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Inclusionary zoning feature conflicts with goal of SB2175

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Water and Land on Feb. 7, 2024.
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Feb. 7, 2024, 1 p.m.
Hawaii State Capitol
Conference Room 229 and Videoconference

To: Senate Committee on Water and Land
      Sen. Lorraine R. Inouye, Chair
      Sen. Brandon J.C. Elefante, Vice-Chair

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

RE: COMMENTS ON SB2175 — RELATING TO HOUSING

Aloha Chair Inouye, Vice-Chair Elefante and members of the Committee,

Thank you for considering SB2175, which would authorize the counties to determine district boundary amendments for lands that are 15 acres or less that are presently in rural or urban districts; 15 acres or less in agricultural districts not designated as important agricultural lands; and 100 acres or less in those same areas, provided that 75% of the housing units on the land in question are set aside for persons at or below 100% of area median income.

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 Grassroot Institute of Hawaii report, “Reform the Hawaii LUC to encourage more housing,” discussed how state policymakers could streamline the responsibilities 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]

Unfortunately, the potential benefit of that change is diminished by the bill’s inclusionary zoning restriction on DBAs of 15 to 100 acres.

Inclusionary zoning specifies that a certain percentage of homes in a proposed project have to be sold or rented at a certain price point — and that is a disincentive to homebuilders, as a large body of research shows.[2]

To make matters worse, the mandates force homebuilders to increase the prices of their market-rate homes to make up for the so-called affordable homes, and that becomes even more problematic depending on the percentage of homes that must be so-called affordable.

Based on the “Inclusionary Housing Calculator” developed by Grounded Solutions Network, our research shows that in housing markets that have a 50% inclusionary zoning requirement, it is nearly impossible to make a profit building housing without a government subsidy.[3]

For example, in 2006, Maui County adopted Chapter 2.96, Maui County Residential Workforce Housing Policy. This ordinance required any project with 10 or more units to provide 50% of the units as affordable.

The law also required a 25-year deed restriction. This resulted in only one workforce housing agreement executed between December 2006 until December 2014 in which only three homes were produced.

If government subsidies are required to keep the homebuilders interested, then we are talking about hidden  shifted costs to taxpayers — who often are the same people who need affordable housing — and further obstacles to efficient homebuilding.

As noted by economist Carl Bonham at the Economic Research Organization at the University of Hawai‘i, 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.”[4]

In other words, inclusionary zoning requirements are a roadblock to increasing Hawaii’s housing supply. It is likely that the high inclusionary zoning set-aside in this bill would frustrate the bill’s intent to generate housing growth by making construction financially unfeasible or by forcing homes outside the set-aside to be sold well above market price, thereby contributing to escalating housing prices.

While allowing counties to approve DBAs over 15 acres is a much-needed reform, we urge you to remove the condition that DBAs of 100 acres or less must set aside 75% of housing units for purchase by persons at or below 100% area median income.

Thank you for the opportunity to testify.

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 Hawai‘i, 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] Carl Bonham, “The Unintended Consequences of Affordable Housing Policy,” The Economic Research Organization at the University of Hawai‘i, Sept. 8, 2013.

 

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