Steering Growth - Extended Version
6 Leaders Discuss Development in Hawaii
Read the shorter, edited version of this forum here
(page 4 of 7)
Kim: I promised my wife I wouldn’t be argumentative today.
Andy: I promised myself that too (laughter).
Kim: But you know you lied (laughter), I’m listening to when you talk about solutions. I surrounded myself with some people with kind of thinking that I needed it. One of the most important views was James Camp and Associates in regards to community building. He would talk about all the solutions. In 2006, there was a study of the state that looked, by county, at how many people are homeless or are at risk. At risk meaning those who live literally month-to-month. If anything happened to their jobs or a major expense or anything like that, they probably could survive another two or three months, but then they would become homeless. And the second category was those who are hidden and those are the ones that live two or three families together to survive. And I wonder how many of us don’t realize how scary a threshold we are at now because that was 2006, and everyone agrees that this number must be higher today. That number for Kauai, JoAnn, you had the highest percentage at risk or hidden, near 30 percent. The rest of us were near 25 percent. Just swallow that for one second and I’ll say collectively, “What have we done?” my prediction is that we are the cause of 200,000 to 300,000 people in this state who are at risk, that are hidden, or are homeless. This is what has happened to this state of Hawaii, our people. What happens if the figure becomes 50 percent one day? Is there a threshold where we say that we’ve lost a community? We are near it. How long do we go before we say, “We can’t allow or tolerate this?” It’s not a matter of who we thought is responsible for the development of housing. It’s a matter of what is causing this kind of lifestyle to occur in this small state of 1.2 million people.
Burris: If that is the problem, what is the solution?
Photo: David Croxford
Anderson: I believe the counties should be involved in affordable housing. We abandoned it here (on Oahu). You go back and look at Mayor Fasi’s record of building affordable condos. They’re all being sold today by this mayor. We had a very aggressive program of providing affordable housing, condominiums, etc., for a group of people who needed help. Why did the people of Oahu vote to abandon it? I mean where is this concern about my kid, my neighbor and my brother? I mean we voted to abandon the Housing Department. I don’t know why. But we used to take CDBG money (Community Development Block Grants). We would fund like we did block aid Hawaii, making millions of dollars. Alvin Pang would build a unit. When it was finished, we would rent and re-finance it, and took our money back up into another project. If you look at Fasi’s record of providing affordable condos, apartments, etc., it’s quite impressive. I don’t see why we can abandon that as a county and say it’s not a problem.
Photo: David Croxford
Kim: I didn’t say that, Andy.
Anderson: No, you didn’t. I know you didn’t, but you have housing on your island. And I think all the islands have it except Oahu.
Yukimura: It’s one of the biggest mistakes I believe to sell off public housing.
Anderson: I agree with you.
Yukimura: And it is truly a major responsibility of government to participate in the creation of affordable housing. I think the private sector has a responsibility as well. But I think part of the solution is that for affordable housing, and this is a very major shift in thinking again, it is not to be a commodity on which you speculate, but it has to be a resource that we need to keep insulated from the market. And so that means that if people buy a single-family house and that becomes re-sellable, there is a limit on how much they can get. They have to sell it to another eligible family. There should be some reasonable profit for improvements made and so forth but not this kind of speculative thing that we were experiencing during market. For example, in Kilauea, the county participated in a private-public partnership in housing. People who really needed the housing got it for $102,000 about 10 years ago. And they had with a 10-year buyback but after 10 years, they could sell it for $600,000, which was the market, the going rate for houses like that two years ago. And so you will have houses going out of the affordable inventory faster than you can put houses in, much less from creating the growth that you need. It’s not just the way Kukui Plaza used to be and on our island, Kalepa Village and Paanau housing. Those need to be maintained well. And they’re rentals and they will be forever available to people who need the pricing that we offer. But then if you offer for-sale properties, then you have to have an in-perpetuity buyback on them so that they’re always in the affordable housing inventory. That is the only way we’re going to ultimately solve the problem.
Anderson: Where is the incentive for the developer to build affordable houses? I pay the same amount per square foot of the land that I would pay for a market house. I pay the same amount of real property tax on the affordable houses I do for a market house. I have to wait two years for the city to process the blasted permits for an affordable house or a market house. There are no incentives. The bank loans you money probably less than an affordable house because you can’t guarantee the returns, so if you look at the hurdles that are there for somebody to make a commitment, it’s difficult because it’s the same hurdles as market. I use Micah as an example because it’s Hawaiian land, special funding, with government employees designing. He is very unique, but if you took him and put him in charge of affordable housing in the state with carte blanche, cut through the permit process, commit some state land, some cheap dollars for funding, he could do it I think.
Kim: I totally disagree with the direction we’re talking about. Some time ago you asked in regards to my position on developers. I had a feeling that you were going to say I don’t like developers. But I said developers were my only hope in regards to addressing the problem and I believe that more today than ever. There are two developers on the Big Island that I would like, if any of you have time, to see their job. The incentive was to try to help us make Hawaii a better place. And no one made less profit for them. And that is Ooma property and the Kohanaiki property. Two of them so engrossed in suits and counter-suits, for the Kohanaiki property it was almost 14 years. I then appealed to the developers to help us to address certain problems by what they developed and how they developed it.
Burris: But you know that doesn’t answer Andy’s problem. It’s appealing and it’s wonderful to appeal to a developer by saying, “You need to make our community stronger by helping us make affordable housing.” But the developer then has to answer to the people who give him the money and he has to say, “Can I do this?” It wouldn’t be fair to ask a developer to go in the red to meet a wonderful goal.
Kim: The answer is not to ask a developer to build more housing. It is not to ask the developer anything specific. It is to ask, “Help us develop a community.” I don’t think anybody here would deny that the type of development we have created, and not here in Hawaii only, but in a lot of places, encouraged cars and automobiles because of pod-type-building mentality. And what we’ve talked to these developers about how to stop that and help us build a community atmosphere that will address all these things. In regards to what Ooma has done and what Kohanaiki has done, I think all of you would be very awed by these developers. We appealed to them personally and they had to throw away, literally throw away, their entire design of what they were going to do and we all know that costs a lot of money. And I’m going to do something I have never done before. I’m going to go to the Land Use Commission hearing, hopefully some time in January, February, to support the Kohanaiki development.
Yukimura: I think there is a way to actually put together what Mayor Kim had said and what Andy Anderson had said because I do believe that we have to make it workable for the developers because we need them to be part of this. And what we tried when we passed the affordable housing ordinance, which was nothing as I had envisioned it, but anyway, what I see as being workable is to require the developer to do on-site housing. That is when they have a development they’re doing, they need to include on that particular site, or close by, affordable housing. But their responsibility would be narrowly to give the land and to bring the infrastructure up to the housing site. And they’re doing it anyway for their development. So the additional cost shouldn’t be that much more. Then the counties taking the land or using a nonprofit developer would do the development of rentals or cooperative housing. And there would be design controls so that it would mix well with the development. And I have seen some smart growth. Actually, Mayor Kim, the UniDev developers have done development where the homes are actually intermixed in the whole development and you can’t tell an affordable unit from a market unit. And doing it that way, you know, the developer doesn’t have the whole burden of doing 80 percent and below maybe on income, which is a very deep subsidy. That can be taken on by a nonprofit or county developer. But if you have the land and off-site infrastructure, then it’s a workable prospect for the county.
Burris: Mayor Kim, in a few cases like the Mauna Lani, they did build housing and kind of workforce housing in the resort, mauka. Has that worked out or has that stuff slipped out of affordable.
Kim: If your mission is just to provide a few or a number of houses, affordable houses, I know we will always fail. Our mission was not that.
Yukimura: 30 percent?
Kim: Yeah, even that. I don’t care if it was 50 percent because it stayed for a while. Our mission was to work with all developers to, No. 1, understand what has happened and what is happening to the island of Hawaii. Secondly, to work as a partner in this on how we can address it in how we develop and what we develop.
Anderson: You had an exciting program going with Waikoloa.
Yukimura: That is the Unidev, right?
Anderson: UniDev came in. That was an exciting program. Free land. That thing has been about six, seven years, eight years.
Kim: Going on six.
Anderson: Six years. Is that going to happen?
Kim: A part of it is happening now. Obviously with the crash, in the event where housing went down, some things have to be re-evaluated, but basically what JoAnn was talking about is a very good idea. The whole thing was, the question was they asked, “What stops people from buying their own place?” The down payment was a major portion of that. So we took that away by making it a lease-for-ownership type of situation. But I still want to state that, you know, I wish we had all my developers here in regards to what they gave and in regards to try to make – I’ll use the old word – when you talk about sustainability, you rarely hear about sustainability of a culture or a lifestyle. And that is what we’re trying to address here. I’ll emphasize it again. I think we should all be very, very scared of what we’ve done, where we’re going if we don’t change our whole mindset. You cannot tell me you’re not scared that 25 percent – that’s a minimum of each county – is at risk or hidden or homeless in regards to lifestyle. I remember we had this discussion with Mayor Tavares (Charmaine Tavares of Maui County) this is you could call her up as far as the real story, saying – the public said the cost to buy a piece property in Maui for the American dream of approximately 6,000 square feet. The cheapest lot they could find was $400,000 for the lot. And Mayor Tavares, I told her we found one for $350,000, but you know what she said? “Harry, I’m the mayor of Maui County and I live with my mother because that is all I can afford.” I’ll tell you why I came here. I wanted an opportunity to talk to people like you, you know, like we talk to all developers. Can you slow down and take a look at what is happening to our state and our people.
Burris: One thing, you know, you talk about being scared of where we’re headed. Allan convincingly said something about in a very few years, we’re going to have to be making some very difficult choices. What were you talking about?
Doane: I just think that the economic environment that we’re in nationally, state, county, at all levels, is one that I think really have to come back and ask yourself, “Where are the resources? And where are the priorities?” And setting your objectives. Usually, in forums like this, you start at this high level and you leave you where you started. Today you’re all lathered up because things aren’t going well. And, when you go back and you kind of go back to what you were doing before. I think that certainly I go back to – you mentioned it – there have been a couple of things that have stunned me. One is Kakaako, which I won’t mention today (laughter), where we went along with the state and got a very bad result. It didn’t turn out that way, but we started our development at Kukuiula (on Kauai). I can’t remember. I think I was born then (laughter), but I know I was not of age yet, but it was a long time ago. And then after we started the development going we had (Hurricane) Iniki. And, funny thing, we finished up only two things after that. We had this big development we spent all this money on. We did the affordable housing first. And that the other thing we did was, as we had a decision to make, these were 100-plus affordable units.
Doane: So we ended up building a $15-million sewage treatment plant knowing that we weren’t going to do any development for a decade. You know why we did that? Because we had an obligation for the community to get this housing going. It’s 1992 when we did that. So we ended up building the sewage treatment plant. And then when I became CEO about five or six years later, we took the $15 million writeoff. We wrote the whole thing off because it had no value to us economically.
Burris: So the market stuff never went in?
Doane: Well, there’ve been a few homes, a handful built, but I’d say we’re about two years from having first housing stock. But we, not an example of economic heroism here, but you had a company that is fundamentally grounded in Hawaii and we made a commitment, tried to live up to our obligations. And, well, I think we’ve had some strong differences in the past in terms of what is appropriate to do from a business-government standpoint, we had an obligation to the county, the people. We did it. We’ve also just sold I believe at a very low price about 75 acres up in that Eleele area to the county so that the model you’re talking about, that’s exactly it. We don’t have any other developments. We have no requirements. And we’ve done that and it’s because it’s a very logical place for housing.
Kane: I think Mr. Doane’s comment about where the market is at right now is the primary problem. And that until the private sector engages, we’re going to continue to see this plateauing and down just a little, up and down, until we provide certainty to the private sector that they can engage. And right now, there is not enough certainty there. And I think we as a state have to step back and recognize that we’re competing with other states and other countries for that investment. And we’re starting to recognize that our differences need to be set aside just as they do at a time of crisis, and recognize that we’re a single team that needs to go out and attract that investment. And too often we have to hurt too much before we do that. Of all states, we have the best opportunity to get the flow of capital going again because our evaluations have maintained where they are right now. So there is equity there. And I think if we give our community an opportunity to start buying down as opposed to buying up, and that is going to be predicated on again giving developers certainty that they can re-engage in the market so that they see buyers there. And people will, the individual, because there is I think there is a big demand for it. They’re my peers. They’re like Shara (Enay, Hawaii Business writer). They’re our peers who have engaged in the market or stretched like if you give me an opportunity to buy down it out, and my value stays up, I will buy down. And if it moves up, it moves a loan out of Bank of Hawaii. It just starts that flow of capital again and we’ve got to find a way to do that. Another point I just wanted to make with regard to affordable housing is that the moment the state steps back from its responsibility, affordable imposition become much more punitive to the developer. And I think those are fundamental concepts we just have to understand.
Yukimura: We just can’t do development as usual, though, because it I think we’ve seen it doesn’t work. And this certainty, I totally agree, but how do you get certainty? You get it from a very good plan that has been put together by all parties, where they understand what the consequences of their collective choices were and we’ve seldom done planning like that. Because if you have a plan that everyone actually has been part of and understands, there are more chances that it will actually happen from generation to generation of leaders, because we know the scenarios: The new leader comes in, changes all the plans and does his thing, and the next leader changes all the previous plans. There is no certainty in that.
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