An Affordable Complex to Open in Wahiawā, with Eight More Projects Underway

A four-story walk up with 36 affordable rental units is nearly complete at 216 Olive Ave., the former site of seven dilapidated cottages built in the early 1920s.

The site, just blocks from Wahiawā’s Walgreens, McDonald’s and other retailers, is the latest example of how Honolulu’s Bill 7, enacted in 2019, is transforming decaying or underused small lots into needed affordable apartments. The measure limits work to areas already zoned for multifamily dwellings.

The Honolulu Department of Planning and Permitting says that as of March 1, two projects with 51 total units have been completed under the law, which grants fee and tax waivers and exemptions from standard building regulations. Another eight projects composed of 236 total units are under construction. And 40 applications are either pending review by DPP or on hold while applicants make corrections to plans.

Bill 7 led to the establishment of a five-year pilot program with a goal of building 500 affordable rental units annually. But due to slow performance brought on by the pandemic, differences in how the law is interpreted, and higher interest rates and building costs, the program was extended and now expires in 2030.

Other efforts are in the works to help speed developments under the so-called Bill 7 program. Last year, Honolulu passed a law to allow some self-certification of projects, and a bill is moving through the Honolulu City Council to increase government subsidies for these walk-up apartments.

Developer Paul Lam of Lam Capital is part of DPP’s Affordable Housing/ Bill 7 Task Force, which includes other developers, contractors, architects and county officials. He has built one 26-unit Bill 7 project in Makiki and is working on eight others.

“We can’t depend on government to solve our problem,” he says. “We have to do it ourselves, along with the government backing and supporting us, and the lending institutions, our local banks offering creative solutions to finance. This is the key to solving affordable housing.”

Redevelopment Opportunity

In the 1980s, Wilbert Toda, a World War II veteran, was looking for real estate to buy. He came across 216 Olive Ave. and its two neighboring lots, which totaled 17,000 square feet.

Old cottages occupied the lots, but the land was also zoned for apartments. His plan was to one day replace the cottages with denser, multifamily housing. Linda Austin, his daughter and the owner of the land since 2003, says Toda often talked about his plan at dinner, but building costs were prohibitive.

That changed in 2019 when Bill 7 passed, making it cheaper to build higher density rentals on lots up to 20,000 square feet in apartment, apartment mixed-use and business mixed-use zones. The projects are not required to have off-street parking, elevators or bicycle racks, though a developer could include them, and buildings can be up to 60 feet tall.

At least 80% of the units must be rented to households that earn 100% of the area median income or less – about $131,000 for a family of four – for at least 15 years. Up to 20% of the units can be occupied by property owners or their families.

Such projects can receive 10-year property tax exemptions on units rented at 80% AMI or below, plus waivers on building permits and wastewater system facility fees. The county permitting department is required to approve or disapprove Bill 7 building permit applications within 90 days.

The affordable walk-up at 216 Olive Ave. includes 12 studios and 24 one-bedroom units. | Photo: Aaron Yoshino

Austin worked with developer Derek Lock of HNL Development to build the Olive Avenue project. The building has 12 studios and 24 one-bedroom units, each with a mix of vinyl and carpet flooring, plus a washer and dryer. There are two stairwells and 36 parking stalls. One unit will be occupied by Austin’s adult son, and rents for the others will target those earning under 80% of the area median income. The goal is to attract people who work in Wahiawā, Hale‘iwa, Mililani and at Schofield Barracks.

“It’ll welcome tenants that will add to the neighborhood rather than subtract from the neighborhood,” Lock says. “So I think that’s something that Bill 7 has brought to these older apartment-zoned neighborhoods.”

Further Incentives

Bill 7 was meant to spur privately financed affordable housing development, but it was written when construction costs were around $250 per square foot.

Lock says the Wahiawā project came in under $300 per square foot, but if it were built today, it would cost much more due to higher interest rates, inflation and supply chain shortages. He and others say those higher costs are main impediments to Bill 7’s progress.

“While it’s a legacy project for them (the Toda/Austin family), you know, it’s still, basically, privately financed affordable housing,” says Lock, who is building two other Bill 7 projects in the McCully area. “There’s no immediate windfall like a lot of other developments. And it’s hard to make it pencil. You’ve got to keep the construction costs down, you’ve got to have a low land cost basis to begin with.”

In 2021, Honolulu created a program to provide Bill 7 project owners with completion grants of up to $9,000 per dwelling unit for units rented to households earning between 61% and 100% of the area median income. Units rented to households earning less than that could net project owners up to $15,000 each.

The program was capped at $10 million. Only one project had received funds from the completion grants as of early March, says Curtis Lum, DPP information officer. That project received $147,170.

Honolulu’s City Council is now considering a new grant program that would pull from the $10 million cap to provide projects with per-unit grants before construction begins. The program is part of Bill 3 and if it passes, developers would receive up to $25,000 for units rented to households earning between 61% and 100% of the area median income. Units rented to households earning less than that could net developers up to $35,000.

Projects can only receive a preconstruction grant or a post-construction grant, not both. Preconstruction grant recipients would be required to pay their workers prevailing wages in exchange for the subsidies. But they could also be certified by the Hawai‘i Housing Finance and Development Corp. and receive exemptions from school impact fees under the governor’s fifth emergency proclamation on affordable housing.

Lam says Bill 3 could be a game-changer: “We’re not getting enough government subsidy (under the current system). … It doesn’t pencil.” He adds the Bill 3 subsidy, if approved, will enable developers like him to move faster, put less of their own money down to get a loan and pay prevailing wages.

Honolulu Mayor Rick Blangiardi also secured from the state $5 million in matching grant funds for Bill 7 projects, according to the 2023 housing plan prepared by the city’s Office of Housing. Lum says there are talks to allow the use of these funds for preconstruction costs, but nothing has been decided yet.

Key Housing Solution

Lam is the founder, chairman and senior advisor for Perform International, a concert event planning company. He began building affordable rentals in metro Honolulu after Bill 7 passed.

He lived in affordable housing while growing up in California and saw how unstable housing can hurt a family’s social, emotional and financial well-being. He sees Bill 7 as a key solution to Honolulu’s affordable housing shortage and says he appreciates the way city and state governments are addressing challenges.

Last year, Honolulu enacted Bill 6, which allows certain licensed architects and engineers to self-certify that their affordable housing projects stemming from Bill 7 comply with relevant building codes. The temporary self-certification program is meant to help alleviate DPP’s backlog of permit applications.

Gordon Pang, housing information officer for the Hawai‘i Housing Finance and Development Corp., wrote in an email that Bill 7 projects could receive a general excise tax exemption if a developer agrees to keep rents affordable for at least 30 years, pays prevailing wages and records a declaration of restrictive covenants at the Bureau of Conveyances.

Lam says that so-called Bill 7 projects offer the best return on government investment in housing. About 1,700 affordable housing units unrelated to the Bill 7 projects received $284 million in federal and state low-income housing tax credits and subsidies in 2023. That’s about $167,000 per unit – and those units could take multiple years to build, he says.

But so-called Bill 7 projects can be built at a fraction of that time and cost, he says: “To me, it’s a no-brainer. This is the only way we can transform within metro Honolulu. How else? I mean, there are no large parcels. But we can take a 5,000-squarefoot lot and convert it to 25 units.”