The following written testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Maui City Council at his meeting on Sept. 20, 2022.
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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
RE: Bill 107 (CD2), A BILL FOR AN ORDINANCE AMENDING SECTION 2.96.060, MAUI COUNTY CODE, RELATING TO AFFORDABLE HOUSING SALES PRICE GUIDELINES
Comments Only
Aloha, Chair and Council members.
My name is Joe Kent, and I am the executive vice president of the Grassroot Institute of Hawaii.
I want to thank the Council for the opportunity to testify again on this measure.
The Grassroot Institute of Hawaii believes that this bill is premature, as there has not been sufficient analysis of its possible effects. In fact, the data suggests that the proposal will fail to achieve its goals, could discourage construction of affordable homes and might raise the average price of a home on Maui.
Especially in light of the uncertainty surrounding the financial aspects of Bill 107, I suggest the Council take time to study the full effect of this ordinance on the local economy and the housing market as a whole.
Rushing this bill through would only create heavy-handed and costly regulations — the opposite of what is needed to provide more housing for Maui residents.
Clearly the bill is well-intended, but despite its goal of lowering housing prices for low income individuals and families, Bill 107 (CD1) likely would have the opposite effect. For projects that already receive county money, it would slash the sale price of a home by approximately 20%.
A 20% price reduction would shave $120,000 off the sale price — a sum that would no doubt eliminate a builder’s profit and incentive to build new affordable units.[1]
To fix the problem that it would create, Bill 107 also proposes to subsidize homebuyers. As the Affordable Housing Committee report noted: “Without additional funding mechanisms in place to mediate the lower sales prices,” developers could be faced with financial challenges and could react by building fewer homes.[2]
For projects that are not already subsidized, the county would provide a new subsidy to homebuyers. According to the bill: “Subsidies from this program must be used to subsidize qualified buyers in an amount necessary such that a recipient’s final estimated total housing cost does not exceed 31 percent of their household income.”[3]
These homebuyer subsidies would flow from a new program within the Home Acquisition and Ownership Programs Revolving Fund, but these subsidies would run into one of two problems: Either they would be insufficient to cover homebuilders’ losses due to the price cap, or they would commit the c to massive spending increases.
The latter option is probable, since the subsidy’s design is unclear and the cost of producing housing on Maui continues to increase.
For example, because the bill does not define who would be a “qualified buyer,” it is possible that higher-income individuals could benefit from this bill, if they fall under the definition of a “qualified buyer.”
The bill also does not explain how much money the county would be authorized to spend out of the fund, or state what percentage of a home’s purchase price could be paid for with county tax dollars.
Absent a spending limit and clear definitions being written into the bill, this program could easily cost Maui County taxpayers millions of dollars.
Note that the county’s Home Acquisition and Ownership Programs Revolving Fund currently has less than $2.5 million to work with.[4] If additional funding is needed, it would have to come in the form of higher taxes — or more county borrowing, which is pretty much the same thing.
Ironically, the very people whom this measure is intended to benefit could be the ones footing most of the bill.
The good news is that there is a better way.
Instead of mandating lower housing prices and forcing taxpayers to make up the difference, Bill 107 could cut red tape to allow home prices to fall naturally in response to supply and demand.
Local economist Carl Bonham, director of the University of Hawaii Economic Research Organization, made this point at the annual meeting of the Hawaii Economic Association earlier this month.
He cited a study by Evan Mast of the Upjohn Institute, an employment research group based in Kalamazoo, Michigan, which found that building 100 new market-rate units enables 40 to 70 residents of below-median income and 17 to 39 residents of bottom-quintile income to “move up,” so to speak, into market-rate homes and leave their former residences available for others, who are then similarly able to “move up” into decent housing. Mast estimated that most of this “filtering” effect occurs within five years.[5]
“This suggests that new construction reduces demand and loosens the housing market in low- and middle-income areas, even in the short run,” Mast added.
The conclusion, basically, is that adding new housing at market rates can cut housing prices across the board and give lower-income households upward mobility.
In my July testimony, I suggested a range of policy options that could lead to more homebuilding in Maui County. They included:
>> Allow smaller housing.
>> Allow smaller lots.
>> Allow residences in commercial districts.
>> Allow taller buildings.
>> Allow subdivision of existing structures.
>> Allow single-room occupancy buildings.
>> Allow extra kitchens.
>> Allow accessory apartments.
>> Allow larger “houses” on the same land.
>> End single-family-only zoning.
Also, I recommended a handful of policies intended to speed up Maui County’s homebuilding permit-approval process.
Instead of enacting Bill 107, the Council could employ any combination of these recommendations to benefit Maui homebuilders and homebuyers — at no cost to Maui taxpayers.
Meanwhile, in light of the uncertainty surrounding the financial aspects of Bill 107, I suggest the Council take the time to study the full potential effects of this ordinance on the local economy and Hawaii’s housing market as a whole.
Rushing this bill through would only create heavy-handed and costly regulations — the opposite of what is needed to provide more housing for Maui residents.
Sincerely,
Joe Kent
Executive Vice President
Grassroot Institute of Hawaii
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[1] In late 2021 and early 2022, the average affordable single-family house cost $618,000. See: Marina Starleaf Riker, “Maui Is Reconsidering What Constitutes ‘Affordable’ When It Comes To Housing,” Honolulu Civil Beat, May 25, 2022.
[2] “Report on Bill 107, CD1,” Council of the County of Maui, Affordable Housing Committee, July 15, 2022, p. 2.
[3] “Report on Bill 107, CD2,” Council of the County of Maui, Affordable Housing Committee, Sept. 2, 2022, pp. 1,2 and 4.
[4] “FY 2022 Mayor’s Proposed Ordinances,” County of Maui, p. 50.
[5] Evan Mast, “The Effect of New Market-Rate Housing Construction on the LowIncome Housing Market,” W.E. Upjohn Institute for Employment Research, July 1, 2019, abstract.
