Maximum rents may go up for many new apartments reserved for Honolulu residents who aren’t considered low income but can’t afford housing without help.

This and another proposal, which would make more people eligible to buy for-sale units, will be discussed Friday at a public meeting led by the city’s Department of Planning and Permitting. They both touch on key questions in Honolulu’s housing crisis — what price point counts as affordable, and how can the city provide more housing for residents?

By raising the rent ceiling for studios and one-bedroom apartments – which make up a large portion of the affordable housing being built – developers would have an easier time financing their projects, supporters say.

Housing projects built for people making 80% of the area median income don’t receive as many government subsidies as those aimed at lower-income people, said Denise Iseri-Matsubara, head of the city’s housing office. Both proposed changes were directly brought up in her office’s 2023 Housing Plan, published in October.

“So the private developers that count on private financing have to be able to count on rents that can help support the financing of the project,” she said.

Developers, mortgage lenders, Housing Hawaii’s Future and the executive director of the mayor’s Office on Housing submitted testimony in support of the proposed changes.

However, the hospitality and health care union Unite Here Local 5 issued a press release Thursday giving the proposals a firm thumbs-down. Its argument is that renters who are struggling to get by shouldn’t be charged more money to encourage housing construction.

“It doesn’t seem like the city should be subsidizing that risk and taking it off the shoulders of developers, and putting it onto the shoulders of working people who are going to have to pay those higher prices,” the union’s research director Ben Sadoski said later in a phone call.

Honolulu has been mired in a housing crisis as rents and home prices skyrocketed with many out-of-state interests paying high market rates. That has left many residents unable to afford to live in the state.

City and state officials are facing a delicate balance of encouraging developers to build more housing while ensuring it’s affordable. DPP requires that developers include affordable housing, which is defined by administrative rules including rent levels and eligibility set by the agency.

Possible Rent Hikes

The first proposed change is that the maximum rent for affordable units be based on a different system, raising the ceiling for some categories of housing and lowering it for others.

This new rule — which would only apply to future developments — would only affect units geared toward families making 80% of the area median income, which in Honolulu is $73,360 for a single person and $104,800 for a family of four.

For studios, this would raise the maximum cost of rent plus utilities from $1,563 to $1,834 per month. At the other end of the spectrum, it would lower the maximum cost for four-bedroom units from $3,827 to $3,040 per month. 

However, efforts to help finance development sometimes have the adverse affect of forcing people to give up their homes. This happened with Kuilei Place in Moiliili when the development required evicting residents who live in quaint walk-ups and pay low rents but can’t afford the new units.

Sadosky acknowledged that development is financially risky but said, “Working people can’t take on more of that risk. It’s not right for our communities.”

The thinking is that Honolulu needs more housing for people at this income level, but it’s too expensive for developers to build.

“Otherwise we’d have a whole ton of 80% AMI projects coming up, right?” said Iseri-Matsubara. 

Additionally, said Iseri-Matsubara, the current maximum rent and utilities cost for a family making 80% AMI is based on a federal metric called Fair Market Rents, while housing targeted at all other income levels uses a different system. This proposed rule change would align all income levels under the same system, which sets the maximum rent at 30% of gross monthly income.

Debt-To-Income Ratio

The second proposed change is to remove a requirement that buyers of for-sale affordable units spend no more 33% of their monthly income on housing, a metric known as the debt-to-income ratio.

“Buyers who would otherwise qualify for a unit under a state affordable housing program don’t qualify under this rule, because of the additional complexity,” Iseri-Matsubara said.

Civil Beat previously reported that in the case of two high rises – Sky Ala Moana and The Park on Keeaumoku – only about 13% of for-sale units in the affordable category were sold after being on the market for over a year. In contrast, almost all of the market-rate units were sold. 

Lots of factors contribute to the ups and downs of perceived demand in the housing market. In this case though, mortgage lenders tended to agree that the main reason for so many vacant affordable units was the 33% requirement.

Debt-to-income ratios are definitely important to look at, they said. A hypothetical home buyer, for example, should not spend 75% of their income on their mortgage because it would put them at high risk for foreclosure.

But, they said, a debt-to-income ratio restriction of 33% means that dozens of people who showed interest in these units actually ended up being ineligible. Mortgage lenders at banks routinely approve loans to people who have higher ratios than this, they said. 

Sadoski said the lifting of the requirement was a scary prospect because it would mean allowing people to take out riskier loans.

“The solution is not to make the working people pay more and use a larger percentage of their hard-earned income to afford these units. The real solution is for developers to reduce the prices of these units,” Unite Here Local 5 said in the press release.

“Struggling To Get By” is part of our series on “Hawaii’s Changing Economy” which is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.