SB865 HD1

SECTION 1. The legislature finds that the cost and availability of housing in the State are significant challenges facing Hawaii residents. Although Hawaii has the tenth highest median wage nationally, living expenses are two-thirds higher than the rest of the nation, with the cost of housing being a major contributing factor. According to the Honolulu Board of REALTORS, by March 2022, the median price for a single-family home on Oahu had risen to $1,150,000, while the median price for condominiums on Oahu had risen to $515,000. With a simple mortgage calculator and using conservative assumptions on interest rates and down payment amounts, a household would need to earn over $200,000 annually to afford to buy a median-priced home on Oahu in 2022, making homeownership out of reach for many of Hawaii's residents, especially first-time buyers.

Because of the many barriers hindering the production of new housing, including geographic limitations, lack of major infrastructure, construction costs, and government regulation, the State and housing developers have not been able to produce enough housing for Hawaii residents. According to a 2019 report from the department of business, economic development, and tourism, the projected long-run average estimate of total demand for housing in Hawaii is 72,310 for the 2020 to 2030 period. The legislature has responded through the passage of various legislation. During the regular session of 2020, the legislature passed Act 42, Session Laws of Hawaii 2020, that, among other things, increased the Hula Mae multifamily revenue bond authorization to address Hawaii's affordable rental housing crisis. During the regular session of 2021, the legislature passed Act 227, Session Laws of Hawaii 2021, to establish an affordable homeownership revolving fund to provide loans to nonprofit community development financial institutions and nonprofit housing development organizations for the development of affordable homeownership housing projects. During the regular session of 2022, the legislature passed Act 236, Session Laws of Hawaii 2022, that, in part, provides funds to address Hawaii's affordable rental housing crisis.

Despite these efforts, the amount of new construction of housing, especially for low- to middle-income families, continues to be inadequate as the supply of housing remains constrained while demand for housing increases. This lack of supply leads to higher housing prices and rents for households of all income levels, leaving all tenants with less disposable income, increasing the personal stress on buyers and renters, and exacerbating overcrowding and homelessness. Given these consequences, the lack of affordable housing requires the concentrated attention of state government at the highest level.

The legislature further finds that with Honolulu's construction of an elevated rail transit system, the State has an opportunity to enhance Oahu's urban environment and increase the quality of life for residents by increasing the affordable housing inventory and eliminating the need for personal automobiles, among other public benefits. As the largest landowner of properties along the transit line, with approximately two thousand acres under the jurisdiction of various departments, the State must be proactive in establishing a unified vision and approach toward redevelopment of its properties to maximize the benefits of state lands available for redevelopment.

The purpose of this Act is to:

(1) Test new methods to help end the housing shortage in Hawaii;

(2) Establish the ninety-nine year leasehold pilot program to facilitate the creation of low-cost leasehold homes for sale to Hawaii residents on non-ceded state-owned land near public transit stations; and

(3) Authorize the Hawaii community development authority to sell the leasehold interest in residential condominium units located on state lands for lease terms of ninety-nine years.

SECTION 2. Chapter 206E, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"Part . ninety-nine year leasehold pilot program

§206E-A Definitions. As used in this part, unless the context otherwise requires:

"Commercial project" means an undertaking involving commercial or light industrial development. "Commercial project" includes a mixed-use development in which commercial or light industrial facilities may be built into, adjacent to, under, or above residential units.

"Multipurpose project" means a project consisting of any combination of a commercial project, redevelopment project, or residential project.

"Owner-occupied residential use" means any use currently permitted in existing residential zones consistent with owner occupancy. "Owner-occupied residential use" does not include renting or subleasing by the owner of a home to any tenant or sublessee of any kind.

"Pilot program" means the ninety-nine year leasehold pilot program.

"Project" means a specific work or improvement, including real and personal properties, or any interest therein, acquired, owned, constructed, reconstructed, rehabilitated, or improved by the authority, including a commercial project, redevelopment project, or residential project.

"Public agency" means any office, department, board, commission, bureau, division, public corporation agency, or instrumentality of the federal, the state, or a county government.

"Public facilities" includes streets, utility and service corridors, and utility lines where applicable, sufficient to adequately service developable improvements in an urban redevelopment site, sites for schools, parks, parking garages, sidewalks, pedestrian ways, and other community facilities; public highways, as described in section 264-1, storm drainage systems, water systems, street lighting systems, off-street parking facilities, sanitary sewerage systems, facilities to address climate change and sea level rise, as well as the land required for these facilities; and any facility owned and operated by a public agency and having a useful life of at least five years.

"Public transit station" means:

(1) A station connected to a locally preferred alternative for a mass transit project; or

(2) For the city and county of Honolulu, a station of the Honolulu rail transit system.

"Redevelopment project" means an undertaking for the acquisition, clearance, replanning, reconstruction, and rehabilitation, or a combination of these and other methods, of an area for a residential project, an incidental commercial project, and other facilities incidental or appurtenant thereto, pursuant to and in accordance with this part. As used in this definition, "acquisition, clearance, replanning, reconstruction, and rehabilitation" includes renewal, redevelopment, conservation, restoration, or improvement, or any combination thereof.

"Residential project" means a project or that portion of a multipurpose project, including residential dwelling units, designed and intended for the purpose of providing housing and any facilities as may be incidental or appurtenant thereto.

"Urban redevelopment site" means non-ceded state-owned lands within a one-mile radius of a public transit station in a county having a population greater than five hundred thousand.

§206E-B Ninety-nine year leasehold pilot program. (a) There is established the ninety-nine year leasehold pilot program for the purpose of providing low-cost, leasehold homes for sale to Hawaii residents on state‑owned lands within an urban redevelopment site.

(b) The pilot program shall be limited to one development on non-ceded lands within an urban redevelopment site, which shall be selected by the authority to determine if this pilot program is viable as a housing program in the State.

§206E-C Rules; guidelines. (a) The authority shall adopt rules pursuant to chapter 91 on health, safety, building, planning, zoning, and land use, which shall supersede all other inconsistent ordinances and rules relating to the use, zoning, planning, and development of land and construction thereon. Rules adopted pursuant to this section shall follow existing laws, rules, ordinances, and regulations as closely as is practicable while remaining consistent with standards meeting minimum requirements of good design, pleasant amenities, health, safety, and coordinated development. The authority may provide restrictions on the use of the lands, including that lands within urban redevelopment sites shall not be developed beyond existing uses or that improvements thereon shall not be demolished or substantially reconstructed.

(b) The following shall be the principles generally governing the authority's actions relating to urban redevelopment sites:

(1) Each development may include facilities to replace any facilities required to be removed for the development's construction;

(2) Developments shall endeavor to be revenue-neutral to the State and counties, and all revenues generated shall be used for the purposes of this part;

(3) The authority shall consider the infrastructural burden of each development and the impact of the development on the education system, and any mitigating actions to address these burdens and impacts, prior to construction;

(4) The authority may build infrastructure beyond that which exists in any development under this part;

(5) The authority may build common area facilities for any development undertaken pursuant to this part, which shall be paid through the sales of homes within an urban redevelopment site;

(6) Developments shall result in communities that permit an appropriate land mixture of residential, commercial, and other uses. In view of the innovative nature of the mixed-use approach, urban design policies shall be established for the public and private sectors in the proper development of urban redevelopment sites; provided that any of the authority's proposed actions in urban redevelopment sites that are subject to chapter 343 shall comply with chapter 343 and any federal environmental requirements; provided further that the authority may engage in any studies or coordinative activities permitted in this part that affect areas lying outside of urban redevelopment sites where the authority, in its discretion, decides that those activities are necessary to implement the intent of this part. The studies or coordinative activities shall be limited to facility systems, resident and industrial relocation, and other activities engaged in with the counties and appropriate state agencies. The authority may engage in construction activities outside of urban redevelopment sites; provided that the construction shall relate to infrastructure development or residential or business relocation activities; provided further that the construction shall comply with the general plan, development plan, ordinances, and rules of the county in which the urban redevelopment site is located;

(7) Activities shall be located so as to provide primary reliance on public transportation and pedestrian and bicycle facilities for internal circulation within urban redevelopment sites or designated subareas;

(8) Where compatible, land use activities within urban redevelopment sites, to the greatest possible extent, shall be mixed horizontally within blocks or other land areas and vertically as integral units of multi‑purpose structures;

(9) Development shall prioritize maximizing density; provided that development may require a mixture of densities, building types, and configurations in accordance with appropriate urban design guidelines and vertical and horizontal integration of residents of varying incomes, ages, and family groups that reflect the diversity of Hawaii;

(10) Development shall provide necessary community facilities, including parks, community meeting places, child care centers, schools, educational facilities, libraries, and other services, within and adjacent to residential development; provided that any school that is provided by the authority as a necessary community facility shall be exempt from school size requirements, as calculated by recent school site area averages pursuant to section 302A-1602;

(11) Public facilities within urban redevelopment sites shall be planned, located, and developed so as to support the redevelopment policies for the sites established by this part and plans and rules adopted pursuant to it;

(12) Development shall be designed, to the extent possible, to minimize traffic, parking, the use of private automobiles, and noise;

(13) Development shall be subject to chapter 104;

(14) On-site and off-site infrastructure funded by the State or county, as applicable, shall be brought to the development site; provided that the State and respective county may be reimbursed for its infrastructure contributions with proceeds from the sale of homes within an urban development site; and

(15) Development shall include the establishment of a building operating and maintenance program, together with the funding to cover its cost.

(c) Homes within urban redevelopment sites shall not be advertised for rent, rented, or used for any purpose other than owner-occupied residential use. The authority, by rule, shall establish penalties for violations of this subsection up to and including forced sale of a home within an urban redevelopment site.

(d) The design and development contracts for homes within an urban redevelopment site shall be subject to chapter 103D.

(e) The authority shall, in the interest of revenue‑neutrality, recoup expenses through the sales of the leasehold interest of homes within an urban redevelopment site and other revenue sources, including the leasing of commercial space.

§206E-D Sale of the leasehold interest of homes; rules; guidelines. (a) The authority shall adopt rules pursuant to chapter 91 for the sale of the leasehold interest of homes under its control within urban redevelopment sites; provided that each lease shall be for a term of ninety‑nine years. The rules shall include the following requirements for an eligible buyer or owner of a home within an urban redevelopment site:

(1) The person shall be a qualified resident of the State, as defined in section 201H-32;

(2) The person shall not use a home within an urban development site for any purpose other than owner-occupied residential use; and

(3) The person, the person's spouse, or any other person intending to live with the eligible buyer or owner, shall not own any other real property, including any residential and non-residential property, beneficial ownership of trusts, and co-ownership or fractional ownership, while owning a home within an urban development site; provided that an eligible buyer may own real property up to six months after closing on the purchase of a home within an urban redevelopment site; provided further that an owner of a home within an urban redevelopment site in the process of selling the home may own other real property up to six months prior to closing on the sale of the home to an eligible buyer;

provided that the rules adopted pursuant to this subsection shall require at least fifty per cent of the homes be sold to an individual or household with an income of up to one hundred forty per cent of the area median income. The rules shall include strict enforcement of owner-occupancy, including a prohibition on renting or subleasing a home within an urban redevelopment site to any tenant or sublessee. The authority may also establish rules for a minimum number of days residents shall be physically present on the premises and a maximum number of days non-residents may have access to the premises.

(b) The median price of homes within an urban redevelopment site shall be priced at the minimum levels necessary to ensure that the development is revenue-neutral for the State and counties. The median home price shall be adjusted annually for inflation, as reported in the Consumer Price Index for urban Hawaii published by the Bureau of Labor Statistics.

(c) The authority shall establish a waitlist for eligible buyers to determine the order in which homes within an urban redevelopment site shall be sold. Waitlist priorities may include school, college, or university affiliation if the residential property is a redeveloped school, college, or university; proximity of an eligible buyer's existing residence to a home within an urban redevelopment site; and other criteria based on the impact that the development has on the eligible buyer.

(d) Homes within an urban redevelopment site shall be sold only to other eligible buyers.

(e) An owner of a home within an urban redevelopment site may sell the owner's home; provided that the authority shall have the right of first refusal to purchase the home at a price that is determined by the authority using the price at which the owner purchased the home as the cost basis, adjusted for inflation, as determined by the department of business, economic development, and tourism using the Consumer Price Index for All Urban Consumers for Honolulu, and may include a percentage of the appreciation, if any, in value of the unit based on an appraisal obtained by the authority. If the authority does not exercise its right to purchase the home, the home may be sold by the owner to an eligible buyer. Upon the death of the owner of a home within an urban redevelopment site, the home may be transferred to the deceased's heir by devise or as any other real property under existing law; provided that the deceased's heir shall meet the requirements listed in subsection (a); provided further that if the deceased's heir does not meet requirements to accept transfer of the home, the deceased's heir shall sell the home to an eligible buyer.

§206E-E Use of public lands; acquisition of state lands. (a) If state lands under the control and management of other public agencies are required by the authority for the purposes of this part, the agency having the control and management of those required lands, upon request by the authority and with the approval of the governor, may convey or lease those lands to the authority upon terms and conditions as may be agreed to by the parties.

(b) Notwithstanding the foregoing, no public lands shall be conveyed or leased to the authority pursuant to this section if the conveyance or lease would impair any covenant between the State or any county or any department or board thereof and the holders of bonds issued by the State or that county, department, or board.

§206E-F Acquisition of real property from a county. Notwithstanding the provision of any law or charter, any county, by resolution of its county council, without public auction, sealed bids, or public notice, may sell, lease, grant, or convey to the authority any real property owned by it that the authority certifies to be necessary for the purposes of this part. The sale, lease, grant, or conveyance shall be made with or without consideration and upon terms and conditions as may be agreed upon by the county and the authority. Certification shall be evidenced by a formal request from the authority. Before the sale, lease, grant, or conveyance may be made to the authority, a public hearing shall be held by the county council to consider the same. Notice of the hearing shall be published at least six days before the date set for the hearing in the publication and in the manner as may be designated by the county council.

§206E-G Condemnation of real property. The authority, upon making a finding that it is necessary to acquire any real property for its immediate or future use for the purposes of this part, may acquire the property, including property already devoted to a public use, by condemnation pursuant to chapter 101. The property shall not thereafter be taken for any other public use without the consent of the authority. No award of compensation shall be increased by reason of any increase in the value of real property caused by the designation of the urban redevelopment site or plan adopted pursuant to a designation, or the actual or proposed acquisition, use, or disposition of any other real property by the authority.

§206E-H Construction contracts. Construction contracts for homes within an urban redevelopment site shall be subject to chapter 103D.

§206E-I Lease of projects. Notwithstanding any law to the contrary, the authority, without recourse to public auction or public notice for sealed bids, may lease for a term not exceeding sixty-five years all or any portion of the real or personal property constituting a commercial project to any person, upon terms and conditions as may be approved by the authority; provided that all revenues generated from the lease shall be used to support the purpose of the pilot program.

§206E-J Dedication for public facilities as a condition to development. The authority shall adopt rules pursuant to chapter 91 requiring dedication for public facilities of land or facilities by developers as a condition of developing real property within urban redevelopment sites. If any state and county public facilities dedication laws, ordinances, or rules differ, the provision for greater dedication shall prevail.

§206E-K Ninety-nine year leasehold pilot program revolving fund. There is established the ninety-nine year leasehold pilot program revolving fund to be administered by the authority and into which shall be deposited moneys appropriated by the legislature and all receipts and revenues of the authority collected pursuant to this part. Proceeds from the fund shall be used for the purposes of this part.

§206E-L Assistance by state and county agencies. Any state or county agency, upon request of the authority, may render services for the purposes of this part.

§206E-M Lands no longer needed. Lands acquired by the authority from another government agency that are no longer needed by the authority for the pilot program shall be returned to the previous owner of those lands. Lands acquired by the authority from a private party that are owned by the authority and designated for the pilot program but are subsequently no longer needed for the pilot program shall be retained by the authority.

§206E-N Rules. The authority may adopt rules pursuant to chapter 91 that are necessary for the purposes of this part.

§206E-O Leasehold condominiums on state lands. (a) The authority may sell leasehold units in condominiums organized pursuant to chapter 514B and developed under this part on state land to a qualified resident as defined in section 201H‑32.

(b) The term of the lease may be for ninety-nine years, and the authority may extend or modify the fixed rental period of the lease or extend the term of the lease.

(c) The powers conferred upon the authority by this section shall be in addition and supplemental to the powers conferred by any other law, and nothing in this section shall be construed as limiting any powers, rights, privileges, or immunities so conferred.

§206E-P Annual reports. The authority shall submit a report to the legislature on the progress of the pilot program projects no later than twenty days prior to the convening of each regular session. The annual report shall include the feasibility of expanding the pilot program and the demand of leasehold projects developed under this part and whether the pilot program should be expanded to ceded lands and an appropriate leasehold duration."

SECTION 3. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237- Exemption of sale of leasehold interest for homes within an urban redevelopment site. In addition to the amounts exempt under section 237-24, this chapter shall not apply to amounts received from the sale of a leasehold interest in a home within an urban redevelopment site under part of chapter 206E."

SECTION 4. Section 302A-1603, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The following shall be exempt from this section:

(1) Any form of housing permanently excluding school-aged children, with the necessary covenants or declarations of restrictions recorded on the property;

(2) Any form of housing that is or will be paying the transient accommodations tax under chapter 237D;

(3) All nonresidential development;

(4) Any development with an executed education contribution agreement or other like document with the authority or the department for the contribution of school sites or payment of fees for school land or school construction; [~~and~~]

(5) Any form of housing developed by the department of Hawaiian home lands for use by beneficiaries of the Hawaiian Homes Commission Act, 1920, as amended[.]; and

(6) Any form of development by the Hawaii community development authority pursuant to part of chapter 206E."

SECTION 5. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2023-2024 and the same sum or so much thereof as may be necessary for fiscal year 2024-2025 to be deposited into the ninety-nine year leasehold pilot program revolving fund established pursuant to section 206E-K, Hawaii Revised Statutes.

SECTION 6. There is appropriated out of the ninety-nine year leasehold pilot program revolving fund the sum of $ or so much thereof as may be necessary for fiscal year 2023-2024 and the same sum or so much thereof as may be necessary for fiscal year 2024-2025 for the purposes for which the revolving fund is established.

The sums appropriated shall be expended by the Hawaii community development authority for the purposes of this Act.

SECTION 7. In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on June 30, 3000; provided that:

(1) On June 30, 2030:

(A) This Act shall be repealed and section 302A-1603, Hawaii Revised Statutes, shall be reenacted in the form in which it read on the day before the effective date of this Act; and

(B) All unexpended moneys on balance in the ninety-nine year leasehold pilot program revolving fund established pursuant to section 206E-K, Hawaii Revised Statutes, that remain unencumbered as of that date, shall lapse to the credit of the general fund; and

(2) The amendments made to section 302A-1603(b), Hawaii Revised Statutes, by this Act shall not be repealed when that section is reenacted on July 1, 2024.

THE SENATE	S.B. NO.	865
THIRTY-SECOND LEGISLATURE, 2023		S.D. 2
STATE OF HAWAII		H.D. 1