HCDA urges changes to 99‑year leasehold pilot to make units marketable; lawmakers press for clearer owner‑occupancy rules

Craig Nakamoto, executive director of the Hawaii Community Development Authority, told the House Housing Committee on Feb. 13 that Act 97 (2023) mandated owner‑occupancy "in perpetuity" for the HCDA demonstration project and that requirement, together with higher construction costs, made presales impractical. HCDA proposed amending HRS chapter 206E so owner‑occupancy rules would apply to 60% of units rather than 100%, while up to 40% of units could be sold at market rates to improve the project’s feasibility.

Why it matters: HCDA is seeking to make the Kakaako demonstration project viable without losing the goal of creating permanently affordable homeownership options. Nakamoto said the agency received $15,000,000 in state predevelopment funds and intends the state's equity contribution to retain ownership of the parking garage and street‑level commercial space; revenue from those assets would seed future similar projects.

What HCDA told lawmakers: Nakamoto said Act 97’s owner‑occupancy and resale limits were ‘‘very owner occupant centric’’ and that market conditions — notably rising construction costs and interest‑rate uncertainty — changed since the law was enacted. He testified the estimated full cost per unit was roughly $700,000 and that HCDA has not yet drawn down the $15 million state allocation. "When Act 97 became law, the pilot demonstration project made that owner occupancy requirement applicable to 100% of the units," Nakamoto said. "We think these restrictions, if removed, will help our sales."

Lawmakers’ concerns: Several representatives pressed HCDA on whether reducing owner‑occupancy requirements would allow investors to capture inventory intended for local residents. Representative (unnamed in transcript) summarized the tension: deeper levels of affordability generally require higher subsidies, while relaxed restrictions improve saleability. Representative Barranca and others urged clearer definitions of qualified residents, resale limits and enforcement mechanisms before finalizing rules.

Next steps: The committee moved HB1722 out of committee with a defective effective date and adopted technical amendments, but several members recorded no votes during the decision‑making vote. The committee directed HCDA to return with clarified language on owner‑occupancy enforcement, the status of any rule amendments and the intended AMI (area median income) ranges for restricted units.

Closing note: HCDA said it will engage the selected developer and, if the statutory changes pass, resume presales only after revised rules and price targets are finalized.