Encouraging counties to ease zoning rules without stepping on toes — or by mandating they do it, toes aside. Ambitious plans to rewrite the way the state promotes and funds the development of all types of housing.

Making it easier to build in areas designated for transit-oriented development. Modifying which structures are defined as historic.

The housing agenda for Hawaiʻi’s state lawmakers this legislative session is a full one, and it may be shaped by two very different approaches motivated by the same desire to create more housing in a state strapped for it. 

The foundation for this year’s session was laid by 2024’s, which produced two laws to help alter the state’s landscape for residents struggling to find and afford places to live, said Rep. Luke Evslin, chair of the House Housing Committee.

“They represent probably the most significant piece of zoning reform at a state level in the last 40-plus years,” Evslin said of the 2024 bills — SB 3202 and HB 2090. 

SB 3202 laid the groundwork for more densely built neighborhoods by allowing accessory dwelling units, or smaller residences, on residential lots occupied by single-family homes; HB 2090 required counties to implement rules to convert empty office space into apartments.

As the new session approaches against a backdrop of steep and rising housing prices, Evslin and his counterpart on the Senate Housing Committee, Sen. Stanley Chang, said they expect a busy year trying to address the entrenched housing crisis.

For Evslin, that includes thinning the thicket of regulations developers have to go through to build housing, and making more money available to build new housing aimed at middle-income Hawaiʻi residents.

For Chang, that includes maximizing an existing state law that makes it easier for housing developers to bypass zoning and other ordinances, and dramatically changing the way public funds are used to drive more housing construction.

Facing A Political Challenge

State legislators trying to address housing issues face a key structural and political challenge: Much land-use policy is established by counties, through zoning powers granted by the state. 

That can generate local opposition to state-imposed requirements, as it did with the 2024 accessory-dwelling bill, which the Honolulu City Council pushed back against through a formal resolution.

Evslin, a former Kauaʻi Council member, acknowledged the political reality.

“The Legislature granted the counties the authority to zone within their urban districts,” he said. “And the Legislature is, I think probably for good reason, careful not to interfere too much in that respect.”

But one observer, University of Hawaii associate professor of economics Justin Tyndall, said the two 2024 bills suggest the state may be willing to nudge counties further toward housing-friendly policies. 

“Those were two encouraging steps that the state is sort of willing to flex its muscle a bit in encouraging counties to allow these types of expansions of housing supply,” said Tyndall, who specializes in housing issues and is affiliated with the University of Hawaii Economic Research Organization.

However, Evslin said, it’s unlikely there will be a repeat of the last session, in which the Legislature effectively preempted the counties and forced them to make zoning code changes. Instead, he said, lawmakers are more apt to make it more appealing and easier for counties to take actions the state wants to see happen.

“I don’t think you’re going to see broad-scale efforts … in this session,” Evslin said. “I think more so we’ll be looking at ways that we can incentivize the counties to loosen up their zoning” through “financial or infrastructure incentives for them to do so.”

Chang, though, suggested he would be open to introducing legislation that would more explicitly force the counties’ hands.

He said he is committed to improving the effectiveness of an existing state law, 201H-38, which allows developers to bypass zoning and other ordinances to build housing. Currently, he said, the law allows county councils to require modifications to housing projects before approval, such as changing a building’s height or other design features.

“How can we change this to make it even more powerful and serve the interests of the people of Hawaii?” Chang asked. “One thing that we can do is to remove the county councils’ power to add cost to new projects that are being proposed, especially those that are financed by the state. Maybe even take away the power of the county council altogether if a project is financed by the state.”

Housing For The ‘Gap Group’

There is “consensus or close to a consensus within the caucus that we need to really sort of beef up our support for what we call workforce housing,” according to Evslin. But he wouldn’t assess the likelihood of specific bills being proposed before he’d discussed them with colleagues.

He did predict that legislators would get behind Gov. Josh Green’s proposal to add $250 million to the state Rental Housing Revolving Fund over the next two years through the sale of general obligation bonds. 

Correction: An earlier version of the story incorrectly said workforce housing is aimed at residents earning between 60% and 100% of the area median income.

Of that amount, $150 million is targeted at developers building workforce housing, for residents earning between 60% and 140% of the area median income — from $83,520 to $139,200 for a family of four in 2024 in Honolulu.

People in that income range make too much to qualify for most subsidized housing and too little to purchase market rate housing, Evslin said, “so that’s teachers and nurses and firemen and essentially like all union laborers out there left in this kind of gap group.”

A proposal by the Hawaiʻi Housing Finance and Development Corporation to establish a separate revolving fund account from which to make low-interest loans to workforce housing projects will, Evslin said, likely be a priority of the House. One goal, he added, could be to put significant amounts of funding into that account, if it’s established.

Chang, on the other hand, wants to entirely remake the revolving fund, which also makes low-interest loans to developers who get federal tax credits to build affordable housing that must remain affordable for a prescribed length of time, frequently about 50 years. 

Developers don’t have to start paying back those loans until they’ve repaid other private financing sources, which can take decades. Even after they start paying, the revolving fund can lower payments if a project’s cash flow — how much it is bringing in from rents — isn’t enough, as well as to forgive the balance under certain conditions. 

“I think we can all agree that these are commercially unreasonable terms,” Chang said. “It’s basically free money to the developer.”

Instead, Chang said, the fund should be used to finance his “Aloha Homes” plan — modeled on similar public housing systems in Singapore and Vienna — that he has been pushing without success in the Legislature since 2019. Aloha Homes calls for building thousands of rental and owner-occupied homes on state- and county-owned land, and making them available to all residents regardless of income level.

Chang said he will introduce a bill this year to use the revolving fund’s balance — currently about $500 million — to make short-term, low-interest construction loans to finance that plan.

Chang sees an opening at last for the Aloha Homes proposal in the governor’s December request for $30 million in funding for the program and $250 million for the rental housing revolving fund.

“Those funds demonstrate that the governor and the administration are very willing to provide cheap financing to housing,” Chang said. “These three- to five-year construction loans are a much more efficient way of deploying those funds and could produce a lot more housing more quickly.”

Changing The Threshold For What’s Historic

Other priorities for Evslin include encouraging housing in transit-oriented development areas, along Honolulu’s rail line as well as in denser urbanized parts of Oʻahu and the neighbor islands.

“We need to make it easier to build both from a zoning perspective in these corridors and also from an infrastructure perspective,” he said. “The state and the counties need to be funding infrastructure to ensure that development can pencil out in these places. I think you’ll see some efforts along those lines.”

Those efforts, he said, are likely to include prioritizing state financing for housing in areas with easy access to public transit, as an incentive for counties to relax their restrictions in those areas, and directing funding to infrastructure in those zones.

Chang in an interview called for an analysis of properties along the rail line and statewide to produce a list ranking properties for development, especially of high-density housing.

Such a list — cataloging upsides and downsides to development at each location — could guide officials and lawmakers making decisions about proposed housing projects, Chang said.

Another area where Evslin would like to see legislation involves historic structures. Additional state reviews are triggered when a development proposes making changes to or demolishing structures that are 50 years old or older, which he and others say creates problems.

“That’s going to become like the average building in Honolulu, the state in general, because we just haven’t built much housing since the ’70s, when we had this enormous housing boom,” said Tyndall of the University of Hawaiʻi. “They’re all going to become historic pretty soon and fall under even more restrictive redevelopment rules, which could have a real chilling effect on constructing housing in the state.”

Redefining what constitutes a historic structure — as well as addressing the Historic Preservation Division’s staffing challenges — is an example of what Evslin considers low-hanging fruit for the Legislature to tackle, especially since it involves aspects of permitting under the state’s control. 

The division, he added, is getting “inundated and backlogged with all of these permits that they’ve got to sign off on.”

What’s needed, he said, is to not only add employees to the division but reduce the number of projects the division has to review, including by changing the definition of historic property.

“I understand why in theory this would be essential,” Chang said. “But I definitely also want to learn more about the issue in general.”

Still, Chang said, in the big picture, while the definition of historic and infrastructure are significant issues, “it seems to me that the lack of cheap financing is the biggest, most immediate barrier to housing construction.”

Evslin and Chang have scheduled a joint housing committee informational briefing to discuss their housing-related legislative priorities on Jan. 16 from 1:30 p.m. to 3 p.m. in Room 225 at the State Capitol. The briefing will be in person and streamed live via Zoom.