Affordable Housing is a Trojan Horse
Beware of For-profit Developers bearing Gifts: The Affordable Housing (AH) program has become a Trojan Horse for communities that are dealing with an affordable housing crisis. Well-intentioned AH rules were designed to stimulate affordable home building, and have since become a tool for exploiting communities and desperate homebuyers.
Just because it is called affordable housing doesn’t make it so: There is a new industry in Hawaii that has become the biggest thing in housing construction. The Affordable housing craze has been pitched as a solution to our housing shortage, but it is actually fueling house flipping and may be increasing an influx of migrants from the mainland.
Why Rent when it is cheaper to Buy? One in three homes on Maui are now sold to mainlanders or Canadians. It has become far cheaper to buy a condo or home in Maui than to rent it. So people who like to come back to Maui year after year, can rent a condo for $200-500 a night, or buy a timeshare, buy a market-priced condo, or as a third option they can now buy an affordable home for $60-100/day. There is no rule other than being an American citizen, and a resident. When you move here, you automatically become a “resident”. So there is currently no rule that protects local families who have been waiting for years to buy a home to get any preferential treatment or priority when it comes to affordable home-buying.
What started all of this? The affordable housing rules were created to stimulate the building of affordable housing for the local workforce. AKA affordable Workforce Housing was intended to incentivize builders to build up to ¼ of their project’s homes as workforce housing. Not only was building these homes a requirement for building large market-priced projects, but it was also compensated by allowing builders to get credits for building workforce housing, and they were allowed to cut corners and skip many hurdles when building affordable homes. By creating these rules, the government basically stimulated the luxury housebuilding market, by allowing them to build three luxury homes for every workforce house built.
But to increase profits even further they allowed the developers to build all of their affordable houses in different locations: This allows developers to sell all their luxury homes in the most expensive neighborhoods, and relocate the workforce housing to the cheapest and available.
These rules allow developers to make the most money by segregating neighborhoods: These rules encourage developers to segregate neighborhoods socio-economically, which drives up prices and profits in the luxury neighborhoods, and also tends to overdevelop the workforce housing in poorer neighborhoods.
Workforce houses tend to be built much cheaper to make them affordable: Affordable homes are not necessarily “more affordable”, they are just built cheaper. They can do this by making condo-style units that have smaller homes packed tightly together, so they can fit the maximum number of dwellings per acre. They also can cut corners by building narrower driveways, fewer parking spaces, and building closer to the setbacks, fewer common areas, etc. They make these homes cheaper by building on cheaper land, sometimes in flood zones or areas with poor infrastructure. The local infrastructure or amenities are not their concern, and they tend to build these projects in older, under-served neighborhoods.
The community pays the price for building affordable homes: They also make these workforce homes cheaper by allowing developers to skip out on paying for neighborhood improvements that are normally required, Like sidewalk improvements, sewerage and water improvements, parks contributions, etc. So what ends up happening is that neighborhoods that receive these projects get overloaded with more housing, and traffic, and do not get any infrastructure improvements. *In short, older neighborhoods get all of the problems with none of the benefits.
Another sad fact is that workforce housing is not always affordable: For half of the homes will be sold to people making at or greater than the AMI (area median income), and up to 120% of the AMI. And usually, only half will be available for people making less than the AMI. Another sad statistic is that only one in 4 homes will go to a needy local family. The rest go to mainlanders who just moved here. This is shocking and tragic.
The AH rules allow the developers to sell affordable homes at market price: The rules say that if the developer cannot sell the homes to qualified people within the initial period of around 90days. They are allowed to sell them at market price. So this means that investors and wealthier people can buy these homes “built to be affordable”. So the community does not get any benefit from these projects when they are sold to non-locals. The local housing crisis is not being solved with this program. But builders and developers are still making money from this, tens of millions of dollars and more.
Most people living in Hawaii are naive to think that affordable housing is being built for them: They are naive because very few local people actually qualify for one of these mortgages. The neediest people have the least ability to qualify for a mortgage. So these homes go to people with good credit and low income. This demographic describes the newly-retired person, or the young professionals moving here from the mainland, and the well-to-do. These people have the ability to adjust their incomes to match the affordable income bracket. While still maintaining a good credit score. It is tough for many local people to compete with that when a combination of low wages and a high cost of living have often depleted their financial resources. Paradoxically, the more you really need an affordable home, the less likely it is that you will qualify for one.
House Flipping is a major problem: “Investors” can pick up a cheap affordable home (courtesy of the local taxpayers), and then own it for 5-10 years then flip it at market value. This is one of the best investments, and it is driving speculative real estate investment, which ironically is at the core of the housing crisis. Some local people will get into an affordable home, but most will not. These affordable homes revert to market prices, or they can sometimes skip over the affordable stage altogether and go straight to market price.
Sadly this Affordable Housing label is being used as a smokescreen for overdevelopment: The Affordable Housing program has become a goldmine for builders and developers. So much so that large AH developments are being created by foreign companies from places like Canada, and mainland investors and developers are also coming here to build these projects. Why? Because in Hawaii and Maui the affordable housing rules are a license to print money. Typically developers come here to build, sell, then leave. They have no long-term commitment to the people or the place, they only came here for the money.
Affordable Housing as Social Washing: What is social washing? Most people have heard of greenwashing where corporations try to make themselves look green by making claims of recycling or using natural ingredients, whereas “social washing” is making your business look socially conscious by saying you are “caring for the poor”, or “alleviating the housing crisis”.
Cultural Appropriation: guaranteed these projects will have a local-sounding name. Like so many foreign corporations, they take on a Hawaiian moniker to fool the public into thinking that this is somehow a local business serving the local people. This is disingenuous at best, and outright deceptive at worst.
There have been a growing number of scandals associated with the Affordable Housing Program: Several schemes have been uncovered in the news recently. On the Big Island, government officials responsible for overseeing these affordable housing credits have scammed the system for millions of dollars, and some have been brought to justice. There is likely systemic corruption that is only now coming to light. What the system needs is a thorough, in-depth audit, and a complete overhaul of the rules. There have been similar revelations lately of similar scams for the planning department selling SMA permits and granting developers favors. All of these scammers and corrupt officials want to keep the system going, and meanwhile, they are keeping the truly needy people away from actually getting an affordable home.
Most people supporting affordable housing do not realize the scam that it has become: There are good home builders out there, especially in the nonprofit sector. But beware of the ones that build luxury homes, and may have “rebranded themselves” as altruistic affordable home builders, they are wolves in sheep’s clothing. These days the “Affordable Builders” have paid lobbyists that attend meetings and influence the rule-making process to ensure that profits for developers are kept high, and they even testify against rules that would make homes cheaper because it would “hurt the developers” profit. They are not concerned with the affordable home-buyer who are generally heavily leveraged to qualify for a loan and might default and go into foreclosure because they just cannot make the payments.
What can we do? Our community needs to take a closer look at who is actually benefiting from this program, and show where the money goes. We also need to get developers to open their books to show who is actually buying these homes, and how long they actually live in them, or if they just sub-let them for example. Otherwise, we are just fooling ourselves into thinking that the housing crisis will get better just because we are building a bunch of homes cheaply.