Consultants urge phasing out excess credits, adding alternatives to boost affordable housing production

Consultant David Dozema of Kaiser Marston Associates on July 23 briefed the Hawaii County Communications, Reports and Council Oversight Committee on a comprehensive review of Chapter 11 of the Hawaii County Code, the county’s inclusionary housing policy.

Dozema summarized the report’s purpose: to test the feasibility of Chapter 11 requirements across representative project types and island locations, to analyze the county’s excess credit system and to compare Hawaii County with other island counties. He told the committee the county faces a broad shortage of housing—about 13,000 total units needed, with roughly 80% of the need for units up to 140% area median income (AMI)—and that Chapter 11 remains one of the county’s tools to produce affordability.

The consultant tested 12 representative projects across seven markets (Kailua‑Kona, South Kona, Kohala, Waikoloa Village, Waimea, Hilo, and Puna/Hamakua) and found that purchasing excess credits is often the lowest‑cost compliance option for market‑rate projects, while providing on‑site affordable units is more expensive and can render some projects marginal or infeasible depending on location and product type.

“Excess credits have been a very popular option, and because many were earned a decade or more ago, the bank of outstanding credits can allow new projects to avoid on‑site affordable production for years,” Dozema said, noting roughly 1,300 outstanding credits. He recommended a two‑step approach to address this: stop granting new credits immediately and, when credits are redeemed, prorate the remaining affordability term so the redeemed credit reflects how much affordable term remains.

Dozema urged the council to consider adding a lower‑cost in‑lieu fee alternative that generates funds the county can use to support affordable housing, to modify or eliminate finished‑lot compliance, to broaden the ordinance’s applicability beyond rezonings, to increase incentives (for example, larger density bonuses) and to provide more flexibility in required unit mixes so on‑site compliance is more attractive. He also suggested creating a local variant of the state’s 201H incentive program and identifying code changes—such as subdivision or permitting standards—that could reduce development costs.

Members asked about the legal and fiscal implications of phasing out excess credits. A deputy corporation counsel representative said legal issues (including potential takings claims) would need to be considered during legislative drafting and noted about 1,300 credits remain outstanding with market value. Council members asked whether inclusionary zoning can work in every market and whether transit‑oriented development, mixed‑use approaches and targeted local funding to leverage state or federal resources could be part of the solution. Several members praised the report and signaled interest in an ad‑hoc committee or further offline work.

Dozema told the committee that, if changes are made, the county should offer alternatives and incentives—otherwise, removing low‑cost compliance paths could constrain market‑rate development. He said an in‑lieu fee set below the cost of on‑site compliance but high enough to create a dedicated affordable housing fund would be one way to preserve development feasibility while directing funds toward production.