Hawai'i Community Development Authority

At a meeting of a state body charged with economic development and affordable housing, a developer told officials about a problem.

Gentry Homes is building a 390-unit development, a mix of single-family homes and townhouses, in Kalaeloa on Oʻahu’s West Side. Under state rules, at least 20% of the development’s square footage must be reserved for affordable units. They’re priced lower and available only to buyers whose incomes are below a certain threshold.

The problem, Andrew Kamikawa of Gentry Homes told a Hawaiʻi Community Development Authority board, is that affordable units at Kaʻulu by Gentry are selling about half as quickly as market-rate units, and that’s slowing down the whole project.

The reason, Kamikawa said, is that market-rate units are priced too close to the affordable ones — or “reserved” units, in the development authority’s parlance. Though prices vary by unit, a market-rate, three-bedroom townhouse is listed for about $750,000; a smaller, three-bedroom affordable unit is about $685,000.

Kamikawa said buyers are choosing market-rate units rather than the affordable ones, which require that they live there and don’t sell for five years.

The solution? Raise the price of market-rate units in upcoming phases of the development. The hope, Kamikawa said, is that this “makes the reserved units more desirable” in comparison.

The company’s plan shows the peculiar math of affordable housing in Hawaiʻi, where even housing designated as affordable is out of reach for many people, yet developers say they lose money building them.

The Hawaiʻi Community Development Authority, which has jurisdiction over the development in Kalaeloa, requires Gentry to reserve its affordable housing for people making no more than 140% of Honolulu’s median income, which is about $118,000 for an individual and about $168,000 for a family of four. Those buyers can’t have more than 135% of their annual income in assets and can’t have owned a residential property in the past three years.

Affordable units are priced lower, with the exact amount set by Gentry and approved by HCDA. Those units require a downpayment of just $1,500, far less than the 10% or 20% often required by mortgage lenders.

But a buyer who puts little money down has higher monthly payments, made even higher by a rise in mortgage rates in the past few years. To get one of those affordable units, a buyer must be in a sweet spot financially: Their income must be low enough to qualify for an affordable unit but be high enough for a bank to approve a loan.

Often it’s just too much. “Even if they can qualify, the payment itself is not comfortable,” said Kelly Tasaki, a manager at the mortgage lending firm CMG Financial.

Developers, meanwhile, say the restrictions on affordable units make them less appealing than market-rate ones because some people aren’t ready to commit to staying there for years.

The affordable units at Ka’ulu by Gentry aren’t heavily discounted. Three-bedroom affordable homes in the next phase of construction will be listed for $15,000 less than their $700,000 appraised value, according to a price list Gentry provided to the housing authority. Two-bedroom units will sell for $10,000 less: $610,000 compared to appraised values of $620,000.

The price per square foot is actually higher for affordable units than it is for larger, market-rate units with the same number of bedrooms, according to real estate listings reviewed by Civil Beat.

A three-bedroom, 1,080-square foot home designated as affordable costs $634 per square foot, versus $627 per square foot for a three-bedroom, 1,194-square foot, market-rate home. Two-bedroom units in the next construction phase will cost $695 per square foot, according to Gentry’s price list.

Lee Wang, an affordable housing real estate agent and the executive director of Housing Hawaiʻi’s Future, said that doesn’t make sense. “The affordable unit in no circumstance should be higher in price per square foot, because it comes with additional restrictions,” he said.

Kamikawa told Civil Beat that the larger, market-rate units are more economical to build.

State Builds Infrastructure To Lure Developers

HCDA was formed in 1976 to rejuvenate Kakaʻako, an industrial district in a prime location in Honolulu. Now Kakaʻako is a hip neighborhood with a Whole Foods, a climbing gym and pubs hosting trivia nights.

HCDA has since picked up other locations around Oʻahu, including Kalaeloa. The site of a naval air base from 1942 until 1999, Kalaeloa has gradually been transferred to the state and city as part of the military’s Base Realignment And Closure program. HCDA is now tasked with turning the area into a thriving community.

The agency attracts developers by agreeing to build infrastructure like roads that developers would normally have to build into the cost of of a large project. In return, developers agree to the affordable housing requirement.

HCDA takes a stake in each of those affordable units. When the initial buyer of an affordable unit eventually sells, they must pay HCDA the difference between the original appraisal and the original sale price. In Ka’ulu by Gentry, that means the state will receive $10,000 to $35,000 whenever the initial buyers sell, depending on the unit and the project phase during which the unit was built.

Slow Sales Delay Further Construction

Kamikawa came before the HCDA board this month to get its approval for what Gentry plans to charge for affordable units in the next phase of the development.

In a document summarizing the plan, Ryan Tam, the authority’s director of planning & development, wrote that the homes will be priced well below the maximum allowed by the state. For a two-bedroom unit, the state’s rules say that a unit can be priced as high as $710,000 for a buyer at the income limit set by the state. Depending on the layout, a three-bedroom could be priced as high as $742,000.

Tam noted that the appraised value of the homes in the next phase of the development have fallen. The latest appraisals are $620,000 for a two-bedroom and $700,000 for a three-bedroom, down from $645,000 and $715,000 for the prior phase. Even so, “the proposed prices for the Increment 3 reserved housing units will be unchanged,” Tam wrote.

Board members Mary Alice Evans and Tim Streitz and HCDA Executive Director Craig Nakamoto questioned the logic of raising the market-rate units to make affordable units more attractive. “Is there a reason why you couldn’t offer the reserved housing at a lower price range?” Evans asked in the meeting.

Kamikawa replied that Gentry is already losing money on its affordable units.

So far, 11 of the 25 affordable units in the first two phases have been sold or are under contract, according to the document Tam prepared for the board.

The slow pace is holding up construction for the rest of the project, Kamikawa said. The development was supposed to be complete by 2026, but that’s been pushed back a year or two. “We don’t have the financial means to keep building if we have standing inventory,” he told Civil Beat in an interview.

Gentry tends to raise its market-rate prices by a few thousand dollars for each phase of construction, Kamikawa said. Still, he acknowledged there’s a limit to how high the prices can get before people can’t afford them.

Part of the problem at Ka’ulu is that it’s not centrally located like Kaka’ako. Kalaeloa is about an hour’s drive from downtown during rush hour.

“People are just willing to pay a lot more to live in Kakaʻako than they are willing to pay to live in Kalaeloa right now,” HCDA board member Trey Gordner said.

The state’s affordable housing benchmark, however, is the same in both neighborhoods. That means the price of affordable units is similar, too.

“The program works out kind of weird in cases like this,” Gordner said. “It works out a lot more cleanly in somewhere like Kakaʻako.”

Honolulu Drops Debt Limit For Buyers

Kaʻulu isn’t the only development where affordable units have sat empty. In fall 2023, more than a year after sales began, highrises Sky Ala Moana and The Park on Keʻeaumoku had sold only about 13% of their affordable units.

Developers said that was because of a city restriction designed to prevent buyers from paying too much of their income towards housing. That rule said housing costs — mortgage payment, mortgage insurance, property insurance and taxes — could not exceed 33% of their income.

While well-intentioned, developers said that rule meant few interested buyers were eligible for the units. The city revised that rule in the beginning of 2025; now there’s no debt-to-income limit.

But sales of affordable units are still slow. Sky Ala Moana has sold about 30% of its affordable units, according to JL Capital’s vice president of sales and development Mark Berkowitz. He believes that’s due to high interest rates and the city’s requirement that owners occupy the property for up to 30 years.

Doug Shanefield, director of sales for the Park on Keʻeaumoku, didn’t respond Tuesday to a request for comment.