HB633

SECTION 1. The legislature finds that housing costs are out of reach in Hawaii's current housing market for most residents. As housing is a basic need, this is one of the pressing problems for our State to address. The root of this problem is our housing prices are based on the wages and resources of buyers from around the world. In most housing market prices are based on the incomes of the residents of the local area.

To solve the problem of unaffordable market rate housing, we are creating a separate local housing market. To do this, for all housing built with government funds or assistance we will place deed restrictions to keep the housing in the same area median income range pricing that it was initially offered at. This will build an inventory of housing that will always be affordable to the local wage earner.

The Hawaii State Planning Act (HRS §226-19) lays out the State's socio-cultural advancement with regard to housing. Its purpose is to achieve greater opportunities for Hawaii's people to secure reasonably priced, safe, sanitary, and livable homes, located in suitable environments that satisfactorily accommodate the needs and desires of families and individuals, through collaboration and cooperation between government and nonprofit and for-profit developers to ensure that more rental and for sale affordable housing is made available to extremely low‑, very low-, lower-, moderate-, and above moderate-income segments of Hawaii's population.

Two of the policies of our State are:

(1) Stimulate and promote feasible approaches that increase affordable rental and for sale housing choices for extremely low-, very low-, lower-, moderate-, and above moderate-income households.

(2) Increase homeownership and rental opportunities and choices in terms of quality, location, cost, densities, style, and size of housing.

In 2019, this Legislature requested a study of policies and practices around achieving these housing objectives. One of the findings of the ALOHA Homes Implementation Study was, "We recommend that the sales price of affordable units be restricted so that subsequent buyers can purchase a home at the same area median income level as their predecessors (pg 29)." And that in their focus groups, "most participants felt it would be unfair for people to sell affordable units at market-rate value at any time after the initial purchase (pg 42)."

The purpose of this Act is to make changes to §201H-47, §201H-49, and §201H-023 to implement keeping affordable housing units affordable to the initial targeted area median income level in perpetuity.

SECTION 2. Section 201H-47, Hawaii Revised Statutes, is amended to read as follows:

"§201H-47 Real property; restrictions on transfer; waiver of restrictions. (a) The following restrictions shall apply to the transfer of real property developed and sold under this chapter, whether in fee simple or leasehold:

(1) [~~For a period of ten years~~] In perpetuity after the purchase, whether by lease, assignment of lease, deed, or agreement of sale, if the purchaser wishes to transfer title to the real property, the corporation shall have the first option to purchase the real property at a price that shall not exceed the same regulations it was purchased under and remain affordable to the same area median income as it was originally purchased at. If applicable the sales price shall be adjusted to include the sum of:

(A) [~~The original cost to the purchaser, as defined in rules adopted by the corporation;~~]

[~~(B)~~] The cost of any improvements added by the purchaser, as defined in rules adopted by the corporation; and

[~~(C)~~] [~~Simple interest on the original cost and capital improvements to the purchaser at the rate of one per cent per year; and~~]

[D](B) The amount, if any, previously paid by the purchaser to the corporation [~~as the corporation's share of net appreciation in the real property;~~]

(2) The corporation may purchase the real property either:

(A) By conveyance free and clear of all mortgages and liens; or

(B) By conveyance subject to existing mortgages and liens.

If the real property is conveyed in the manner provided in subparagraph (A), it shall be conveyed to the corporation only after all mortgages and liens are released. If the real property is conveyed in the manner provided in subparagraph (B), the corporation shall acquire the real property subject to any first mortgage created for the purpose of securing the payment of a loan of funds expended solely for the purchase of the real property by the seller; and any mortgage or lien created for any other purpose; provided that the corporation has previously consented to it in writing.

The corporation's interest created by this section shall constitute a statutory lien on the real property and shall be superior to any other mortgage or lien, except for any first mortgage created for the purpose of securing the payment of a loan of funds expended solely for the purchase of the real property by the seller; any mortgage insured or held by a federal housing agency; and any mortgage or lien created for any other purpose; provided that the corporation has previously consented to it in writing. The amount paid by the corporation to the seller shall be the difference, if any, between the purchase price determined by paragraph (1)(A) to [(D)] (B), and the total of the outstanding principal balances of the mortgages and liens assumed by the corporation;

(3) A purchaser may refinance real property developed and sold under this chapter; provided that the purchaser shall not refinance the real property [~~within ten years from the date of purchase~~] for an amount in excess of the purchase price as determined by paragraph (1)(A) to [~~(C)~~](B); provided further that the purchaser shall obtain the corporation's written consent [~~if any restriction on the transfer of the real property remains applicable~~] to refinance;

[~~(4)~~][ After the end of the tenth year from the date of initial purchase or execution of an agreement of sale, the purchaser may sell the real property and sell or assign the property free from any price restrictions; provided that the purchaser shall be required to pay to the corporation the sum of:]

[~~(A)~~] (4) The balance of any mortgage note, agreement of sale, or other amount owing to the corporation;

[~~(B)~~][ Any subsidy or deferred sales price made by the corporation in the acquisition, development, construction, and sale of the real property, and any other amount expended by the corporation not counted as costs under section 201H-45 but charged to the real property by good accounting practice as determined by the corporation whose books shall be prima facie evidence of the correctness of the costs;]

[~~(C)~~] [Interest on the subsidy or deferred sales price, if applicable, and any other amount expended at the rate of seven per cent per year computed as to the subsidy or deferred sales price, if applicable, from the date of purchase or execution of the agreement of sale, and as to any amount expended, from the date of expenditure; provided that the computed interest shall not extend beyond thirty years from the date of purchase or execution of the agreement of sale of the real property. If any proposed sale or transfer will not generate an amount sufficient to pay the corporation the sum as computed under this paragraph, the corporation shall have the first option to purchase the real property at a price that shall not exceed the sum as computed under paragraphs (1) and (2); and]

[~~(D)~~] [~~The corporation's share of appreciation in the real property as determined under rules adopted pursuant to chapter 91, when applicable;~~]

[~~(5)~~] [Notwithstanding any provision in this section to the contrary, pursuant to rules adopted by the corporation, the subsidy or deferred sales price described in paragraph (4)(B) and any interest accrued pursuant to paragraph (4)(C) may be paid, in part or in full, at any time; and]

[~~(6)~~] [~~Notwithstanding any provision in this section to the contrary, the corporation's share of appreciation in the real property described in paragraph (4)(D):~~]

[~~(A)~~] [Shall apply when the sales price of the real property that is developed and sold under this chapter is less than the then-current, unencumbered, fair market value of the real property, as determined by a real property appraisal obtained prior to the closing of the sale;]

[~~(B)~~] [~~Shall be a restriction that runs with the land until it is paid in full and released by the corporation, or extinguished pursuant to subsection (f); and~~]

[~~(C)~~] May be paid, in part or in full, at any time after recordation of the sale.

[~~(b)~~](a) If the corporation waives its first option to repurchase the real property provided in subsection (a), a qualified nonprofit housing trust shall have the option to purchase the real property at [a] the same area median income level as it was originally purchased at. [~~price that shall not exceed the sum of:~~]

~~(1)~~ ~~The original cost to the purchaser, as defined in rules adopted by the corporation;~~

~~(2)~~ ~~The cost of any improvements added by the purchaser, as defined in rules adopted by the corporation;~~

~~(3)~~ ~~Simple interest on the original cost and capital improvements to the purchaser at the rate of one per cent per year; and~~

~~(4)~~ ~~The corporation's share of net appreciation in the real property to be paid as determined under rules adopted pursuant to chapter 91, when applicable.~~

~~(c)~~] (b) If, [~~For a period of ten years after the purchase,~~] whether by lease, assignment of lease, deed, or agreement of sale, if the purchaser wishes to transfer title to the real property, and if the corporation or the qualified nonprofit housing trust selected by the corporation does not exercise the option to purchase the real property as provided in subsection (a) or (b), then the corporation shall require the purchaser to sell the real property to a "qualified resident" as defined in section 201H-32, and upon the terms that they are qualified in the same area median income level that preserve the intent of this section and sections 201H-49 and 201H-50, and in accordance with rules adopted by the corporation.

[~~(d)~~] (c) The corporation may waive the restrictions prescribed in subsections (a) through [~~(c)~~] (b) if:

(1) The purchaser wishes to transfer title to the real property by devise or through the laws of descent to a family member who would otherwise qualify under rules established by the corporation;

(2) The sale or transfer of the real property would be at a price and upon terms that preserve the intent of this section without the necessity of the State repurchasing the real property; provided that, in this case, the purchaser shall sell the real property and sell or assign the real property to a person who is a "qualified resident" as defined in section 201H-32 in the same area median income level; [~~and provided further that the purchaser shall pay to the corporation its share of appreciation in the real property as determined in rules adopted pursuant to chapter 91, when applicable; or~~

~~(3)~~ ~~The sale or transfer is of real property subject to a sustainable affordable lease as defined in section 516-1.~~]

(e) The corporation may release the restrictions prescribed in subsections (a) through (c) if the real property is financed under a federally subsidized mortgage program and the restrictions would jeopardize the federal government's ability to recapture any interest credit subsidies provided to the homeowner.

(f) The restrictions prescribed in this section and sections 201H-49 to 201H-51 shall be automatically [~~extinguished~~] retained and shall [~~not~~] attach in subsequent transfers of title when a qualified nonprofit housing trust becomes the owner of the real property pursuant to subsection (b); or a mortgage holder or other party becomes the owner of the real property pursuant to a mortgage foreclosure, foreclosure under power of sale, or a conveyance in lieu of foreclosure after a foreclosure action is commenced; provided that the mortgage is the initial purchase money mortgage, or that the corporation consented to and agreed to subordinate the restrictions to the mortgage when originated, if the mortgage is not the initial purchase money mortgage; or when a mortgage is assigned to a federal housing agency. Any law to the contrary notwithstanding, a mortgagee under a mortgage covering real property or leasehold interest encumbered by the first option to purchase in favor of the corporation, prior to commencing mortgage foreclosure proceedings, shall notify the corporation in writing of:

(1) Any default of the mortgagor under the mortgage within ninety days after the occurrence of the default; and

(2) Any intention of the mortgagee to foreclose the mortgage under chapter 667 forty-five days prior to commencing mortgage foreclosure proceedings;

provided that the mortgagee's failure to provide written notice to the corporation shall not affect the mortgage holder's rights under the mortgage. The corporation shall be a party to any foreclosure action, and shall be entitled to its share of appreciation in the real property as determined under this chapter in lien priority when the payment is applicable, and if foreclosure occurs within the ten-year period after the purchase, the corporation shall also be entitled to all proceeds remaining in excess of all customary and actual costs and expenses of transfer pursuant to default, including liens and encumbrances of record; provided that the person in default shall be entitled to an amount that shall not exceed the sum of amounts determined pursuant to subsection [~~(a)(1)(B) and (C)~~] (1)(A) and (B).

(g) The provisions of this section shall be incorporated in any deed, lease, agreement of sale, or any other instrument of conveyance issued by the corporation. [In any sale by the corporation of real property for which a subsidy or deferred sales price was made by the corporation, the amount of the subsidy or deferred sales price described in subsection (a)(4)(B), a description of the cost items that constitute the subsidy or deferred sales price, and the conditions of the subsidy or deferred sales price shall be clearly stated at the beginning of the contract document issued by the corporation. In any sale in which the corporation's share of appreciation in real property is a restriction, the terms of the shared appreciation equity program shall be clearly stated and included as an exhibit in any deed, lease, agreement of sale, or any other instrument of conveyance.]

(h) This section need not apply to market-priced units in an economically integrated housing project, except as otherwise determined by the developer of the units; provided that preference shall be given to qualified residents in the initial sale of market-priced units.

(i) The corporation is authorized to waive any of the restrictions set forth in this section in order to comply with or conform to requirements set forth in federal law or regulations governing mortgage insurance or guarantee programs or requirements set forth by federally chartered secondary mortgage market participants.

(j) Notwithstanding any law to the contrary, if real property is purchased by a qualified nonprofit housing trust pursuant to subsection (b), the housing trust shall establish new buyback restrictions for the purpose of maintaining the unit as affordable for [~~as long as practicable, or as otherwise required by the corporation~~] in perpetuity.

(k) A qualified nonprofit housing trust shall report the status and use of its housing units to the corporation by November 30 of each calendar year.

SECTION 3. Section 201H-49, Hawaii Revised Statutes, is amended to read as follows:

"[§201H-49] Real property; restrictions on use. (a) Real property purchased under this chapter shall be occupied by the purchaser at all times [~~during the ten-year restriction period~~] as set forth in section 201H-47, except in hardship circumstances where the inability to reside on the property arises out of unforeseeable job or military transfer, a temporary educational sabbatical, serious illness of the person, or in other hardship circumstances as determined by the corporation on a case-by-case basis.

The corporation may waive the owner-occupancy requirement for a total of not more than ten years after the purchase of the dwelling, during which time the dwelling unit may be rented or leased. Waivers may be granted only to qualified residents who have paid resident state income taxes during all years in which they occupied the dwelling, who continue to pay resident state income taxes during the waiver period, and whose inability to reside on the property does not stem from a natural disaster. [~~The ten-year owner-occupancy requirement shall be extended by one month for every month or fraction thereof that the owner-occupancy requirement is waived.~~]

The corporation shall adopt rules under chapter 91 to implement the letter and spirit of this subsection and to prescribe necessary terms and conditions. The rules shall include:

(1) Application and approval procedures for the waivers;

(2) Exceptions authorized by this subsection;

(3) The amounts of rents that may be charged by persons allowed to rent or lease a dwelling unit; and

(4) Schedules of fees needed to cover administrative expenses and attorneys' fees.

No qualified resident who fails to reoccupy a dwelling unit after any waiver period shall receive more than the maximum to which the person would be entitled under section 201H-47. Any person who disagrees with the corporation's determination under this section shall be entitled to a contested case proceeding under chapter 91.

(b) From time to time the corporation may submit a verification of owner-occupancy form to the purchaser. Failure to respond to the verification in a timely manner or violation of subsection (a) shall be sufficient reason for the corporation, at its option, to purchase the unit as provided in section 201H-47(a)(1), (or) (2), [~~or (4),~~] as applicable.

(c) Any deed, lease, agreement of sale, or other instrument of conveyance issued by the corporation shall expressly contain the restrictions on use prescribed in this section.

(d) The restrictions prescribed in subsection (a) shall terminate and shall not attach in subsequent transfers of title if the corporation releases the restrictions when the real property is financed under a federally subsidized mortgage program.

(e) Subsections (a) to (c) need not apply to market-priced units in an economically integrated housing project, except as otherwise determined by the developer of the units; provided that preference shall be given to qualified residents in the initial sale of market-priced units.

(f) The corporation shall be authorized to waive any of the restrictions set forth in this section in order to comply with or conform to requirements set forth in federal law or regulations governing mortgage insurance or guarantee programs or requirements set forth by federally chartered secondary mortgage market participants.

SECTION 4. Section 201H-23, Hawaii Revised Statutes, is amended to read as follows:

"[§201H-23] For-sale developments. [~~(a)~~] Any law to the contrary notwithstanding, new multifamily for-sale housing condominium developments of seventy-five units or more per acre on privately owned lands and privately financed without federal, state, or county financing assistance or subsidies, including tax credits, shall:

(1) Be exempt from the corporation's shared appreciation equity program;

(2) Be subject to three-year occupancy requirements and transfer restrictions; provided that the three-year occupancy requirement shall begin upon the sale of each unit; and

(3) Not be subject to the [~~ten-year occupancy~~] requirements and transfer restrictions in sections 201H-47 and 201H-49, respectively;

provided that, in order for paragraphs (1), (2), and (3) to apply, the primary purpose of constructing the new multifamily for-sale housing condominium development of seventy-five units or more per acre shall be to augment the existing affordable housing unit inventory in the State and not for the purpose of satisfying any affordable housing or reserved housing requirement under this chapter, section 206E-4(18), or any other law or ordinance.

[~~(b)~~] As used in this section:

"Affordable housing" means the same as defined under section 201H-57.

"Reserved housing" means the same as defined under section 206E-101."

SECTION 5. This Act shall take effect on July 1, 2023.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	633
THIRTY-SECOND LEGISLATURE, 2023
STATE OF HAWAII