Opinion: Five Ways to Build More Housing in Hawai‘i

The executive director of Housing Hawai‘i’s Future explains how to break down barriers and develop denser, more affordable housing.

Solving our state’s housing crisis requires that we be honest about the scale of the problem:

• For decades, Hawai‘i didn’t build enough housing to keep pace with population growth. Meanwhile, demand for second homes and short-term rentals nibbled away at inventory. Now, we face a statewide housing shortage. Maui faces an even more dire shortage, with thousands of homes destroyed by fire.
• Hawai‘i’s four counties have the most burdensome housing regulations in the country, limiting new supply. “Exclusionary zoning” policies that favor detached single-family homes have led to suburban sprawl. That sprawl has attracted the opposition of environmental and Native Hawaiian groups, who now form a significant anti-development lobby.These groups are joined by established homeowners who want to preserve their communities in amber and prevent any redevelopment or change. The combined political influence of these groups stymies housing reform.
• Unprecedented demographic changes await. The state has weathered seven consecutive years of population decline, a trend that shows no sign of slowing, despite optimistic projections by our state economists. Our population is aging and our labor force is shrinking. Young people are marrying later than their parents and grandparents and having fewer children. It seems that after decades of rapid population growth, our state has reached a plateau. Opponents of growth cheer, while their children weep for lack of economic opportunity and affordable housing.
• As an American state, Hawai‘i is at the mercy of the Federal Reserve, which sets the country’s monetary policy. Rising interest rates normally reduce housing prices. But the Federal Reserve’s recent rate hikes have not lowered housing prices in Hawai‘i. Instead, the high rates have further increased the unaffordability of homeownership for many local families. And out-of-state demand for Hawai‘i real estate remains strong.
• Covid devastated the local economy, with more families slipping into the just-above-poverty status of ALICE (asset-limited, income-constrained, employed) despite federal assistance. And the fires on Maui interrupted the recovery. The state and county must support displaced families, replace infrastructure and rebuild. And they may be on the hook for billions in damages, pending the outcome of civil litigation.
• Slowing economic growth means less tax revenue to support the basic functions of government, including building and maintaining infrastructure or issuing housing permits. Our political system works well when the economic pie is expanding; more can be given to competing factions each year. But growth has slowed in recent years, making future decisions more difficult.With population shrinking, interest rates high and economic growth slowing, we need a paradigm shift in the way we solve housing and other problems. Here are five ways to solve our housing crisis once and for all.

1. End the Sprawl

Sprawl is unsustainable. But it’s not inevitable.

Zoning is the basic policy of land use, and it’s set by the counties. Two aspects of zoning contribute to suburban sprawl: single-use zoning and limits on density. We should change both.

• Single-use zoning is designed to separate residential, commercial and industrial uses. It makes sense to separate homes and factories; it’s counterproductive to separate residential and commercial uses. The most vibrant cities in the world (think: London, Paris, Tokyo) favor mixed-use development. And charming small towns do too. This is as true in Hawai‘i as it is everywhere else. For example, it’s no coincidence that the most popular towns to visit on Maui were all developed before the county’s current zoning code was adopted in 1960: think of Hāna, Makawao, Pā‘ia, Wailuku and pre-fire Lahaina. Compare those quaint towns with Kīhei, the land of strip malls.
• Density is the key to sustainability. On islands with limited land, we cannot afford to sprawl endlessly. Sprawl is bad for the environment (think: vehicle emissions and that Joni Mitchell song about paving paradise to put up a parking lot). Sprawl is an inefficient use of land that could be used for open space, agriculture or renewable energy.And sprawl is terrible for quality of life: Time spent driving is time spent dying. A person spending two hours a day sitting behind the wheel is sedentary and more likely to suffer from obesity. And commutes reduce time spent with family, volunteering in the community or getting civically engaged.

Recommendation: Allow dense, mixed use development near job centers.

2. Increase Certainty and Speed 

Time is money. And with high interest rates, time is more expensive than ever. To keep housing affordable, developers need certainty and speed in the entitlement process.

• Certainty means that so long as projects conform with existing zoning and building codes, they are automatically approved, without discretionary approvals required by government employees or elected politicians.
• Speed means that projects are approved quickly. Policymakers often ignore the impact of time on the cost of development, but the costs contribute to higher home prices and discourage housing construction.

Developers take on substantial risk, fronting tens or hundreds of thousands of dollars before construction begins. On large projects, pre-development costs can run in the millions. And it’s not uncommon for small developers to mortgage their homes to finance projects.

A project that starts out affordable can easily become unaffordable over time. For example, a developer may plan to offer for-sale units affordable to families earning the area’s median income. But if interest rates are raised before the project receives approvals, borrowing costs may force the developer to convert for-sale units into affordable rentals. Meanwhile, every day developers wait for entitlements, their labor and material costs are increasing. If an affordable rental project is delayed too long, it could be scrapped or converted into a market rate project.

Recommendation: Allow what is called “by right development.” That means none or fewer discretionary approvals, which involve elected or unelected officials picking and choosing the projects they allow. When discretionary approvals are necessary, use a “shot clock” to speed decision making.

3. Focus on Adaptive Reuse and Redevelopment

Demand for commercial real estate declined during Covid, and widespread adoption of remote work means demand has not returned to its pre-pandemic peak. This means a hollowing out of urban and town cores. But it also creates an opportunity to return people to the town cores and to make those places multidimensional, where people live, work and play.

Efforts are already underway to convert some commercial space into residences. In Downtown Honolulu, The Residences at Bishop Place is an example of an office building converted to residential apartments. And many offices in the Davies Pacific Center are slated for conversion into apartments.

However, more can be done across the state. Building code and zoning changes are necessary to allow conversions from commercial to residential use. So too are investments in infrastructure and tax incentives to support adaptive reuse and redevelopment.

Consider Maui, where the Queen Ka‘ahumanu Shopping Center lies in the middle of Kahului. Many storefronts have been vacant for years, and the massive parking lot is largely empty even on Black Friday. It’s space enough to fit hundreds of housing units, perhaps a thousand. Why not build housing there, sparing greenfield development and revitalizing the area? Similar opportunities abound throughout the state.

A few challenges await:

• First, some exemptions from building codes should be permitted to speed adaptive reuse. Instead of slavishly adopting international building codes, each county should adopt a general framework for adaptive reuse that addresses the typical challenges local developers face.
• Second, adaptive reuse often includes changing zoning or adding residential use to underlying commercial zoning. This rezoning process should be streamlined. Ideally, counties should rezone whole areas they’d like to see revitalized rather than relying on developers to pursue spot zoning for individual parcels.
• Third, infrastructure capacity must increase to support additional residents. As urban and town core infrastructure nears the end of its service life and must be replaced, counties should upgrade with core growth in mind. This is, in the long term, a more sustainable approach than sprawling out.

Recommendation: Enact building code and zoning reforms to enable adaptive reuse and redevelopment. Support adaptive reuse projects with infrastructure investments.

4. Seek Innovative Financing Models

Innovative financing models can unlock new opportunities for affordable housing development. One model is the community land trust, where the community collectively owns the land via a nonprofit, helping to stabilize housing costs and prevent speculation-driven price increases. Nā Hale O Maui, PAL Kaua‘i, and Hale O Hawai‘i are three examples of local community land trusts, and for now, all operate at small scale. We should provide resources and support to help them grow.

Another model is the housing conservancy. In this model, a nonprofit serves as an investment fund manager for a for-profit investment fund. The fund invests in developing or acquiring workforce housing, keeping it at a price that the local workforce can afford. Social impact investors accept a lower rate of return than they would earn with private equity.

The Washington Housing Conservancy in D.C. and the Austin Housing Conservancy in Texas are two examples of successful housing conservancies. All that’s necessary is to organize a conservancy and attract capital, which shouldn’t be too difficult: Local banks and insurance companies, union stabilization funds, Kamehameha Schools and the state Employee Retirement System all have deep pockets and an interest in creating and preserving workforce housing in Hawai‘i. They should invest in workforce housing. And our billionaire malihini should throw in their fair share.

Recommendation: Support community land trusts and establish a workforce housing conservancy in Hawai‘i.

5. Invest in Infrastructure

Roads, bridges, and highways, electrical power, water, wastewater, broadband. Ports, airports, rail. They’re some of the basic infrastructure of modern life. To this list, we could add schools (the infrastructure of workforce development). But not all infrastructure is good infrastructure.

Our state has a bad habit of building infrastructure without a plan to maintain and replace it. It’s easy to see why: Short-term political pressure on elected officials makes them focus on the present with little consideration for the future.

Deferred maintenance is the norm, with Hawai‘i receiving a D+ grade for infrastructure from the American Society of Civil Engineers.

It’s more exciting to build something new than to take care of what we already have. There’s no ribbon-cutting ceremony for a water main replacement. And an upgraded wastewater treatment plant doesn’t make for a good photo op.

But infrastructure remains long after officeholders are gone. So we should get it right. Before we make investments in infrastructure, we should answer three fundamental questions:

• Will this infrastructure support the pattern of development we want for our grandchildren?
• Will this infrastructure support economic activity to fund its maintenance and eventual replacement?
• Will this infrastructure provide benefits for the general public or only for a narrow elite?

Then we should consider the potential for sea-level rise and ensure that infrastructure is resilient to natural disasters. Much of our infrastructure will need to be relocated or hardened to prevent future damage.

Finally, we need to fund infrastructure. A few things will help.

• First, we must elect leaders who will prioritize long-term infrastructure needs over short-term political pressure.
• Second, we need more programs like House Maui to align federal, state and county resources. House Maui has prepared three regional infrastructure plans that link proposed infrastructure improvements to the affordable housing and community facilities supported by that infrastructure. These plans are a jumping off point for discussion among stakeholders about the value of infrastructure investments.
• Third, we should explore different methods of funding infrastructure. For instance, tax-increment financing provides a way to capture the future tax benefits of real estate improvements to pay now for the cost of those improvements.

Another example is community development districts, which is the way that Kaka‘ako was redeveloped. Community development districts plan, finance, construct, operate and maintain community-wide infrastructure, charging property owners an assessment similar to their property tax. Every option should be on the table.

Recommendation: Invest in infrastructure that supports economic activity and benefits the public. Explore different methods of infrastructure funding, like community development districts and tax-increment financing.

Other solutions exist, but these five steps taken together are enough to solve Hawai‘i’s housing crisis and provide better lives for our residents. The time for action is long overdue. Where do you stand?