Creates an exemption for the development of workforce housing and affordable housing on leased residential lots.

A BILL FOR AN ACT

SECTION 1. The legislature finds that the cost of living in Hawaii has been and continues to be high. A significant contributing factor to the high cost of living in Hawaii is the high cost of housing, and it is the high cost of land that contributes significantly to the high cost of housing. Land, in common with other natural resources, is a finite resource, a fact particularly obvious in Hawaii. The shortage in the supply of land leads to higher land prices and housing costs, and creates a situation in which land is developed for higher priced housing rather than affordable housing.

The Hawaii land reform act, chapter 516, Hawaii Revised Statutes, was enacted to afford residential lessees of fee simple title to the leased fee reversionary interest in single family residential leasehold lots. The constitutionality of chapter 516, Hawaii Revised Statutes, was upheld by the United States Supreme Court in Hawaii Housing Authority v. Midkiff, 467 U.S. 229 (1984), and by the Hawaii Supreme Court in Hawaii Housing Authority v. Lyman, 68 Haw. 55, 704 P.2d 888 (1985). In these cases, the courts held that a legitimate public purpose for leasehold condemnation legislation existed, and the use of the power of eminent domain to accomplish this purpose was constitutional.

Since the Midkiff and Lyman cases were decided in 1984 and 1985, respectively, development and sale of single family and multifamily housing on a leasehold basis has ceased for all practical purposes in Hawaii. The median price of a single family home on the island of Oahu has increased to $495,000 in December 2004. In contrast, under the housing and community development corporation of Hawaii’s affordable housing guidelines for 2004, the sales price of a house affordable to a family of four with the median income of $65,700 is $276,200. There is a growing shortage of housing in Hawaii affordable to the general workforce, specifically, those families earning between approximately fifty to one hundred forty percent of area median income. Workforce housing is affordable housing for which a priority is given in the marketing of such housing to employees, retirees, or members of the landowner or of an affiliate of the landowner; employees or retirees of governmental agencies or departments; seniors; and other low and moderate income households.

The legislature further finds that in addition to inflation, one factor attributed to the increased costs of both new single family and multifamily housing in Hawaii is the cost of land and site improvements, as these costs must be paid at the time of initial sale. One means of increasing the supply and decreasing the price of housing in Hawaii is to develop projects on a leasehold rather than a fee simple basis. If for-sale housing were developed on a long-term leasehold basis, land costs could be capitalized over the term of the lease. Moreover, selling a house on a leasehold basis permits the lessor to control the potential appreciation on the housing over the long term, thereby sustaining the affordable price of the housing for subsequent buyers.

It is in the public interest for landowners to facilitate the creation of affordable housing and workforce housing. Selling affordable housing and workforce housing on a leasehold basis will help curb inflation and will keep the cost of housing at a level that will enable low and moderate income families to afford a decent and healthful standard of living. Major employers should be encouraged to attract workers by selling the leasehold residences for less than appraised value and with a capitalized lease rent that is less than a fair market return as a form of housing subsidy.

A lessor’s participation in a percentage of the appreciation on the resale of an affordable residential lot may be construed as lease rent for purposes of chapter 519, Hawaii Revised Statutes. Land owners and lessors will only lease land to be developed for affordable leasehold residential lots with a less than fair market return if these lots are excluded from leasehold conversion and ground lease rent control.

The purpose of this Act is to encourage the development of workforce housing and affordable housing on leased residential lots by making available an exemption from chapters 516 and 519, Hawaii Revised Statutes, for such projects.

SECTION 2. Chapter 516, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§516-   Exemption for sustainable affordable developments. Notwithstanding any law to the contrary, no person shall qualify to exercise the rights granted to a lessee by this chapter if the lessee’s residential lot is in a sustainable affordable development. A sustainable affordable development is a development tract consisting of residential lots that satisfies all of the following requirements:

§516-   Certification. A lessor of a sustainable affordable development shall certify its qualification for the exemption from the application of this chapter at the time of delivery of the first lease by filing an affidavit with the registrar of the bureau of conveyances or assistant registrar of the land court, as appropriate:

SECTION 3. Chapter 519, Hawaii Revised Statutes, is amended by adding two new section to be appropriately designated and to read as follows:

"§519-   Exemption for leases of sustainable affordable developments. Notwithstanding any other law to the contrary, no person shall qualify to exercise the rights granted to a lessee by this chapter if the lessee’s residential lot is in a sustainable affordable development. A sustainable affordable development is a development tract consisting of residential lots that satisfies all of the following requirements:

§519-   Certification. A lessor of a sustainable affordable development shall certify its qualification for the exemption from the application of this chapter at the time of delivery of the first lease by filing an affidavit with the registrar of the bureau of conveyances or assistant registrar of the land court, as appropriate:

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.