Why Is Affordable Housing Preservation Initiative Sale Being Rushed?
Honolulu City Administration is pressuring the City Council to approve a socially and economically irresponsible bid to sell the 1,257 units of mixed income housing owned by the City and County of Honolulu. A favorable bid, which should meet the requirements originally setup by the City Council itself, would close before the end of 2012 and be a financial success for the city. Unfortunately, the City Council is prepared to accept an offer that will cost the City millions of dollars and will negatively impact various neighborhoods throughout the city.
The City Council has been supplied with documentation that proves the current bid should have been deemed unacceptable since it deviates from the terms of the RFP. It eliminates 719 units (see below) of workforce housing in favor of adding more lower income units. Rather than pausing to assess the impact of this change on the neighborhood and on long-term sustainability, there appears to be a rush to approve the sale, even though there is a vacant seat in the council district, where most of the properties are located. This is akin to taxation without representation.
Additionally, examining the hypothetical sales figures associated with the current bid, including all the direct and hidden costs, a significant loss will be created for the City. Some additional issues are as follows:
In Chinatown, 524 units of existing mixed income units designed and approved for workforce residents will be removed and lost for at least 65 years. The income group being eliminated represents policeman, firefighters, teachers, and other essential workers. The removal of so many workforce-housing units will create an immediate shortage and cause area rents to skyrocket overnight.
We have been told by the administration that time is of the essence, primarily citing today’s historically low interest rates. Early in the bidding process, potential bidders were informed of a requirement to close (the sale) by October 31, 2012. However, the current bid being entertained by the city council allows for closing to be extended until March 2014 and with no risk to the buyer’s deposit! This extension of time was not offered to the other bidders.
The support of a key group, Faith Action for Community Equity (FACE) allowed the bill to start moving. FACE thinks they have negotiated a rental subsidy for many of the units from an administration that will not be in office in a few months. The maximum subsidy the City can give is $170 per unit if the City had the money, which it does not. To cover all 719 units, it would cost the taxpayers $2 million per year. Where is this subsidy going to come from? FACE believes that the city should take a portion of the sales proceeds and create a fund. Realistically, the City would have to put away approximately $60 million in a fund at today’s interest rates to cover these ongoing expenses for the next 65 years.
The City says it needs to pay the outstanding bonds that were used to build and acquire these units (about $63 million) plus pay back Federal Community Development Block Grant (CDBG) funds (could be up to $50 million). With all the cutbacks in City and State funds to cover other necessary social services there will be line a mile long for the funds. Can these funds even be used for rental subsides? Other questions are whether the State is willing to put in $30 million dollars in tax credits and whether the Hawaii Housing Finance and Development Corporation (HHFDC) is willing to eliminate workforce rental units?
To replace the 719 workforce-housing units in core Honolulu that would be eliminated by the current bid, it would cost tax-payers at least $175 million in direct subsidies and that is if you even could find free, politically entitled land. If the City Administration and the City Council want to eliminate workforce housing maybe they should be fair and let the other bidders resubmit new bids that are in-line with updated City Council requirements.
In closing, no one seems to appreciate the potential financial loss that the current bid creates. In the best case, the net proceeds equate to an almost $11 million loss which includes a $6.2 million rental subsidy that will last for only 10 years. In the worst case, if the City decides to offer a rental subsidy for the entire 65 years, the net proceeds equate to a loss of nearly $100 million.
The City will need a lot more time to consider the financial aspects of this complex deal and furthermore, we urge a financial analysis be performed prior to passing the resolutions.
Current Mod and Gap Units
Chinatown Gateway Plaza – 120
Chinatown Manor – 90
Harbor Village – 59
Marin Tower – 161
Winston Hale – 94
Kulana Nani – 120
Manoa Gardens – 8
Westloch – 67
TOTAL – 719
About the author: Charles Wathen is with the and CEO of Pier Management Hawaii.

