A $6.6 million federal grant to help increase the supply of affordable housing in Hawaii will be primarily used to design infrastructure for high-density residential areas on the neighbor islands, including around public housing on Maui and the Big Island.
The grant from the U.S. Department of Housing and Urban Development only scratches the surface of the cost of the infrastructure improvements identified in a proposal from the state Office of Planning and Sustainable Development. But the recipients are hopeful the funds can be leveraged to advance long-overdue upgrades.
“We have so much money that needs to be raised for infrastructure. But simultaneously, we need to find ways to streamline affordable housing development,” said Katia Balassiano of OPSD.
Balassiano said the office’s research showed that improving public infrastructure in key areas in the four counties would help unlock more affordable housing for low- and middle-income households.
OPSD and the governor’s office also intend to use grant money to analyze the need for a state infrastructure bank that could expeditiously provide loans for infrastructure improvements related to new development, including public housing.
Infrastructure banks can help accelerate development, experts say, but only if they are marketed effectively and the costs and time involved in accessing the funds are kept to a minimum.
Unlocking Potential
The grant is Hawaii’s portion of $85 million awarded by HUD to 21 states through the competitive PRO Housing program that originated in congressional legislation co-sponsored by Hawaii U.S. Sen. Brian Schatz. The grant does not require a dollar match.
The $6.6 million award falls short of the $10 million requested in October and the scope of Hawaii’s proposal will need to be scaled back, according to Scott Glenn, senior advisor to the governor on federal affairs, climate and housing. “How much will go to what is still being worked out with HUD,” Glenn said.
But OPSD intends to proceed with its plan to initiate infrastructure designs for three development bottlenecks identified in a study the agency completed last year, describing that as an “important incremental step” toward construction. These include wastewater upgrades in downtown Lihue and infrastructure improvements at the Kahekili Terrace Housing Project on Maui and the Kamakana Villages on Hawaii island.
A financing project related to the Transit Oriented Development Corridor in Iwilei on Oahu is likely on hold for now.
Balassiano said the office believed it would achieve the best returns from the federal grant by directing it toward areas with affordable housing projects that are already moving through the approval process and “we’re going to design the infrastructure that will create this affordable housing.”
The agency said the recommended investments in infrastructure and associated financing could result in 10,800 additional units statewide with most affordable to low- to moderate-income categories.
The HUD grant represents a fraction of the projected costs of improving infrastructure at the locations, OPSD’s analysis shows. The construction required in Lihue is estimated at $8 million, and the design alone will cost $800,000. The Kahekili Terrace infrastructure design will cost $500,000.
Redevelopment at Kamakana Villages in Kailua-Kona is currently stalled due to inadequate infrastructure and the required improvements are estimated to cost over $58 million. The work involves the construction of roads, wells, a reservoir and sewers and the agency had requested $6 million just for the infrastructure design, but that will now need to be revisited.
Improvements there would enable an additional 1,400 to 1,600 chiefly affordable units to be offered for sale and rent, OPSD estimates.
A planning project analyst and a planning coordinator will be recruited to manage the infrastructure design contracts and advise counties on revising zoning regulations and housing plans to cut the costs and timelines for affordable housing, Balassiano said. Effort in that last area is currently lacking.
New Sources Of Finance?
The HUD grant also will finance a contract to determine if the state should establish its first infrastructure bank — an alternative source of lower-cost gap financing for infrastructure projects that, in theory, would support larger-sale projects that could have regional or state impact.
Normally, SIBs make grants, offer discounted loans, issue bonds and become catalysts for other sources of capital including from private investors. Infrastructure banks have been around for decades and have traditionally been used to complement federal transportation loans.
The local version is in the early stages, Balassiano said, and the OPSD would be researching models operating in states like Rhode Island and Nevada. The purview of the Rhode Island Infrastructure Bank is broad and includes loans and grants that support brownfield remediation, roads and bridges, water infrastructure improvements and climate resilience. Hawaii would likely follow suit.
A state infrastructure bank would need to be integrated with programs already offered by the Green Infrastructure Authority and the Housing Finance and Development Corporation, Balassiano said, and the agency would take a couple of years to get up and running. “We’re not settled on one particular format yet,” she said.
One major decision would involve the source of capital for the fund. Funds from the state would provide the most flexibility. The cost of that investment is open-ended, but for comparison, the governor of Nevada initially capitalized its infrastructure bank with $75 million in state funds in 2022.
Drawing on seed money from the federal government allows the state to leverage federal transportation grants through the Transportation Infrastructure Finance and Innovation Act, Balassiano said. But federal funding can also come with constraints including onerous reporting requirements and obligations to follow federal contracting guidelines.
“What’s most likely to determine its effectiveness is whether there is strong communication between the developers, the local government entities responsible for infrastructure, and this new state entity,” said Adie Tomer, an expert on infrastructure at the Brookings Institution.
Keegan Flaherty, senior development associate with Ikenakea Development — the company behind Honolulu’s Chinatown Hotel project — said the company wasn’t aware of plans for a state infrastructure bank but would look into what the agency offered once it was operating.
Tomer said the state also needs to seriously weigh the potential administrative burden on the agency and the lendees. “Discounted rates — who doesn’t like that? Especially if it’s free capitalization from the federal government. But if accessing those funds is a massive administrative burden that effectively increases the borrowing rate.”
