the overall supply of housing units and increase the price of housing.
We need to find ways that spur developers to increase our housing supply, rather than placing handcuffs on new developments that will deter them away.
I thank you for your time today.