Proponents of a measure to dedicate money to Honolulu’s housing fund see it as an opportunity to help solve Oahu’s affordable housing shortage.

Critics, meanwhile, say there are better ways to achieve that goal: chiefly by following the standard budgeting process in which the City Council decides how to spend money each year.

In any case, the public will soon have the chance to decide — the measure will appear on the Nov. 8 ballot that goes to voters on Oahu.

Charter Question #1, as it’s titled on mail-in ballots that will appear in Honolulu mailboxes starting the middle of this month, proposes to increase the amount of real property tax revenue the city must deposit annually into the city’s Affordable Housing Fund.

It’s a small increase – from 0.5% to 1%  – which in today’s dollars amounts to an increase to about $16 million from $8 million. But supporters say everything helps.

Carl Cunningham, who develops affordable housing as president of the nonprofit Hawaii Assisted Housing Inc., said developers generally must cobble together financing from numerous federal, state and private sources and that having even a small amount from the city is enormously beneficial in filling holes in complex financing structures.

“While the numbers aren’t large, they really do fill that gap,” he said.

The proposed amendment comes before voters at a time when affordable housing has gained momentum as a critical policy issue for Hawaii and Oahu, the state’s most populous island, which is home to about 1.1 million people, more than two-thirds the state’s population.

State lawmakers responded last session by dedicating close to $1 billion for housing, including $600 million for Native Hawaiians though the Department of Hawaiian Home Lands and $300 million for various types of affordable housing.

Still, Oahu’s need for housing is enormous. With the median price for a single-family home topping $1 million, owning a place is out of reach for many of the more than 60,000 people who make up the backbone of the island’s economy working in hotels, restaurants and bars. That leaves it up to developers to build housing to sell and rent at below market rates.

A 2019 report by the Hawaii Department of Business, Economic Development and Tourism estimated Oahu would need about 21,000 additional housing units between 2020 and 2030 to meet demand.

Mayor Rick Blangiardi has stepped up by tapping the city’s Affordable Housing Fund, which for years had been largely unused and accumulating cash. Last month, the city’s Department of Community Services announced a plan to allocate approximately $30 million from the fund to build six affordable housing projects with a total of 972 units within the next five years.

The proposal before voters would steer more money each year into the fund. Because the fund and its financing mechanism are established in the Honolulu City Charter and not merely by ordinance, voters must decide whether to amend the charter.

The overarching criticism of the proposed charter amendment is that taxpayers shouldn’t keep committing chunks of property tax revenue to specific items.

The property tax is the main source of revenue for the City and County of Honolulu, and civic activist Natalie Iwasa said dedicating percentages of this revenue in perpetuity through charter amendments erodes the foundation of Honolulu’s finances.

“We keep taking out pieces for things like the zoo and a number of other things,” said Iwasa, a certified public accountant known for scrutinizing public spending. “It’s eating away at the foundation.”

Locking in the allocation by amending the city charter makes the allocation hard to undo, she said. The City Council could opt to steer money – perhaps more than $16 million some years – into the fund as part of the normal budgeting process.

“If that’s a priority, the City Council should just appropriate the funds,” Iwasa said.

Bridging The Gap

To housing advocates, the situation is more complicated. At the center of everything is the way developers typically pay for affordable rental housing projects. The federal government allocates subsidies in the form of tax credits to the states, which then award the credits to various developers for certain projects through a competitive process.

The developers then sell the credits to entities like banks and insurance companies to raise cash to use as equity for their projects. The equity is analogous to the down payment for a home mortgage; developers use it to raise more money through loans and other financing, including things like Community Development Block Grants.

The challenge with affordable rentals is that the amounts landlords can charge is capped at significantly below market rates, says Kevin Carney, an affordable housing consultant in Honolulu. A one-person studio costs about $1,300 and a two-bedroom family rental is capped at just under $1,800, he said.

“The issue is to cover your operating cost and to be able to cover your debt as well,” he said.

The City and County of Honolulu’s Affordable Housing Fund serves as “gap financing” to fill in the holes, Carney said. Having consistent funding, and not subject to the whims of the City Council, is key, he said.

Other affordable housing developers echoed Carney in testimony before the City Council when the council was considering whether to put the measure before the voters.

“Having additional City funding is extremely important,” wrote Kali Watson, president and chief executive of the Hawaiian Community Development Board, a nonproft builder of affordable units. “It not only allows us to better leverage this funding with other sources, such as Low-Income Housing Tax Credits, Rental Housing Revolving Funds and Bonds, but it also makes these projects more viable and likely to come forward.”

Asked why voters should consider affordable housing the sort of public good meriting tax money, like roads, parks and police and fire departments, Cunningham said homes for families are essential for a healthy community.

“To me, housing is the basis of the community,” he said. “Families need to have a home, because that’s what makes a community.”