Report Title:

Residential Leaseholds; Sustainable Affordable Housing Developments

Description:

Encourages the development of workforce housing and affordable housing on leased residential lots by prohibiting lessees under sustainable affordable leases from exercising rights granted under certain sections of Chapters 516 and 519, Hawaii Revised Statutes. (HB931 HD2)

HOUSE OF REPRESENTATIVES

H.B. NO.

931

TWENTY-THIRD LEGISLATURE, 2005

H.D. 2

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to affordable housing.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that the cost of living in Hawaii has been and continues to be high. A significant contributing factor to the high cost of living in Hawaii is the high cost of housing, and it is the high cost of land that contributes significantly to the high cost of housing. Land, in common with other natural resources, is a finite resource, a fact particularly obvious in Hawaii. The shortage in the supply of land leads to higher land prices and housing costs, and creates a situation in which land is developed for higher-priced housing rather than affordable housing.

The Hawaii Land Reform Act, chapter 516, Hawaii Revised Statutes, was enacted to afford residential lessees of fee simple title to the leased fee reversionary interest in single family residential leasehold lots. The constitutionality of chapter 516, Hawaii Revised Statutes, was upheld by the United States Supreme Court in Hawaii Housing Authority v. Midkiff, 467 U.S. 229 (1984), and by the Hawaii Supreme Court in Hawaii Housing Authority v. Lyman, 68 Haw. 55, 704 P.2d 888 (1985). In these cases, the courts held that a legitimate public purpose for leasehold condemnation legislation existed, and the use of the power of eminent domain to accomplish this purpose was constitutional.

Since the Midkiff and Lyman cases were decided in 1984 and 1985, respectively, development and sale of single-family and multifamily housing on a leasehold basis has ceased for all practical purposes in Hawaii. The median price of a single-family home on the island of Oahu has increased to $495,000 in December 2004. In contrast, under the housing and community development corporation of Hawaii’s affordable housing guidelines for 2004, the sales price of a house affordable to a family of four with the median income of $65,700 is $276,200. There is a growing shortage of housing in Hawaii affordable to the general workforce, specifically, those families earning between approximately fifty to one hundred forty per cent of area median income. Workforce housing is affordable housing for which a priority is given in the marketing of such housing to employees, retirees, or members of the landowner or of an affiliate of the landowner; employees or retirees of governmental agencies or departments; seniors; and other low-and moderate-income households.

The legislature further finds that in addition to inflation, one factor attributed to the increased costs of both new single-family and multifamily housing in Hawaii is the cost of land and site improvements, since these costs must be paid at the time of initial sale. One means of increasing the supply and decreasing the price of housing in Hawaii is to develop projects on a leasehold rather than a fee simple basis. If for-sale housing were developed on a long-term leasehold basis, land costs could be capitalized over the term of the lease. Moreover, selling a house on a leasehold basis permits the lessor to control the potential appreciation on the housing over the long term, thereby sustaining the affordable price of the housing for subsequent buyers.

It is in the public interest for landowners to facilitate the creation of affordable housing and workforce housing. Selling affordable housing and workforce housing on a leasehold basis will help curb inflation and will keep the cost of housing at a level that will enable low- and moderate-income families to afford a decent and healthful standard of living. Major employers should be encouraged to attract workers by selling the leasehold residences for less than appraised value and with a capitalized lease rent that is less than a fair market return as a form of housing subsidy.

A lessor’s participation in a percentage of the appreciation on the resale of an affordable residential lot may be construed as lease rent for purposes of chapter 519, Hawaii Revised Statutes. Landowners and lessors will only lease land to be developed for affordable leasehold residential lots with a less than fair market return if these lots are excluded from leasehold conversion and ground lease rent control.

The purpose of this Act is to encourage the development of workforce housing and affordable housing on leased residential lots by prohibiting lessees under sustainable affordable leases from exercising rights granted under certain sections of chapters 516 and 519, Hawaii Revised Statutes.

SECTION 2. Chapter 516, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§516-     Exemption for sustainable affordable developments. Notwithstanding any law to the contrary, no lessee under a sustainable affordable lease shall qualify to exercise the rights granted to a lessee by part II of this chapter and sections 516-63, 516-65 and 516-66 of part III of this chapter. The lessee under a sustainable affordable lease may exercise rights under section 516-70 of part III of this chapter; provided that in no event shall compensation to the lessee for on-site improvements at the termination or expiration of the lease term exceed the sustainable affordable lessee’s share of appreciation as defined in section 516-1. In addition, the penalty described in section 516-5 of part I of this chapter and the declaration contained in part IV of this chapter shall not apply to the fee owner and lessor of land in a sustainable affordable development.

§516-      Certification. A lessor of a sustainable affordable development shall certify its qualification for the exemptions set forth in section 516- at the time of delivery of the first sustainable affordable lease by filing an affidavit with the registrar of the bureau of conveyances or assistant registrar of the land court, as appropriate:

(1) Declaring that at least thirty per cent of the residential lots in the development tract are priced at initial sales prices affordable to households earning incomes qualifying under applicable affordable housing guidelines promulgated by the applicable county authority at the time of initial sale;

(2) Declaring that the initial sales prices of at least fifty-one per cent of the residential lots in the development tract, including all residential lots included in paragraph (1) shall be no higher than eighty per cent of the appraised value of the residential lots in fee, together with all buildings and improvements, unencumbered by the lease and explaining the calculation of the difference; and

(3) Stating the provisions in the sustainable affordable leases that limit the resale price and the lessees’ share of appreciation in the residential lot, including all buildings and improvements."

SECTION 3. Section 516-1, Hawaii Revised Statutes, is amended by adding three new definitions to be appropriately inserted and to read as follows:

""Sustainable affordable development" means a development tract that satisfies all of the following requirements:

(1) The initial sales price and the resale price on all subsequent resales of at least thirty per cent of the residential lots in the development tract, including all buildings and improvements, shall be set at price levels so as to be affordable to households earning incomes qualifying under applicable affordable housing guidelines promulgated by the applicable county authority;

(2) The initial sales price and the resale price on all subsequent resales of at least fifty-one per cent of the residential lots in the development tract, including all residential lots included in paragraph (1) shall be no higher than eighty per cent of the appraised value of the residential lots in fee, together with all buildings and improvements, unencumbered by the restrictions of the lease;

(3) For the purposes of paragraph (1), the percentage or percentages of median income that the initial lessees cannot exceed in order to determine the affordable price levels described in paragraph (1) shall remain constant throughout the term of leases;

(4) All residential lots sold at the initial sales prices described in paragraphs (1) and (2) are leased under sustainable affordable leases; and

(5) For purposes of this chapter, the residential lots in a development tract are not required to be in a single contiguous area as long as all non-contiguous lots are:

(A) Within a ten-mile radius of each other; and

(B) Leased by the same fee owner under a sustainable affordable lease.

"Sustainable affordable lease" means a lease of a residential lot in a sustainable affordable development that satisfies all of the following requirements:

(1) The land is being leased for a consideration to the fee owner below a fair market return on the appraised value of the land. Compensation to the fee owner for land, including lease rent, shall be either:

(A) Totally capitalized into the initial sales price for the residential lot, including all buildings and improvements; or

(B) Partially capitalized with a share of appreciation paid upon resale of the residential lot;

and

(2) The lease limits the lessee’s share of appreciation in the residential lot, including all buildings and improvements, upon resale to the sustainable affordable lessee’s share of appreciation.

"Sustainable affordable lessee’s share of appreciation" means a predetermined percentage of the lower of:

(1) The fair market value of the residential lot, including all buildings and improvements, as of the date of resale, subject to the restrictions of the sustainable affordable lease; or

(2) The lessee’s purchase price for the residential lot, including all buildings and improvements, plus the lessee’s share of the fair market value of additional improvements made by the lessee, plus any appreciation in the residential lot, including all buildings and improvements, as measured by the increase in the consumer price index for all urban consumers as determined by the United States Department of Labor for the city and county of Honolulu from the date of purchase or improvement to the date of the contract for resale."

SECTION 4. Chapter 519, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§519- Exemption for sustainable affordable developments. Notwithstanding any other law to the contrary, no lessee under a sustainable affordable lease as defined in section 516-1 and qualified under section 516- shall qualify to exercise the rights granted to a lessee under section 519-2."

SECTION 5. New statutory material is underscored.

SECTION 6. This Act shall take effect on July 1, 2010.