New public-private partnership on Maui provides hope for affordable homes, but raises questions of fairness

MauiNow Pulelehua development, Mahinahina Hills (Phase 1) Expedited pilot public-private affordable for sale proposal. Presentation by Paul Cheng (10.19.22)
MauiNow Pulelehua development, Mahinahina Hills (Phase 1) Expedited pilot public-private affordable for sale proposal. Presentation by Paul Cheng (10.19.22)

Maui Now | October 25, 2022

By Wendy Osher

A budget amendment that provides an $18 million appropriation to the Pulelehua affordable housing project in West Maui was approved unanimously by members of the Budget, Finance and Economic Development Committee on Wednesday in an 8-0 vote, with one member excused.

The expedited pilot public-private affordable for sale proposal will help to subsidize dozens of affordable units in the first phase of the Pulelehua project, which developers have named Mahinahina Hills.

Price is right; fairness and future precedent questioned

Phase 1A will offer 100 townhouses, for purchase at 60%-120% Area Median Income, meaning a family or individual earning between $60,660- $121,320 will be eligible to purchase a home there.

Prices are estimated to be as low as $157,009 for a one bedroom and $191,000 for a two bedroom unit for a family earning 60% of the Area Median Income. For a family earning 120% of the AMI or up to $121,320, sales prices would be: $315,697 for a one bedroom, and $383,349 for a two bedroom.

The subsidy will help to build a total of 60 units including 20 units in the 120% AMI category, and 40 units being offered for families earning 100% AMI. Developers said they would be seeking different funding from state or other entities for the remaining 40 homes in the affordable phase, being offered at between 60% and 80% AMI.

“Those are wonderful prices. Whoever wins the lottery on these 60 homes is going to truly win the lottery, so that better damn well be a fair lottery,” King said with a laugh. “I’m a little bit worried about the future asks, but I’m going to support this.”

-Kelly King, Councilmember

Pulelehua development, Mahinahina Hills (Phase 1) affordable for-sale summary. Presentation by Paul Cheng (10.19.22)

Both King and Council Chair Alice Lee expressed support for the measure, but said they had “serious reservations.”

Lee was absent during the vote, but in earlier discussion said, “Due to over-regulations by the council, by the county, by everyone… many of these bigger projects fail because it’s too expensive,” noting the developer would have lost millions in the affordable phase if the subsidy was not received.

Both Lee and King worried what would happen if developers came back to the table and continued to ask for more. “If we’re willing to give $300,000 per unit, are we willing to also consider that for developers who have already had projects approved… who might come back to us and say, ‘I can’t do it… I’m going to take a loss. Can you give me $300,000 per unit?’ I want to make sure that everything is fair,” said King.

With 400 more units planned for Pulelehua in additional phases, King said she would not approve of an additional $300,000 per unit for the future phases saying “it will bleed us dry and it’s not fair to the other developers who have already been doing affordable housing.”

She noted that fellow developers at Kuikahi agreed to use the new price guidelines as outlined in bill 107, and not ask for this kind of subsidy.

“I honestly think that the reason why we put that requirement for affordable housing into the ordinance was because we knew the developers were going to make it up in their market priced housing. So yeah, developers have taken losses building affordable housing–that’s part of the formula. This one is going to be totally protected from any loss,” said King.

That same thought raised questions from Joe Kent, the Executive Vice President of the Grassroot Institute of Hawaiʻi, and a registered lobbyist for the 501-c3 nonprofit organization.

“This public-private partnership process that’s being set up gives more power to politicians to pick and choose winners and losers. So rather than being more of a by-right thing–allowing developers to build, which is another solution–this gives politicians more power and makes development on Maui more of a political process.”

Joe Kent, Executive VP – The Grassroot Institute of Hawai’i

Kent testified against Bill 152 saying his concern was “less about this particular project or appropriation, and more about the perception of this bill.”

“To the outside observer, this bill seems to be somewhat of a quid pro quo. Now like I said, the intentions may be good, but outside it looks funny. This project is a tailored show of support for Bill 107, which passed and is enacted–which we believe at the Grassroot Institute, would hinder the development of housing on Maui, and in turn, this bill rewards this project. So the message to the public is seemingly clear–support our bill and we’ll support your project,” he said.

Kent said the project works “not because of Bill 107, but because of millions of dollars of taxpayer money given to a politically favored project.”

“This tells the story that the only projects that can work with Bill 107’s restrictions are those projects that are bailed out by the taxpayer. And that may mean higher taxes in the future to pay for more housing. In the meantime, the housing could have been built at no cost to the taxpayer if Bill 107 hadn’t been enacted,” said Kent.

While subsidizing the project lowers the price of the affordable units, Kent said the only way to recoup the cost is to bail it out with taxpayer money.

In arguing his point, he said the subsidy creates more of an incentive for developers to “buddy up” with politicians.

“There may be very well intentions on this, but to the outside observer, it looks like more of the same–politicians picking winners and losers, taxpayer dollars being spent, and more red tape in the process in a place that already has the highest regulations in the nation. So I ask the council to slow down,” Kent said.

The organization’s mission is to advocate for individual liberty, economic freedom, and accountable government.

Pulelehua is located just below the West Maui Kapalua Airport, and mauka of the Honoapiʻilani Highway. Presentation by Paul Cheng (10.19.22)

Maui Tomorrow advocates for affordability in perpetuity

Meanwhile, Michael Williams, President of Maui Tomorrow Foundation and Chair of the Cost of Government Commission disagreed with Kent’s assessment. “I think most of the organized money on Oʻahu trying to tell us how to run Maui County, fundamentally misunderstands the affordable housing market here and our property tax system.”

According to Williams, the Cost of Government Commission approved a final report on Property Tax Reform after three years of work.

“The basic analysis it has is that Maui County is the wealthiest municipality in the country if you measure wealth by the amount of taxable assessed value that the county has at its disposal, and almost all of that assessed wealth is in visitor accommodations. And if you raise property taxes on visitor accommodations, they’re almost all going to be paid by tourists, not by residents. So that’s the fundamental misunderstanding of how the property tax system in Maui County works.”

The “misunderstanding: about affordable housing, Williams said, “… is that if we let the market control housing prices here, and let developers build whatever the market will allow them to build, our residents are not going to be able to afford housing. The price of housing is way out of reach for residents. The only way we can have affordable housing is to fence it off and make it available only to residents.”

In speaking about Pulelehua, Williams said:

“We were pleased to be able to offer our official support to the project because the number of affordable homes was increased beyond what the law required, and because it was the first project to agree to affordability in perpetuity through a managed appreciation feature.”

Michael Williams, President – Maui Tomorrow Foundation , Chair – Cost of Government Commission

Williams said he supports this additional change in the project because:

  • It agrees to use the new Maui County residential preference policy under the single waitlist bill that that he said the administration is slowly implementing.
  • “It also is cheaper,” said Williams.

“The Lahaina Crossroads project–you just agreed to pay up to $11 million for 20 units. Here you’re getting 60 units immediately for $18 million. Plus, you’re going to reduce our reliance on injection wells. It’s a model for how to recycle wastewater. This has many, many good things about it and Maui Tomorrow totally supports this project and this subsidy,” said Williams.

Developer agrees to limited profit of no more than 10%

Pulelehua development, Mahinahina Hills (Phase 1) community benefit highlights. Presentation by Paul Cheng (10.19.22)

Paul Cheng with Maui Oceanview Development LP and developer of the Pulelehua project said he would be limiting his profit to no more than 10%. He also dropped home sales prices for affordable units by about 22% as recently legislated in Bill 107.

According to Cheng, it costs $600,000 on average to build a unit, and he’ll get about $300,000 from the sale. The $18 million subsidy, he said, will help to fund the gap expenses for construction, including paint, walls, roofing and the foundation.

“It doesn’t go into my pocket,” Cheng said, noting that his profit would be about $3 million to $4 million on the entire project, according to information he provided during questioning by council members.

Pulelehua development, Mahinahina Hills (Phase 1) Bill 152 – use of funds. Presentation by Paul Cheng (10.19.22)

Cheng noted that the project is shovel ready and could break ground within the quarter. In his presentation before the council on Wednesday, he said housing wound be part of the managed appreciation model, allowing homes to remain affordable for the long-term. There would also be a policy in place, giving preference to residents first.

$1.6 million in down-payment assistance for first-time homebuyers is part of 2019 settlement

Cheng also pledged $1.6 million in down-payment assistance for first-time homebuyers wanting to purchase affordable housing in West Maui. Assistance is not limited to homes in Pulelehua and include housing opportunities under the Department of Hawaiian Homelands, according to an earlier press release issued by the County of Maui.

Under a settlement agreement dated Nov. 8, 2019, Maui Oceanview Development agreed to pay $1.6 million to the West Maui Revolving Housing Trust, and put The West Maui Preservation Association in charge of establishing that trust.

The trust is designed to lend portions of down payments in loan grants to assist long-term West Maui residents and other Native Hawaiians in purchasing affordable homes located in West Maui.

The agreement was reached as a compromise after the number of affordable units was reduced significantly over the years. In addition to the revolving fund, other areas outlined included design elements, transportation matters, HOA fees, solicitation of Maui based contractors, wastewater matters, financing of a public elementary school, and affordable housing.

Over the last year, Cheng said he has interviewed more than 70 contractors with “bids on everything down to the screw.” “We know who we’re going to pick. We are ready,” said Cheng when asked when the project could begin.

Another money allocation in the agreement called for a $100,000 one-time payment to a community group to advocate for and facilitate the relocation of the Honoapi’ilani Highway between the “Pali” and Olowalu Town, away from the shoreline.

The downpayment assistance fund being developed for the project will not come from subsidy, according to Cheng. It is private money that Cheng said he can fund it today.

“I’m looking for legal advice on how to create this trust. I’m hoping it will be a revolver, like if somebody got the assistance, they can pay it back when they sell their unit. Then the fund would grow again. Then it can be used for the next generation of buyers, or the next round of buyers,” said Cheng.

Required infrastructure list includes 30 items

Home features of the project include a single story design, direct access parking, individually air conditioned, tile flooring, and energy efficient appliances and windows. Community amenities include BBQ stations, pocket parks, walking and bike trails, and more than 100 acres of open space.

“Pulelehua is probably one of the most beautiful locations for housing on the island. It has an unobstructed view of the ocean, the hillside, it looks over the rooftop of everything below the highway; however, it has very, very little infrastructure,” said Cheng.

“There are 30 items here that I have to pay for, design and build. It’s a staggering amount of infrastructure. For those people who try to compare one project to another, one unit to another, every project [and] every location is very, very different; and in the case of Pulelehua, as wonderful a location as it is, it has a tremendous amount of needs for infrastructure.”

– Paul Cheng, Developer – Pulelehua

Pulelehua development, required infrastructure. Presentation by Paul Cheng (10.19.22)

“From no sewer, no water, to roadways that [we] have to pave. For example, the roadway impact fee, that’s $4.5 million we have to pay the Department of Transportation just to access the Honoapiʻilani Highway. We have to run a mile-long sewer line to the county plant,” said Cheng. The project also accommodates the neighboring DHHL property by oversizing the pipe so they can use it someday.

According to Cheng, each of the infrastructure items has a substantial cost. “When someone asks, ‘What are you going to do with the funds?’… Well, part of that is going to be the set up costs–just to have the project be ready for building and occupancy,” he said.

Paltin: Shovel-ready provides opportunity for building affordable first

Councilmember Tamara Paltin said that by agreeing to this deal, more affordable housing can be built at the onset.

“What we’re doing by doing this deal is, if we can get all the affordable [housing] in the first phase, we don’t have to have some market and some affordable. So that’s the benefit to our community is all of these affordable [homes] being done in the first phase, and not affordable market, affordable market, with the market being able to subsidize the affordable.”

Paltin, who holds the West Maui council seat also addressed the benefits of moving the project forward: “I do want to do this over and over, and over, and over again–until we expend all of the affordable housing fund money. That’s what the affordable housing money is for–to build affordable housing… We’ve got a shovel ready project here. It has all of its entitlements. It’s supported by the community. Those are the projects we need to move forward.”

“Why do we keep talking to people that want to change the zoning, and do this and that, when we have fully entitled properties that haven’t been moved on. That’s why the comparison is to Waikapū Country Town. It got its entitlements. It got its change in zoning. It is supported by the community. Let’s work with these people instead of going on and entitling more and more and more properties that won’t ever get built.”

Tamara Paltin, Councilmember – West Maui

“We have the money. We want to repeat this for fully entitled shovel ready properties. It’s not about we like one guy, or we don’t like one guy, or the controversy or whatever. I mean, there are NIMBYs for this project too, but we need the housing so badly.

Paltin noted that Pulelehua did not receive exemptions or credits like Kuikahi; and Kuikahi is not affordable in perpetuity. “Each of these things, when you compare projects, you’ve got to compare what did one project get, what did another project not get, and the dollar value on each,” said Paltin. “What we’re doing is the best that we can and evening it out… If you take into account the big picture, we’re doing good and the rubber is meeting the road.”

Cheng: No subsidy would result in longer build

Councilmember Yuki Lei Sugimura asked Cheng that if he did not get this money, what would happen to the project. He responded:

“It would take much longer to build out because I would have to build a lot of market rate units to justify the cost differential. Recently with the increase of inflation, it’s been getting more and more difficult. Prices of $600,000 are actually old data. It’s last year’s numbers. If you look at some of the ones that are going on now, they are like $800,000 now, and rising rapidly. It’s just completely out of control,” said Cheng.

“So the faster we get this done, the better it is. If I had all the money in the world, I’d build the entire project on Day 1, because I know it will be 30-50% higher in year five, and no amount of subsidy would cover it.”

– Paul Cheng, Developer – Pulelehua

$58M allocated annually to Maui’s Affordable Housing Fund

The administration has been looking at different ways of providing affordable housing or move affordable housing forward for residents and Maui’s workforce, according to Budget Director Michelle Yoshimura.

“We tried to be creative. We did a public-private partnership with Waikapū Country Town… We did units for Nā Hale o Maui,” said Yoshimura, noting that $2 million was provided for six units. That translates to about $333,000 per unit that received a county subsidy.

“We also did agreements with the hospital foundation and Nā Hale for lots over in the Fairways at Maui Lani. Those lots average about $300,000 each. Those would provide housing for our workforce, our professionals. And then we recently just did a request for $11 million from the Affordable Housing Fund for 20 units to acquire [Lahaina] Crossroads which was saved by residents getting booted out from their apartment,” said Yoshimura.

Now, with Pulelehua, the proposal called for $18 million for 60 units to move the project forward. “This will provide… much needed housing for our workforce. I’m hoping that the council will see the value in the funding,” she said.

If the $58 million allocated annually to the Affordable Housing Fund is not used, Yoshimura said it just gets accumulated. “If we’re going to put money into a fund, I’m not sure if there’s going to be a negative impact to our bond rating… but at some point we are going to be questioned why do we keep raising taxes and putting monies into a fund that we don’t use it for the purpose that it is intended,” she said.

Testifiers encouraged by affordability

Nāpili resident Junya Nakoa said, “I wanted to come here personally to let you guys know how serious us outsiders looking at this system.” In his testimony, Nakoa said Lahaina people felt cheated by Kāʻanapali 2020. “I’ve been saying to do the affordable first for many years,” he testified.

Resident Autumn Ness testified as a housing advocate in favor of the project. “I am in full support of this item and I want to clarify that many of us do hope that this is the model for affordable housing projects going forward… Look at Waikapū Country Town… that’s moving forward because of a public-private partnership.”

“I got involved in the Pulelehua conversation around 2019, working with Mr. Cheng and Kai Nishiki on language that would keep these units affordable long-term… we dreamed then about using this project as a vehicle to solve other affordable housing problems too, like local preferences and better affordability, and as this project matured, we realized that Mr. Cheng was open to being a solution for all of these things,” said Ness.

“As a government and corruption watchdog, and someone who is skeptical of every developer asking for money, this thrills me that the whole thing includes an open books policy and a 10% profit gap. In just about every project I’ve always wondered: you’re asking for affordable housing, but how much are you making on this deal? And nobody has ever answered that question. The public is so beaten down by false housing promises that they’re even hesitant to believe that Bills 111 and 107 are real.”

– Autumn Ness, Maui resident

Concluding thoughts:

“Having real, livable units on the ground now, as soon as possible, as many as possible is the only way to provide housing for the people,” said Cheng.

“Maui is lucky. Maui has revenue. Other islands have no revenue–they can’t do it, and you have perpetual poverty–it’s terrible. I’m just a little instrument for you guys. I’ll hammer it out, I’ll build it out, I’ll paint it out–I’m not going to make a whole lot of money, but whatever, it’s fine. You know, you guys got to get these units in the ground now,” said Cheng.

Cheng said the process of obtaining permits is about 80% done, and he anticipates completion of the review in about four weeks. He said buildout of Phase 1 will likely take 2-2.25 years to complete.

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