Lessons from an in-person conversation with Hawaii State Senator Stanley Chang. This special edition post is based on my discussion with Sen. Chang at his Honolulu office on January 16, 2023. We discussed his unique affordable homeownership policy that created the ALOHA Homes program and the inspiration behind it. I’m grateful to Sen. Chang for meeting with me to share about his in-depth housing research, creative policy platform, and perspective as a Hawaii legislator. I’m deeply inspired by his innovative example of applying proven affordable housing strategies to state policy.
My key takeaways from Sen. Chang:
- Other countries have cost-neutral models for developing affordable housing where revenues from housing residents cover housing expenses, unlike the affordable housing model in the US that relies heavily on subsidies and tax credits, making it relatively expensive for taxpayers.
- The US’s income limitations for affordable housing residents has segregated poverty and, inevitably, created harsh stigmas against affordable housing. Countries without income limits have widely accepted, and even celebrated, affordable housing programs.
- Hawaii is well-suited to borrow from Singapore’s affordable homeownership model due, in part, to its relatively similar geography and population size. (See Singapore post for more detail about Singapore’s model.)
What is Sen. Chang’s Affordable, Locally Owned Homes for All (ALOHA) Homes program?
Sen. Chang’s ALOHA Homes policies create affordable homeownership opportunities for Hawaii state residents, modeled after affordable homeownership developed and managed by Singapore’s government. ALOHA Homes is designed to be a self-sustaining model for affordable housing that is unique in the US. This innovative ALOHA Homes legislation includes the key components outlined in Table 1 below.
| Table 1 | |
| ALOHA Homes policy | Why this matters |
| Senate Bill 2583: This policy allows Hawaii Housing Finance & Development Corporation (HHFDC), the state’s housing development agency, to build 99-year leasehold condos. Through this policy, HHFDC is exempt from the State’s 65-year maximum public land requirement that otherwise applies to State-level housing development. | Offering a 99-year leasehold to a resident effectively provides them with permanent affordable housing based on a typical human lifespan, providing a very stable housing option. |
| Senate Bill 2251: Public Housing Authorities typically build only income-restricted, federally regulated housing. Through this policy, the Hawaii Public Housing Authority (HPHA) can build housing that is not income restricted or federally regulated. | Income restrictions in public housing have segregated poverty and created stigmas against affordable housing. Removing this requirement will make ALOHA Homes accessible to more Hawaiians and engender public support. |
| Senate Bills 2583 and 2251, above, enable two key Hawaii state housing agencies to build 99-year leasehold condos akin to Singapore’s homeownership model. This is the primary aspect of the ALOHA Homes program that the agencies did not already have the authority to conduct. With the passage of these two bills, the agencies can enact the entire ALOHA Homes program. Further details about the program are below. | |
| Senate Bill 2456: Hawaii Public Housing Authority (HPHA) can offer 99-year leasehold condominium units. | As described above, a 99-year term effectively offers permanent housing. A leasehold rather than outright sale allows the State to maintain its public assets and revenue-neutral affordability model. |
| Senate Bill 2456: Eligible ALOHA Homes residents: -Hawaiian resident -Must not own any other real property -Must use the unit for owner-occupied residential use | This ensures that Hawaii residents, specifically, will benefit from this affordable homeownership as intended. |
| Senate Bill 2456: The leasehold will be priced to minimum levels necessary to ensure that the arrangement is revenue neutral for the relevant State/Counties. | This aligns with the cost-based model of affordable housing, which is a more financially sustainable and responsible model for affordability than the income-based model that is standard in the US. See below for more detail about the cost-based model. |
| Senate Bill 2456: HPHA has a right of first refusal if a resident chooses to sell their ALOHA Homes unit. | This ensures the longevity of ALOHA Homes through HPHA’s option to maintain its affordable assets. |
| Senate Bill 2456: The ALOHA Homes program has a revolving fund that collects all revenues for the ALOHA Homes programs. All revenues are used for ALOHA Homes purposes. | The revolving fund further ensures that the ALOHA Homes program is financially sustainable and responsible, following the cost-based model. |
Sen. Chang understands that the policy system is not designed to make changes quickly. This large-scale change to affordable homeownership has been met with resistance. There were challenges with various steps of the process to pass the relevant legislation. Engaging low-income communities about the benefits of the program, learning about and translating complicated financing and ownership structures that make these policies work, and setting up new frameworks for new agencies in departments within state government were all important and time-consuming steps.
Sen. Chang first proposed legislation to create the ALOHA Homes program in 2019, and key components (Senate Bills 2583 and 2251) passed in 2022, granting the authority to do income blind, revenue neutral 99 year leasehold housing to two state agencies, the Hawaii Housing Finance and Development Corporation (HHFDC) and the Hawaii Public Housing Authority (HPHA). The Hawaii State legislature also appropriated $10 million for HPHA to develop the first tower through ALOHA Homes. In 2023, the ALOHA Homes bill (SB 865) passed the Legislature and was signed by the Governor as Act 97. The bill authorizes one 99 year leasehold pilot project, to be built by a third state agency, the Hawaii Community Development Authority. Additionally, the University of Hawaii is pursuing revenue neutral, income blind housing at multiple sites, both for affiliated students/faculty and also for the general public.
What inspired Sen. Chang’s ALOHA Homes policy?
The confluence of cycles of inequality, prejudice associated with rental housing, and narrative of the “American Dream” motivated Sen. Chang to develop his affordable homeownership policy. Sen. Chang understood that local US jurisdictions couldn’t solve affordable housing issues just by cracking down on Airbnbs; the issue required policy innovation at a grander scale.
Sen. Chang’s ALOHA Homes housing policies are inspired by other countries that have successful and long-standing models for affordable housing. In particular, Singapore and Austria are acclaimed for providing affordable housing to large portions of their populations, made possible by creative federal-level housing financing strategies.
Rather than focusing on affordable rental housing, like most of the US affordable housing industry, Sen. Chang prioritized developing policies for affordable homeownership through ALOHA Homes. Singapore’s model for affordable homeownership on a national scale served as a primary inspiration. Convenient similarities between Hawaii and Singapore as small islands with some shared elements of Asian culture also supported the vision and messaging for Hawaii to borrow from Singapore’s example.
Before developing ALOHA Homes, Sen. Chang dedicated himself to conducting thorough research about how other countries have made their affordable housing programs successful for large portions of their populations. He traveled to various countries, like Singapore and Austria, to learn from local experts and visit relevant sites and better inform his perspective before drafting his own policies. For Sen. Chang, understanding what made affordable housing policy so successful elsewhere highlighted what was lacking with housing policy in the US. The ALOHA Homes program incorporates proven concepts about what makes affordable housing – affordable homeownership, in particular – scalable and sustainable.
Three primary components of ALOHA Homes that contrast with standard affordable housing in the US and were inspired by international housing models are described in more detail below. A comparison of policy strategy by country is summarized in Table 2.
The below narrative is informed by the Cost-based social rental housing in Europe publication and Singapore blog post.
- Eliminating eligibility restrictions for affordable housing residents. In Singapore, income restrictions end after residents move into their unit, allowing them to remain as residents even as their incomes change and grow over time. Additionally, there are no income restrictions for purchasers of resale public housing units. There are no income restrictions whatsoever in Denmark and Finland’s affordable housing. This allows for greater diversity within affordable housing buildings and neighborhoods and, critically, engenders an acceptance for affordable housing because so many citizens benefit from and choose to live in affordable housing. Comparatively, in the US, public housing with its income limits notoriously created segregated poverty and, along with it, stigmas against public housing and low-income groups. ALOHA Homes policy specifically removed the requirement for the HPHA to include income restrictions, allowing them to create affordable housing available to Hawaiian residents at any income level. In addition to resolving a key problem with historic public housing in the US, Sen. Chang believes this approach to housing is more aligned with American values.
- Financing affordable housing so that it covers its own costs, i.e. a cost-based model of financing. Countries like Austria, Denmark, and Finland that finance affordable housing projects without reliance on government subsidies have more sustainable and scalable financing models. They operate on a “cost-based model,” meaning that rents are set at prices that allow the affordable housing owner to meet their development costs and operating expenses. In the US, where affordable housing is “income-based,” meaning that rents are set based on what residents can afford, and only low income residents are eligible, rents do not cover expenses. Because of this, affordable housing owners and developers in the US rely greatly on taxpayer dollars in the form of rental subsidies and tax credits (primarily the Low Income Housing Tax Credit). Sen. Chang believes this inefficient use of taxpayer dollars can and should be revised to create more sustainable and effective affordable housing infrastructure using the cost-based model. Affordable homes created through ALOHA Homes will be priced using the cost-based model to ensure that resident payments cover HPHA and HHFDC’s costs, so the agencies will not have to rely on other significant subsidies. ALOHA Homes also created a revolving fund for revenues from residents that will be used for the program’s expenses to ensure program sustainability.
- Creating organizational structures that enhance investment in affordable housing. In Vienna, the majority of affordable housing is owned by Limited Profit Housing Associations (LPHAs). LPHAs can be structured as limited liability companies, public liability companies, or cooperatives, but all must meet the same legal requirements for providing affordable housing. One key LPHA policy outlines the requirement that LPHA housing is cost-based per the explanation in the (b) paragraph above; LPHAs do not have the option to charge rents at a particular building that would not cover the building’s planning, construction, financing, and management costs. This effectively requires that LPHA buildings are structured to be financially viable and self-sustaining in the long-term. In contrast, typical affordable housing in the US is owned and managed by non-profits who are not required, structured, or incentivized to develop self-sustaining buildings. While US non-profits are required to spend 5% of their excess revenues annually, there are no requirements dictating what that should be for. Non-profit funds can exit the affordable housing industry, contributing to the reliance on government subsidy. To create a more self-sustaining affordable housing model, ALOHA Homes intends to borrow from the LPHA organization structure over time.
| Table 2 | |||
| Country | Eligibility restrictions | Financing model | Organizational structure |
| ALOHA Homes | No income restrictions. See Table 1 for other eligibility requirements. | Cost-based model: leasehold rates will be set at levels to ensure the housing is revenue-neutral for the State/County. | State and County ownership. Goal to work toward Austria’s LPHA model. |
| US | Income restrictions throughout tenancy | Income-based model: rents are set based on what is affordable for residents, using federal Area Median Income calculations, even if it does not cover real costs for development and operations Development relies on complicated capital stacks with significant government funding from Low Income Housing Tax Credits (which is exchanged for equity) and subsidy from government sources | Non-profit housing owners are not required to spend excess revenues on housing-related projects |
| Singapore | Income restrictions end after residents move in on Day 1 Requirements related to age and marital status Strategies to ensure ethnic diversity among neighborhoods | Affordable homeownership model: national government Housing and Development Board (HDB) offers mortgages and takes income into account for affordability, offering grants to lower-income households. Homes are priced below market, in part because HBD acquires land at below-market prices. | National-level housing ownership and development through HDB |
| Austria | Income thresholds allow for approx. 80% of population to be eligible for tenancy Housing is not restricted to certain groups, though “needs” can be taken into consideration Tenants have right to live in units forever | Cost-based model: rents are set at rates that cover a limited-profit housing association’s (LHPA) development and operations costs. Therefore, LPHAs are self-sustaining over the long-term. Building maintenance funds are established as part of tenant payments LPHA profits must be used for reinvestment in housing, acting as a revolving fund | LPHAs are private enterprises with independent management boards. Their purpose is to construct and manage affordable housing, and they are required to abide by a cost-based model. |
| Denmark | No formal income restrictions, though there is a priority for the most in need Specialized housing available to elderly, people with disabilities, and youth | Cost-based model: rents are set annually at rates that cover the non-profit owner’s operating budget (including administration costs). Non-profit debt repayments are maintained annually at 2.8% rates to ensure predictability. Government repays higher interest to banks, if needed. Therefore, non-profit housing providers are self-sustaining over the long-term. Limitations on development costs per square foot ensure affordability Income-based elements: If tenants are unable to meet rent payments, local municipalities offer individual allowances that are largely refunded by the national government | Non-profit housing providers get permission for development from local municipalities, who also have oversight of their spending and budgets Tenants have a right to the majority of the seats on the management board for their building |
| Finland | No formal income restrictions, though there are local considerations related to need and income No monitoring of income after move-in to allow for long-term tenancy | Cost-based model: Tenants are charged rents up to amounts that cover costs of social housing provider. The provider can even out rents across their buildings. Non-profit debt repayments are maintained annually at 1.7% rates to ensure predictability. Government offers subsidies to repay at higher rates, if needed. Cost-based rent is required for 40 years, which is the time it takes to repay development loans and subsidies. Limitations for land prices ensure affordability Income-based elements: Rental subsidies are available for low-income tenants. Approx. 50% of social housing tenants receive a housing allowance and 1/7 receive a basic social assistance. | 75-80% of social housing is managed by a municipality-owned housing association rather than a non-profit housing association |