Encouraging Affordable Housing, Get Government out of the Way

by Lowell L. Kalapa, Tax Foundation of Hawaii

There will be a national summit on affordable housing that will be held in Honolulu next week and it appears that all the usual participants will be at the table trying to figure out how to increase the supply of affordable housing in Hawaii and around the nation.

No doubt, there will be the repetitive mantra that government needs to do more to encourage affordable housing including mandating inclusionary zoning, that is, if a developer is going to build something, so many of the units have to be sold at “affordable” prices.  This is in response to the problem that dates back to the 1980’s when administrative advisors laid down the law that any new development had to set aside 60% of the units as affordable.  Even back then, government officials couldn’t put two and two together and realize that subsidizing the cost of building the affordable units had to come from someone and it certainly was not going to come from the developers.  Thus, the great GAP of the 1990’s was created where those who could not qualify for the “affordable” units because they made too much, could not afford the “market” housing where the price was out of reach because it included the cost of building those affordable units and selling them for less than the cost of the development and construction.

Today there are new challenges to building affordable housing, again hurdles that have been created by government.  While housing advocates will cite the need for more land to be made available by government and more subsidies provided by government such as the rental housing trust fund, where do those advocates believe government will find these lands and money?  An inventory of state lands that have been determined to be in excess of the state=s needs has already been done, and there aren’t a whole lot of available properties that would be suitable for housing.

On the money side, lawmakers increased the conveyance tax which is imposed on the transfer of real property and earmarked portions of it for the rental housing trust fund and the state’s trails program.  Somehow lawmakers felt there was a relationship between people buying and selling real property and building affordable housing and maintaining the state’s lands and trails.  What they seem to have lost sight of is that the conveyance tax merely adds to the cost of acquiring that property.  True, not all of the real property transfers are residential housing, but on the residential property transfers, lawmakers imposed even higher rates on residential property that is not destined to be owner occupied.  And, of course, the more pricey the property being transferred, the higher the conveyance tax.  Perhaps all lawmakers could imagine - and that says something for policymakers’ imaginations - were those ritzy, multimillion-dollar mansions on Kahala Avenue.  It apparently never crossed their minds that a multi unit, affordable rental housing project could run into the millions of dollars and is subject to the highest conveyance tax rates - all of which have to be recovered in the cost of the rents charged.

So while the increase in the conveyance tax provided a source of subsidies for affordable rentals, it merely passed the cost onto prospective homeowners and even renters of affordable rental housing.  Did lawmakers even stop to think that a non-owner occupied unit would provide housing for a family that could not afford to purchase their own home?  This is but oneway government has intervened and actually increased the cost of housing in Hawaii. 

But probably the worst hurdle is that of the county permitting process where projects can be held up anywhere from two to five years just waiting for some bureaucrat to approve of plans that have been put together by professionals such as architects and engineers.  It is hard to believe that after plans for a development have been painstakingly put together by professionals who sign off as to their accuracy, that a reviewer has to review those plans again, holding up the project yet again.

As many developers have bemoaned this process, it apparently does not seem to bother those public bureaucrats as they seem to fail to realize that time is money.  Of course, they are getting paid by you the taxpayer and so what is yet another month to review a proposal?  It doesn’t seem to concern the permitting departments that the cost of the delays just adds another cost to what should be affordable housing.  If public bureaucrats want to nit-pick, then the law should be changed placing the liability on the professionals and skip the permitting process.

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RCAC: 2012 National Conference on Affordable Housing in High Cost Areas