Raising the Cost of “Affordable Housing”

by Lowell L. Kalapa, Tax Foundation of Hawaii

A couple of weeks ago, this commentary examined some of the hurdles that stand in the way of producing more affordable housing which, in turn, elicited a comment by a reader that what is described as affordable by developers and housing officials certainly doesn’t look “affordable” when the prices are advertised in the hundreds of thousands of dollars.

In fact, during a discussion among a number of delegates at a recent conference on the mainland, the fact that the median price of a single-family home in Hawaii was $615,000 (more recently estimated to be $675,000), the delegates from other states were literally blown away. In fact, one delegate said that he could purchase a seven-bedroom mansion on a half acre of land in one of the pricey neighborhoods of his hometown of Austin, Texas for half that amount. While some of that lower cost is due to the fact that land is a lot more available on the mainland, the fact that one could purchase a lot more house raises the question of why is housing so expensive here?

As noted in the earlier commentary, much of the cost of building affordable housing lies in the fact that the developer has to maneuver through a labyrinth of zoning and permitting requests. This arduous and long process means that as each ticks by, the cost of the development and, therefore, each house, goes up as the cost of financing the capital to build the project grows day by day. The longer the permitting process takes, the more interest incurred - ka-ching - all of which has to be recovered in the sales price of the house.

So with all the protests and public hearings the proposed housing project is subjected to, the higher the cost of each unit. However, it is not just the cost of the permitting and zoning that increases the cost of the “affordable” unit, there are also a variety of other requirements imposed on the developer.

One that raises the question of what does government do with all our money is the requirement that the developer provide the infrastructure and land on which to build the school that will serve that particular development’s population. In the “old” days, schools were built and financed by the local government up until 1965 and then by state government since that time.

The schools were built using bond funds or borrowed money which was, in turn, repaid by the taxpayers of the county or the state. Folks who lived in Moilili were asked to pay for the school in Palolo or for that matter the school in Kahala. Thus, the cost of building schools in the “old” days was spread out over the entire community as education was seen as a benefit to the entire community no matter whose kids or which neighborhood was going to receive the school facility. In many cases, the land on which these schools were built was condemned by the county and the owner was compensated for that land.

Such is not the case today where the developer is asked to set the land aside and in some cases required to build the school facility. While taxpayers who don’t or won’t live in the newly developed community may applaud that they don’t have to pay for someone else’s school, it sure makes you wonder where all the money that used to be allocated to build new schools is being spent today.

And, by the way, do you think the developer is going to absorb the cost of building those schools or perhaps some of the roads that will serve the development? If you believe so, there is a bridge in New York that we can sell to you. Of course, the developer will pass those costs onto all of the units in the development including the “affordable” housing units.

Finally, there is yet another cost in developing “affordable” housing in Hawaii and that will come “hidden” in the form of possibly adopting the latest version of the International Building Code. This is the standard that all new construction must meet in order to be acceptable to the permitting department. Because Hawaii has so many of the climate categories from cold to temperate climates, the revised International Building Code, if adopted for Hawaii, will mandate adherence to a plethora of standards. For example, because there is always the potential for experiencing hurricanes, the proposed building code could require what would be bulletproof glass to be installed in a home, a costly alternative.

Because many of the professionals drafting these standards make the products that would be required in the extreme, they will make sure the standards mandate the use of their products - products that may be irrelevant for Hawaii but will certainly guarantee the cost of “affordable” housing is out of the reach of most families.

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Sept 15, 2013: Questionable Paradox Exists for Affordable Housing