HB676 HD1 SD1: Land-use reform proposal too ambiguous, narrow

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Judiciary on April 5, 2023.
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April 5, 2023
9:45 a.m.
Conference Room 016
Via Videoconference

To: Senate Committee on Judiciary
      Senator Karl Rhoads, Chair
      Senator Mike Gabbard, Vice Chair

 From: Grassroot Institute of Hawaii
            Ted Kefalas, Director of Strategic Campaigns

HB676 HD1 SD1 — RELATING TO DISTRICT BOUNDARY AMENDMENTS

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on HB676 HD1 SD1, which would authorize Hawaii’s counties to determine district boundary amendments for certain county-owned land areas greater than 15 acres, provided the counties enact ordinances that meet criteria specified by the bill.

Those criteria include that all the housing constructed on the lands be used for affordable housing as defined by county ordinance; that the counties retain ownership of the lands for at least 99 years; that the district boundary amendments be consistent with the county or community plans, if such plans exist; that the counties mitigate the impact that the housing development might have on roads and schools; that at least 75% of the housing units on the land be set aside for persons and families with incomes at or below 100% of the area median income; and that the ordinance incorporates due process into the procedure for determining DBAs pursuant to state law and the public trust doctrine.

This measure correctly diagnoses one of the causes of Hawaii’s housing crisis: excessive red tape. The state Land Use Commission’s authority over district boundary amendments greater than 15 acres often puts a roadblock in the way of new housing projects.

A 2020 Grassroot Institute of Hawaii report, “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. Expanding the counties’ powers to reclassify land through the district boundary amendment process was just one of the report’s suggestions.^[1]

That means for us at the Grassroot Institute, HB676 is a welcome proposal, but too narrow in its focus. County-owned housing projects might benefit from this measure, but should it become law, housing developments on private lands would still be stuck in the same arduous DBA process.

This measure’s potential could be better realized if it were amended to extend to privately held lands as well, not just those owned by the counties.

In addition, HB676 is ambiguous about the point that the counties own and retain ownership of the lands for 99 years. This raises questions about whether the houses could be sold fee simple or through some other mechanism, such as a leasehold.

Moreover, the length of that term suggests that this situation—  leasehold or fee simple — is intended to end at some point, creating further difficulties for the counties and uncertainty around the home developments in particular.

Ultimately, the ambiguity of the 99-year ownership provision, combined with the budgetary and administrative implications involved, would create an unnecessary limit on the power of the counties to use their lands to increase the supply of housing.

The fundamental requirement that the counties own the lands makes sense in the context of this bill, but we suggest that the 99-year ownership and maintenance requirements be removed, thereby allowing the counties to develop housing according to local needs.

In addition, the measure’s limitation to affordable housing projects as defined by county ordinance creates a confusing redundancy when combined with the requirement that 75% of the housing units be set aside for persons and families with incomes at or below 100% of median area income. First, the county affordable housing requirements already include provisions to define who qualifies for affordable housing, and these requirements will definitely overlap with the additional 75% affordable clause.

In addition, this double affordable housing requirement is likely to raise project costs for the counties. Known as “inclusionary zoning,” this type of requirement for homebuilding can make private projects financially unfeasible, leading to fewer housing units being constructed.

A large body of research shows that inclusionary zoning makes housing less affordable, since developers respond to such mandates by building fewer homes.^[2] 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 such as Maui that have a 50% inclusionary zoning requirement, it is nearly impossible to make a profit building housing without a government subsidy.^[3] As the required percentage 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%.^[4]

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.”^[5]

A 2004 study by the Reason Foundation found that inclusionary zoning led to reduced housing growth in the San Francisco Bay Area region.^[6]

While well-intentioned, the inclusionary zoning requirement could frustrate the intent of the bill by creating a regulatory roadblock to the increase of the housing supply.

For example, a 2020 survey of 1,030 municipalities across the U.S. showed that only three had inclusionary zoning requirements higher than 75%: Aquinnah, Massachusetts and Santa Paula and Oxnard, California.^[7] All three required 100% affordable housing, and all three saw construction of new homes decline by more than 60% during the decade after the policies were adopted.

Change in units built after 100% affordable housing requirement

Source: “Selected Housing Characteristics,” U.S. Census Bureau, Table DP04, 2019, and “Inclusionary Housing Database,” Grounded Solutions Network, 2020.

We suggest amending this measure to eliminate or reduce the inclusionary zoning mandate. This would help prevent the counties from being bogged down in expensive projects that might ultimately discourage the construction of new units.

Thank you for the opportunity to submit our comments.

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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^[1] Jackson Makanikeoe Grubbe, “Reform the Hawaii LUC to encourage more housing,” Grassroot Institute of Hawaii, September 2020.
^[2] 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.
^[3] “Inclusionary Housing Calculator 2.0,” Grounded Solutions Network, 2019.
^[4] “Project Summary,” Grounded Solutions Network, accessed Feb. 9, 2021.
^[5] Carl Bonham, “The Unintended Consequences of Affordable Housing Policy,” The Economic Research Organization at the University of Hawaii, Sept. 8, 2013.
^[6] Benjamin Powell and Edward Stringham, “Housing supply and affordability,” Reason Foundation, April 1, 2004.
^[7] “Inclusionary Housing Database,” Grounded Solutions Network, 2020.