Steering Growth – Print Version

January, 2010

Hawaii Business invited six influential business people and political leaders to talk about development and preservation. The moderator was Jerry Burris, editor-at-large of Hawaii Business. The panelists were:

D.G. “Andy” Anderson, developer, former state senator
W. Allen Doane, former chairman and CEO, Alexander & Baldwin, Inc.
Micah Kane, Kamehameha Schools trustee, former director of the state Department of Hawaiian Home Lands
Harry Kim, former Hawaii County mayor
Jan Yokota, vice president, Pacific Region, HRPT Properties Trust
JoAnn Yukimura, former Kauai County mayor

Burris: I’d like to start by asking, should there be a limit to development in Hawaii? We’ll go around the table. First, Jan?

Yokota: Yes, there should be a limit, but how? The urban core on Oahu is where a lot of the growth should be directed when there is growth, so we can preserve agricultural lands. Concentrate growth in the urban core for transportation reasons, sustainability, sufficiency of infrastructure.

Kim: For a long time, I’ve been very sad with how we’ve grown and where we are going. All Hawaii’s leaders need to be aware of what we have to do to change things. I think we’ll all be very sad of what is there if we do not change.

Anderson: I see every island trying to be a state entity. They want economic development, housing, open space, ag. You’ve got to look at the state as all islands. We have to have ag land in the state, it just doesn’t have to be on this island. This is the economic hub. If we’re going to provide homes and jobs for our kids, growth is going to happen. Most of Oahu’s ag land is fallow because anything we grow is still a lot more expensive than imported food.

Doane: Will there be limited growth? I think the answer is yes, but it’s got to be very wise given some of the mistakes that have been made over the years. The major thing in the next 10 or 20 years is going to be redevelopment – using existing locations, existing buildings – because originally they were the very best places for development. And that’ll preserve open space.

Yukimura: I agree with Jan that it’s more about how rather than whether you limit growth. We’re entering a very different era and the assumptions that we’ve normally gone by are not going to be workable very soon. For example, we can now get cheap food from the Mainland, but the price of oil is not going to stay anywhere near what it is today. And so using resources close to home is going to be really important, even on Oahu. I see suburbs sprawling over the best farmlands on Oahu and every island. You have to drive to every place, your children have to be driven everywhere. Smart-Growth people say suburbs are going to become dinosaurs and that it is more about dense growth and energy-efficient growth. The good news is they can still be prosperous and wonderful places to live.

Kane: I think we as a state made a fundamental mistake when we started pushing government’s infrastructure responsibilities onto the private sector. That is your prime incentive to mold development to areas where you want growth. We’ve all agreed where growth should occur, but we didn’t complement the infrastructure. That is what we’re catching up on today in Laiopua. In the ’80s, Gov. Waihee designated major master-planned communities and funding to go with it. The government should take back that burden. The private sector will always follow the money and certainty. The moment government steps away, the private sector looks at it as “I’ve got to put a water system here in Laiopua vs. a water system in Kohala, then I’m going go Kohala.” And so now it becomes a profit-making decision as opposed to whether it’s the right thing for our state.

Burris: In Kakaako, government did what Micah was talking about. Did that work?

Yokota: It worked very well in terms of creating the environment for landowners to do the kind of projects we want – but you had to have the economy as well, so there were times when it made sense to develop and sometimes when it didn’t. The state government over a period of decades committed infrastructure monies and that laid the platform for development of Kakaako. That is important – consistent commitment.

Kane: In terms of growth: Leialii preserves Honokowai; Laiopua preserves Kohala; Kapolei preserves Wahiawa. You’ve invested into the infrastructure and said this is where people are going to live.

Yukimura: I agree with what Micah says about government having responsibility for infrastructure where we want growth. It’s partly about having a good plan and then following the plan through generations of politicians. The other thing is you need to have clear requirements for the developer so that the external costs are not laid on the people of Hawaii, the cost for affordable housing.

Doane: The state has the highest marginal tax rate in the U.S., and with our GET (general excise tax), one of the highest sales taxes when you compound it. And just 163 school days. We’ve got to have some much deeper thinking about an economic foundation for this state because development responds to demand, and demand is created by healthy lifestyles that involve families, jobs and optimism about the future. Over the next three to five years, people must make tough choices about alternatives that are less than ideal. We need to ask what are the state and counties reasonably able to do?

Burris: Andy, you’ve done a lot of development. Do you feel that it’s your responsibility to build affordable housing?

Anderson: I don’t see building affordable housing as my responsibility unless it’s a burden on zoning, or if I get some special entitlement that comes with it like it did with Kakaako for a while. But in the 50 years I’ve been around, I’ve seen this affordable housing requirement at 30 percent, 20 percent, down to zero. It doesn’t work for lots of reasons. I think you can build affordable housing in Hawaii, but you need the same kind of mentality, money, thinking, land and commitment as he (Kane) did with Hawaiian Homes. Should we not build because of environment or open space, for a demand that is pent up? Everything that these people build gets sold. The Murdochs are creating Mililanis. They’re not building for the tourist. They’re building for the kamaaina.

Burris: Harry, is the day coming when kids growing up here – average kids with average jobs – are going to be able to afford a house?

Kim: In 2006, there was a study of the state that looked at how many people are homeless or are at-risk, meaning those who live month-to-month. If anything happened to their jobs or a major expense, they probably could survive another two or three months, then they would be homeless. The second category was the hidden – the ones who live two or three families together to survive. That was 2006, and everyone agrees that number is higher today. JoAnn, Kauai had the highest percentage of at-risk or hidden, near 30 percent. The rest of us were near 25 percent. What have we done? We are the cause of 200,000 to 300,000 people in this state who are at-risk, who are hidden, or are homeless.

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.

Yukimura: It’s one of the biggest mistakes to sell off public housing. And it is truly a major responsibility of government to participate in the creation of affordable housing, and the private sector has a responsibility as well. But affordable housing has to be insulated from the market. If people buy an affordable single-family house and that becomes re-sellable, they have to sell it to another eligible family. There should be some reasonable profit for improvements but not speculation. In Kilauea, the county participated in a private-public partnership. People who really needed the housing got it for $102,000 about 10 years ago. But after 10 years, they could sell it for $600,000, the going rate for houses like that two years ago. So you will have houses going out of the affordable inventory faster than you can put houses in.

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 property tax. I have to wait two years for the city to process the blasted permits for an affordable house or a market house. The bank probably loans you less money for an affordable house because you can’t guarantee the returns. I use Micah as an example because it’s Hawaiian land, special funding, with government employees designing. If you 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.

Yukimura: Require the developer to include affordable housing on any site they are developing, or close by. 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, using a nonprofit developer, would create rentals or cooperative housing.

Kane: We’re going to continue to see the market plateauing, and up and down, until we provide certainty to the private sector that they can engage. We’re competing with other states and other countries for that investment. Our differences need to be set aside just as they do at a time of crisis, to go out and attract that investment.

Yukimura: We just can’t do development as usual, though, because 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 the consequences of their collective choices 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.

Anderson: One of the biggest contributors to the high cost of living in Hawaii – be it market houses or affordable housing – is government. It can take two years before a developer can get a permit. Haseko was 25 years. Gentry at Waiawa was about 20 years. Time is money with the developer: labor cost goes up, real property taxes go up, interest rate goes up. Every month you delay me is a higher cost that I have to pass on. My little project has taken me almost two years for a 23-lot subdivision. I got held up seven months for a driveway issue. A driveway issue! Something you could’ve done in 20 minutes. I don’t think government, and government employees to some degree, respects the problems of time and what time does to the cost of living. (Bureaucrats think:) “I’ve seen mayors come and go. I’ve seen governors come and go and I’ve been doing it this way for the last 20 years, I’m going to do it this way when you’re gone.” You need a leader to motivate these people. You have got to excite them so that they help things get better for their kids as well as yours.

Yukimura: In the Northwest, I can’t remember which community, they used planning consultants and so developers for a major section of a city got their permits in six months. They used “form-based codes,” which was a very long planning process where you define your standard, such as that every house has to be within 10 minutes of a bus stop. They had very specific requirements, but if you met those requirements, you got the permit.

Anderson: How many people can you put into a high-rise, concrete-and-glass condominium? “I got two kids, I got a new family. I want grass, I want a dog.” We’ve always found it difficult to direct a person to go into a unit that we thought was good for them.

Yokota: The younger generation is much more likely. They’ve lived in different places and they are much more accustomed to an urban lifestyle. I have heard many younger people say, “I do not need the typical size of high-rise units because my living room is really in the community. I’m out there far more than I’m at home.”

Yukimura: You have the mixed uses, so you’ll have jobs close by, you have services close by. People do not need a car. In Vancouver, you can get around without a car between transit for the far distances and walking or biking for the short distances. And the energy efficiency of that lifestyle is far less impactful on the earth. They are very prosperous communities as long as you have the open spaces and parks.

Burris: Another market for Kakaako is those empty-nesters, someone who had the house and the dog, but now the kids are grown.

Anderson: There is a tremendous number of young couples who would be comfortable there, husband and wife, but the moment the first kid comes along, you’re looking for a house. There’s got to be a balance.

Doane: In most places you go (on the Mainland), the entry house is worth 75 percent of the value and the land is worth 25 percent. In Kaimuki, Palolo, the house is worth 25 percent and the land is worth 75 percent. There is no one solution to all the problems we have, but if you could provide somebody just enough tax incentives so they can get a place on 8th Avenue or off Waialae (Avenue), worth $600,000 to $700,000, but the home is only worth $150,000. Let them rebuild it with small builders. There is this huge amount of wonderful land that can be redeveloped and revitalized.

HB senior writer Dennis Hollier: If there’s going to be some rethinking of development in Hawaii, what are other good examples elsewhere?

Yukimura: They’re in Portland, Connecticut, all over, and you can see them all at the Smart Growth Conference, which is in February in Seattle.

Hollier: What is the planning process?

Yukimura: I would go to places like Oregon, where they’ve done good planning and there they haven’t let the Legislature do the planning. They let the OCDC, the Oregon Conservation and Development Commission, do it according to planning principles, not who lives in my neighborhood and who wants what.

 

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