“Something wrong here.”
That was the subject line of an email from a reader earlier this week.
He pointed to a story about the new condo at 801 South Street, on part of the site which formerly housed Honolulu’s two competing newspapers (“High-rise in Kakaako completed, owners set to move-in June“).
The story quoted Marcus and Sara Hayden, UH employees who had just closed on a unit in the building, their first experience with home ownership.
Here’s the final paragraph of the story.
Hayden also found out that the unit, which he bought for $414,000 with two parking stalls, was appraised by his lender at $480,000. Hayden and his wife expect to sell the unit in about 18 months or so to move into a larger unit in 801 South B that Sara Hayden contracted to buy before getting married. The neighboring tower is slated to be finished late next year.
The reader commented:
If people are already planning to sell their affordable priced condos at a profit before they even move in, it seems to defeat the whole concept of housing for the working people.
This wasn’t a criticism of the Haydens, but rather a question of policy.
Is this a problem for Kakaako’s few new “affordable” projects? Are there policies to limit speculation in affordable units? Perhaps someone else can fill us in.
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There are policies, but they are, uh, “flexible.”
It happened to me:
http://www.civilbeat.com/2011/02/9252-affordable-housing-shouldnt-be-sold-off/
Not gonna pull any punches here. Anybody who is already planning to re-sell their purchase in a mere 18 months at a profit is real estate flipping, pure and simple. For affordably priced units, there should a system setup whereby anything sold before a minimum time (say, 10 years) cannot be sold on the open market and can only be sold back to a govt. operated pool,… at the *same* purchase price. That way, the unit can be re-sold to another buyer eligible for an affordable home.
That’s the way my building started out, until Wall Street drove the mortgage market into the ground (making it difficult for those who need affordable units to buy one) and the developer could no longer easily sell units.
The HHFDC and City Council were all-too-willing to toss the restrictions on the remaining units. Except for those who bought in early, owners can flip units at my building now. Or rent them out.
A few inaccuracies in the comments here…
1. 801 South St used 100% private money to build it. No government money was used. Thus buyers can benefit from increases in the market, build and earn equity and move up the housing ladder making room for others.
2. Buyers take a market risk when purchasing the units. The market can crash just as easy as it can rise.
3. There is a severe inventory problem in Honolulu and purchasers of 801 South St are benefiting from it because the Developer left something on the table for them. The units are merely rising to what the market dictates they should be.
4. With #3 (above) said, the units at 801 South St will not appreciate higher than any of the newer buildings built in Kakaako built in the last 15 years due to their smaller (workforce housing) unit size.
Tania nailed it. This follows the same pattern as other projects developed by Marshall Hung et al. These units are smaller, lack luxury amenities (i.e. no pools and fitness centers), and do not have the resident services typical of luxury condos. When they do go on sale, their upside appreciation is limited by all of this. Some of these units will be purchased by investors who will rent them out. Here again, the smaller size and limited amenities will limit the rent that can be charges so they will be affordable as workforce rental housing which is also a underserved market.
simple solutions usually aren’t.
Convenient excuses, which totally misses my point.
An affordable housing unit may be built on 100% private capital, but it is classified and sold as affordable because the govt. required it of the developer as a condition to gain permits and approvals for the project as a whole.
So AFAIAC, it is totally immoral for any such affordable unit to to be flipped so quickly. It doesn’t matter about the size of the units. Studio or multi-bedroom, there are still many local residents who don’t own a home. Don’t we already have too many market-priced condos in Kakaako being snatched up by non-residents without having more of them being bought through greedy, opportunistic flippers?
Just because there is a risk of the condo market fluctuating doesn’t make flipping of affordable units any more ethical. They were not meant to be used as a quick turn investment tool. They are meant to help more locals to buy a home. Period.
selling a condo after you buy it, regardless of the situation is “immoral”?
thanks for letting us know, god.
“t” wrote:
“simple solutions usually aren’t.”
If you’re talking about my proposal, it can’t be anymore simple and straight-forward. What admittedly isn’t so simple would be generating the political will among lawmakers who are in the pocket of developers.
“selling a condo after you buy it, regardless of the situation is “immoral”?”
I didn’t say anything about “regardless of the situation.” What I actually said was, “it is totally immoral for any such affordable unit to to be flipped so quickly.”
Just say NO to beating up on strawmen.
“What I actually said was, “’it is totally immoral for any such affordable unit to to be flipped so quickly.’”
Is it more moral to perpetuate piously and stubbornly with requirements that will result in no affordable units getting built at all?
@Huh?; I don’t get your logic. Why would a law requiring affordable home applicants to at least hang onto their units (or otherwise sell it at the original price back to a govt. operated pool where it can be sold to a deserving applicant) result in “no affordable units getting built at all?” Explain that.
Gee. Didn’t think my proposal would cause some people to react so strongly. Something I said hit a little bit too close to home for those folks?
Let’s not conflate public policy with morality/market forces.
Honolulu has no public policy in place that will provide either affordable rentals or affordable purchased housing on into the future. The affordable rental deficit is so great, in tens of thousands of units depending on how it is sliced or to whom you speak, that it would take probably a couple of decades to close it even with a policy in place. The obstacles seem insurmountable in a political arena where developers pull the strings.
No one in government even wants to talk about rent control or rent stabilization, for example, or consider a regulatory regime that would keep affordable housing affordable over the long term (10 or 15 years is not long term). No, I haven’t spoken to everyone, I suppose, but I’ve spoken to a few.
Couple the absence of an adequate public policy with a politically disengage population, and I can’t see how the housing shortage could be easily solved. Except by out-migration, or by restoring the Kingdom.
A regulated unit or home cannot be flipped if the sale is required to be at the same price (as mentioned above). Taking a market risk should not be an issue, compared with closing the housing gap for the good of the citizens of the state. Clearly, it is not market-based housing that is needed. I cannot see any alternative to separating affordable housing from market forces at least as they are now. Note that food stamp budgets are shrinking due to acts of Congress on one hand, and Social Security is fixed for the recipient. So uncontrolled increases in rent or housing costs is untenable for many.
Nor, I think, do we want to construct an unending number of container-homes, a proposal currently circulating.
Absent regulation, what will stop the increase in housing costs, other than unplanned bubble bursts or crashing of the economy?
Affordable homes are already money losers without government subsidies. The more sales restrictions on the units, the more undesirable and discounted they become, the greater the difficulty to viably build.
Unless everyone you know is willing to provide a $100,000 tax subsidy to build each new affordable unit, the subsidy has to come from the market buyers, and there is a limit or else it would be easy for every builder who tries to profitably build affordable homes to do so at greater than market risk premiums.
The missing piece is that mortgage payments on affordable homes do not cover the construction loan when building costs $400 sq/ft. in Hawaii. That’s where the $100,000 subsidy from market buyers or your tax dollars come into play for each unit. What buyer (first time or flipper) would buy a second class home with sales restrictions when he can buy one without it? Your well-meaning sales restriction requirement just backfired.
It is a lot of fun to vent righteous anger about the government and politicians, especially if you haven’t done any research on what rules are actually in place.
For those who are interested in the facts about the regulations imposed by the City and County on resale of affordable units, consult the section on Restrictions on Transfer, Sale/Buyback, and Use in http://honoluludpp.org/Portals/0/pdfs/planning/AffordableHousing/AHRules2010.pdf .
Buyers purchasing affordable units under the City program are required to be owner/occupants.
If they want to sell the affordable unit before they have lived in it for ten years, they are required to first offer it to the City for buyback at the affordable rate.
If the City declines to purchase the unit, they then have to sell it to a “qualified buyer” at a price affordable to that buyer.
(A qualified buyer is somebody whose income is within the limits of the target income group that was supposed to be eligible to buy the affordable home that is now being offered for sale.)
Because of State law, the City Council has no authority to approve or deny projects in Kakaako, and has nothing to do with the regulations regarding affordable housing in that area.
The Hawaii Community Development Authority (HCDA) has control over affordable housing requirements in Kakaako. See http://dbedt.hawaii.gov/hcda/files/2013/02/Ch.-218-Kakaako-Reserved-Housing-Rules-EFF-2011-11-11.pdf
They have five year owner occupancy and shared appreciation requirements which are meant to discourage flipping of affordable units as described above.
The City has asked HCDA to adopt affordable housing regulations consistent with those of the City.
Larry, nobody may want to talk about rent control or rent stabilization programs because there is not a lot of evidence that those programs work.
However, there has been a lot of discussion of creating land trusts as a way of separating the value of land from the cost of housing. See http://www.lincolninst.edu/pubs/1011_Community-Land-Trusts–Leasing-Land-for-Affordable-Housing
And there is substantial evidence that communities that truly want to address the housing affordability issue for the working poor and the middle class do so by building subsidized affordable rental housing in sufficient quantity to meet the demand for such housing. For example, see the success Vienna and Singapore have had with such a strategy. http://www.shareable.net/blog/public-housing-works-lessons-from-vienna-and-singapore
Unfortunately, I would have to agree with you that no political leaders in Hawaii have been brave enough to bite that particular bullet, although there is evidence that it would be effective in reducing housing prices. When the City and the State were competing in developing housing at West Loch and East Kapolei, prices for market housing fell to such levels that it was difficult to find buyers willing to take on “affordable” units with their buy-back requirements.