Healthy, safe, affordable housing is the foundation for a successful life. Yet in Hawai‘i it is increasingly hard to come by, with housing prices skyrocketing due to the lack of supply sufficient to satisfy demand – a problem that is exacerbated by the loss of existing affordable housing when projects that were built using public money are converted to market-rate units. LEJ is taking action to preserve Hawai‘i’s affordable housing stock and ensure that those who have benefited from public investments are keeping their commitments regarding the affordability of their projects.
Background on the Need for Affordable Housing
Hawaii’s housing costs are among the highest in the nation. We have the lowest wages when adjusted for cost of living, the highest rate of chronic homelessness, and the highest rate of overcrowding in housing. Nearly half of Hawai‘i tenants live in housing that is, by definition, unaffordable, spending more than 35% of household income on their monthly gross rent. And the problem is getting worse. For every two units needed to satisfy increases in demand, only one is being built. Housing costs are increasing at more than twice the rate of increases in wages. Hawai‘i cannot afford to lose its existing affordable housing stock.
The Preservation of Front Street Apartments
LEJ is representing some of the tenants at Front Street Apartments – a 142-unit affordable housing complex in Lahaina that was beuilt with over $20 million of public money and benefits – to enforce a promise that the complex remain affordable for a period of 51 years. The owner of the property – Front Street Affordable Housing Partners (FSA) – is attempting to get out from under the affordability restrictions over thirty years earlier than allowed. If permitted to go forward, the conversion would almost certainly result in the loss of housing for most of Front Street’s residents, while increasing the value of the complex for the owner by up to $44 million.
There are more than 300 low-income tenants living at the complex. Many of the tenants are senior citizens or people with disabilities who are living on fixed incomes. To be eligible to live in an affordable unit at Front Street Apartments, a one-member household would need to make less than $39,660 a year, though many households at Front Street make less than $15,000 annually. Monthly rents for a one-bedroom unit at the complex are capped at between $885 and $1,062 depending on the income of the tenant. If the conversion occurs, rents are likely to more than double. Given the crisis in the availability of affordable housing in the state, and on Maui in particular, it will be impossible for most tenants to find alternative housing, and many will be faced with the prospect of becoming homeless.
To build the complex in 2001, FSA was provided $15.6 million in Low Income Housing Tax Credits, in addition to over $5 million in benefits from Maui county, which included property tax exemptions and waivers of building requirements. In return, FSA promised to maintain the affordable rents at the apartments for 51 years—a promise which was memorialized in a restrictive covenant on the property.
Although the covenant clearly states that FSA may only get out from the covenant early in the case of a looming foreclosure, FSA is now seeking to get out from under its promise, and plans to increase rents to market rates on all Front Street tenants starting in 2019.
FSA stands to make tens of millions of dollars if the early conversion to market rents is permitted. FSA has claimed it is entitled to be released from the affordability commitment using a special process that provides an exception to the rules that typically govern Low Income Housing Tax Credit projects like Front Street Apartments. Under the process, FSA asserted that the property was worth only $8.4 million in 2015, and then FSA provided an opportunity for the state of Hawai‘i to purchase (or find a purchaser for) the property at a price of $15.4 million—nearly twice the purported value of the property. Now FSA contends that the opportunity to purchase property for $15.4 million has expired, and FSA says the property is worth up to $52 million based on the claim that the complex no longer is bound by the affordability requirements, allowing rents to be raised to market rates.
The issue also involves the Hawai‘i Housing Finance and Development Corporation (HHDFC)—the state agency which oversees the Low-Income Housing Tax Credit program that governs Front Street Apartments. LEJ is also challenging HHFDC failure to comply with applicable legal requirements relating to the conversion process, including improperly entering into a release of the restrictive covenant without legal authority and without public notice or consent from the tenants, who are entitled to enforce the covenant.