The following testimony was presented Feb. 8, 2023, by the Grassroot Institute of Hawaii to the House Committee on Housing, and the House Committee on Water and Land.
Feb. 8, 2023
Conference Room 312
To: House Committee on Housing
Rep. Troy Hashimoto, Chair
Rep. Micah Aiu, Vice Chair
House Committee on Water and Land
Rep. Linda Ichiyama, Chair
Rep. Mahina Poepoe, Vice Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
RE: HB673 — RELATING TO HOUSING
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on HB673, which would significantly expand 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 100 acres, in all districts that do not include important agricultural lands, provided that 50% of the housing units built on that land are set aside for families and persons whose income is at or below 140% of the area median income.
In raising the acreage cutoff for county decision-making to 100 acres, this bill would make an important stride toward streamlining the approval process and encouraging the growth of housing in our state.
However, the requirement that 50% of the units built be set aside for affordable housing may create an unintended barrier to growth. Known as “inclusionary zoning,” this high-percentage set-aside for affordable housing can make 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 their 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, 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 may frustrate the intent of the bill by creating a 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 — or at least reduce — the 50% requirement.
This bill should be praised for its attempt to address one of the root causes of the state’s housing crisis: the excess of regulation and bureaucracy that can delay and frustrate development. That delay and regulation adds years to the time it takes to create housing and greatly drives up building costs.
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 the original bill: 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 this bill would put our state on the path to achieving those recommendations.
Thank you for the opportunity to submit our comments.
Director of Strategic Campaigns
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.