The three-story walk-up apartment building has provided homes for lower-income families in the working class Kalihi-Palama neighborhood for 62 years. But a sales pitch for the property offers a bigger vision.

The ad says 1202-A Pua Lane qualifies for redevelopment under Honolulu’s Bill 7, which allows developers to build bigger apartments with breaks on things like parking space requirements and utility fees if they rent at least 80% of the new units as affordable homes for at least 15 years. 1202-A Pua Lane’s ad even offers architectural schematics showing how to increase the building’s units to 30 or 60 from 15.

Another selling point: “All units are currently occupied/rented on a month-to-month basis,” the ad says. So a buyer could quickly push out the tenants and rebuild.

The policy might seem like a no-brainer for the City and County of Honolulu: to encourage replacing 15 old, market-rate units with 60 new affordable ones, given the island’s acute housing shortage.

But there’s a catch. Under Bill 7’s definition of “affordable,” a two-bedroom affordable unit could rent as high as $2,947 a month – much more than the $500 to $1,300 a month residents of 1202-A Pua Lane now pay, according to the property’s rent roll.

“What the hell? Are they ridiculous?” Leimomi Cho, a retired airline worker who said she’s lived in the building for 42 years, said when told what “affordable” means under Bill 7. “Who can afford that?”

Aleah Suapaia, a 26-year-old security guard who lives in the complex, agreed. She said the residents know the building is for sale, and she plans to move out next month. But she worries about her neighbors.

“I don’t know where everybody would go” if the building sells and is redeveloped, she said.

Honolulu’s Bill 7 has a potential unintended consequence. While it might lead to more housing being built, it also can encourage sacrificing housing that’s affordable to people like Suapaia to make way for units that are more expensive but still classified as affordable, albeit for a higher income bracket.

When Is $3,000 For A 2-Bedroom Unit Affordable?

The issue is that “affordable housing” is a technical term with a range of meanings. Sometimes, it truly means low-priced such as that targeted to people earning no more than 60% of the area’s median income, about $55,000 for an individual on Oahu. Under that definition an affordable studio would rent for $1,375 or less a month. But developers say that kind of housing needs federal and state subsidies to pencil out.

Under Bill 7, developers are expected to foot the whole bill, so instead of cash they get perks like exemptions from certain zoning laws. They can also charge higher rents. Bill 7 defines “affordable” as something within the budget of people earning up to 100% of Honolulu’s median income — $91,000 for an individual and $131,000 for a family of four. Under that definition, a developer can rent out an “affordable” studio for as much as $2,292 and a two-bedroom apartment for $2,947 a month. 

“This is where the definition of ‘affordable’ is so important,” says Philip Garboden, a housing researcher with the University of Hawaii Economic Research Organization.

Bill 7 isn’t the only law that risks gentrification on an island that has seen the median cost of a single-family home on Oahu soar to more than $1 million.

Hawaii Revised Statutes’ Chapter 201H eases zoning restrictions, including height and density limits, for developers who set aside more than 50% of the units as “affordable housing.” That can mean a lot more affordable units where market-rate homes now exist, but those are reserved for individuals earning up to $128,380 annually or couples earning $146,000.

The result isn’t always good for current residents.

The 201H statute came under criticism after a developer announced plans to raze 124 aging “garden-style walk-up” units in working-class Moiliili to make way for 603 affordable units and 402 market-rate units in a new high-rise complex. One- and two-bedroom apartments that now rent from about $1,400 to $1,800 a month will be replaced by “affordable” condos ranging from 489-square foot, one-bedroom units selling for $371,000 to three-bedroom units selling for more than $800,000. 

The project, called Kuilei Place, was unanimously approved by the City Council. But it has become so controversial that council Chairman Tommy Waters has asked the developer to provide more benefits to soon-to-be-displaced residents than initially agreed to. Kobayashi Group LLC originally promised full return of security deposits and $1,500 in moving assistance.

“We appreciate your efforts so far but must insist that you strategize to see what other assistance you can provide,” Waters wrote in a July 19 letter to Alana Kobayashi Pakkala, Kobayashi Group’s executive vice president and managing partner. Pakkala did not respond to a request for comment.

‘Better Than The Status Quo’

Not all Bill 7 and 201H projects displace housing that’s affordable to lower-income people with pricier units. In fact, some proposed projects would create affordable homes where no homes exist at all. In addition, the definition of affordable sets a maximum threshold; actual rents could be lower.

Finally, UHERO’s Garboden notes that even without Bill 7, a property like 1202-A Pua Lane could be bought and redeveloped with units to be rented or sold at market rates. Current residents still could be forced out, and there would be roughly the same number of units instead of the 60 new ones envisioned in the property ad.

A pro forma analysis conducted by the real estate agent listing 1202-A Pua Lane envisions merely renovating the property and increasing the rents to $1,500 across the board. So people still would be forced out, and the number of units would stay the same.

In that way, Garboden says, the law is “better than the status quo.” 

Still, he acknowledged there are trade-offs, and displaced residents can suffer even if a redevelopment results in more housing in the community.

“You’re looking at overall social good,” he said, pointing out that Bill 7 encourages developers to increase housing inventory and cap rents. But, he noted, “you’re going to have some losers.”

Bill 7 projects have been slow to take off, even though the City Council passed the measure in 2018. Only eight projects containing 229 units have been approved so far, said Honolulu Department of Planning and Permitting Director Dawn Takeuchi Apuna. But another 33 projects including 1,230 affordable units, are pending, she said in an email.

That doesn’t include properties real estate agents are promoting as Bill 7-eligible. There’s the 1938 cottage at the corner of Lime and Paani streets in Moiliili, for instance, advertised for $1.7 million as “the perfect opportunity for redevelopment with Honolulu’s Bill 7.” 

A block away at 2011 Lime Street are two more single-family houses for sale. 

“Build taller, wider and denser and receive waivers on building permit and wastewater system facility fees plus some property tax exemptions,” the ad says, describing incentives the city offers for turning such homes into “affordable housing.” “DPP is required to approve or disapprove Bill 7 building permit applications within 90 days.” 

The ad for a $2.7 million property near Pensacola and King streets even includes artist renderings showing how two modest, single-family houses containing 11 bedrooms can be converted into a modern, three-story building with 18 units – eight studios, six two-bedroom and two three-bedroom apartments – plus a lobby and gym.

“It’s all about the location!” the ad says. “Bill 7 offers numerous incentives – property tax abatement, less parking stall requirements, shorter setbacks (buyer to do their own due diligence regarding Bill 7).”

Hawaii Sen. Stanley Chang, who chairs the Senate Housing Committee, noted that Bill 7 has not had the impact supporters predicted. But there’s a risk of gentrification in the name of affordable housing if Bill 7 gains more traction.

“As you know, Bill 7 has only created a handful of projects city-wide, but if it becomes more widespread, it will result in significant displacement” of residents, Chang said.

One natural check on Bill 7 is that the measure is set to expire in May. The City Council would have to renew the measure to keep approving new projects. An emergency proclamation on housing announced in July by Gov. Josh Green is meant to encourage construction of all housing, not just “affordable housing,” and would not affect whether Bill 7 is renewed.

Another issue is that, while many properties technically qualify for Bill 7 zoning exemptions, the economics of housing construction make building new homes a challenge. Rod Mukai, a Realtor with Locations Hawaii who represents 1202-A Pua Lane, said the property faces challenges, including an atmosphere of high construction costs and interest rates. The property’s location across from the Mayor Wright public housing complex also is not ideal, he said.

“If this same property was in a different neighborhood it would have sold,” he said.

The current situation is fine for Tweet Togafau, who on a recent afternoon was visiting her grandmother at 1202-A Pua Lane. Like many facing Hawaii’s high cost of living Togafau says she’s thought about relocating to another state — she likes the idea of Texas — with her husband and daughter.

“I have a job. My husband has a good job. But it’s still not enough,” she said. “It’s still paycheck to paycheck.”

If her grandmother gets priced out of her home, Togafau said, things will get even tougher.

“I’ll have to work harder because I’ll have someone else living with me,” she said.

“Hawaii’s Changing Economy” is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.