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A bold idea this year to address Hawaii’s chronic shortage of affordable housing by developing and selling leasehold condominiums on state land is still alive in the Legislature.
Two bills that would allow such bills could be sent to Governor David Ige if House and Senate leaders resolve disputes over the measures.
Recently, however, economists at the University of Hawaii have questioned whether the goal of a bill to have the state develop and sell leasehold condos for $ 300,000 is achievable.
Economists also suggest that leasehold condominiums may not sell well and could lead to evictions or the sale of crown land at the end of proposed 99-year leases.
Economists Sumner La Croix and James Mak made their assessment in a report released on March 31 by the University of Hawaii’s Economic Research Organization.
The leasehold condominium proposal discussed in the UHERO report began as a Senate bill 1 and is the more ambitious of the two bills.
SB 1 proposed that a state agency that helps developers finance affordable housing act as a contracting developer to build high-density leasehold condos on state land within half a mile. planned urban stations.
These condos would initially cost no more than $ 300,000 to build, and the state would sell them at cost to recoup all expenses.
Condos developed under SB 1 would also restrict resales with provisions to either buy units back from owners or collect 75% of any profit from a sale to a private buyer.
SB 1, which was presented by Senator Stanley Chang, received overwhelmingly positive testimonials. Yet the bill stalled in the House. Chang, as chairman of the Senate housing committee, revived his proposal by gutting a House bill relating to the state budget and inserting the contents of SB 1 as an amendment adopted by the committee. by Chang.
This “gut and replace” bill, House Bill 820, was passed on Friday by the Senate Ways and Means Committee. House negotiators are expected to agree to the drastic change for the bill to be considered by the entire House and Senate, making the bill’s chances of becoming law more questionable.
The UHERO report also expressed doubts about the possibility of building condos for $ 300,000. The report cited a 2016 strategic economics study for the city that set development costs, excluding land expenses and including some government fees reduced or waived, at $ 409,452 for low-rise housing in Kapolei. , $ 471,603 for mid-rise housing in Kapalama and $ 462,414 to $ 474,446. for high-rise buildings in Ala Moana.
Leasehold condo prices are crucial, according to the UHERO report, as buyers will prefer existing fee simple condos with no resale and profit sharing restrictions if fee simple homes don’t cost much more. The median price of existing condos in Oahu so far this year is $ 411,250. This means that half is sold at a lower price and half at a higher price.
UH economists even said that renting might be better than buying a leasehold condo based on comparable monthly cost and other factors. They also noted that Chang’s proposal does not specify how much, if any, the state would charge for lease rent.
One failed example of leasehold condominium development cited in the report was a 30-unit UH project developed in late 1994 for faculty. By mid-1996, amid a collapse in the housing market, only eight of the three-bedroom townhouses in Manoa had sold for $ 335,000 to $ 360,000 under 55-year leases with annual rent. of $ 1. The university ended up converting the project, called Kau’iokahaloa Iki, to a rental.
Another problem noted in the UHERO report is that condo owners are likely to object to the termination of the lease at the end of the term.
“Residential leasehold has endgame issues,” the report says. “As tenants are faced with the prospect of renegotiated higher leases or giving up their real estate assets at the end of the lease, they are organizing themselves to try to get the leases changed through the political process. “
The second pending leasehold condominium bill, Senate Bill 1190, would typically allow private developers to work with a state agency that helps fund affordable housing to build leasehold condos on land. state leased for 99 years.
Under SB 1190, the Hawaii Housing Finance and Development Corp. could publish requests for proposals to develop such condos.
SB 1190 was introduced at the request of the governor. As a result of the amendments made in House committees, House and Senate negotiators would have to settle disputes for the bill to be considered by the entire legislature.
