SB 612: RELATING TO RENT TO BUILD EQUITY.

A BILL FOR AN ACT

RELATING TO RENT TO BUILD EQUITY.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that the State's residents are facing a housing shortage.  It is estimated that Hawaii needs sixty-five thousand to eighty thousand new units to keep up with housing demand.  High demand and low supply result in housing prices that are simply too expensive for most local families.  As of September 2018, the median home price on Oahu was $810,000.

     The legislature also finds that long-term renters are even more disadvantaged.  As rents hit historic highs, families are forced to dedicate more of their monthly incomes to rent, which prohibits them from making investments in their futures, paying off debt, or saving for home ownership.  This is partially a result of Hawaii's development environment, in which renters have become increasingly disadvantaged while mainland and foreign developers siphon rental income or reap the profits of housing developments built with state benefits subsidized by state taxpayers.

     The legislature notes that although developers may build affordable rental properties to take advantage of certain exemptions under the law, these developers often subsequently sell their properties at market rates after the initial affordable rental period expires.  Families who had relied on affordable housing are then forced to find new housing accommodations, often without substantial savings or investments of their own.

     The legislature therefore believes that developers who use state incentives should be required to share a portion of their sale profits with affordable housing tenants.  Profit-sharing will facilitate the reinvestment of these profits in Hawaii's economy and enable local families to invest in their futures by building equity in homes of their own.

     Accordingly, the purpose of this Act is to require the Hawaii housing finance and development corporation to conduct a study on rent-to-build equity for existing and future state‑financed housing.

     SECTION 2.  (a)  The Hawaii housing finance and development corporation shall conduct a study on rent-to-build equity for existing and future state-financed housing. 

     (b)  The study shall include:

     (1)  The imposition of a conveyance tax, capital gains tax, or other tax on projects following the expiration of the affordability period;

     (2)  Requirements to pay for tenant assistance for any displaced tenants; and

     (3)  Other topics deemed relevant to determining rent‑to‑build equity on existing and future state‑financed housing.

     (c)  The Hawaii housing finance and development corporation shall submit a report of its findings and recommendations, including any proposed legislation, to the legislature no later than twenty days prior to the convening of the regular session of 2026.

     SECTION 3.  This Act shall take effect on July 1, 2050.

Report Title:

HHFDC; Rent-to-Build Equity; Study; Report

Description:

Requires the Hawaii Housing Finance and Development Corporation to conduct a study on rent-to-build equity for existing and future state-financed housing.  Requires a report to the Legislature.  Effective 7/1/2050.  (SD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

RELATING TO RENT TO BUILD EQUITY.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that the State's residents are facing a housing crisis.  It is estimated that Hawaii needs sixty-five thousand to eighty thousand new units to keep up with housing demand.  High demand and low supply result in housing prices that are simply too expensive for most local families.  As of September 2018, the median home price on Oahu was $810,000.

     The legislature also finds that long-term renters are even worse off.  As rents hit historic highs, families are forced to dedicate more of their monthly incomes to rent, which prohibits them from making investments in their futures, paying off debt, or saving for home ownership.  This is partially a result of Hawaii's development environment, in which renters have become increasingly disadvantaged while mainland and foreign developers siphon rental income or reap the profits of housing developments built with state benefits subsidized by state taxpayers.

     The legislature notes that although developers may build affordable rental properties to take advantage of certain exemptions under the law, these developers often subsequently sell their properties at market rates after the initial affordable rental period expires.  Families who had relied on affordable housing are then forced to find new housing accommodations, often without substantial savings or investments of their own.

     The legislature therefore believes that developers who use state incentives should be required to share a portion of their sale profits with affordable housing tenants.  Profit-sharing will facilitate the reinvestment of these profits in Hawaii's economy and enable local families to invest in their futures by building equity in homes of their own.

     Accordingly, the purpose of this Act is to require developers of housing projects that are exempt from certain laws to enter into profit-sharing agreements with the tenants of those properties.

     SECTION 2.  Chapter 201H, Hawaii Revised Statutes, is amended by adding a new section to part II to be appropriately designated and to read as follows:

     "§201H-     Rent-to-build equity requirement.  (a)  A developer that is:

     (1)  A qualified person or firm that is exempt from general excise taxes on a newly constructed project under section 201H-36; or

     (2)  An eligible developer or firm whose newly constructed project is a housing project that received any of the exemptions under section 201H-38,

shall enter into a rent-to-build equity agreement with each tenant of the project pursuant to subsection (b) for all units leased after January 1, 2026.

     (b)  A rent-to-build equity agreement shall require that if the developer sells the project, the developer shall pay the tenant a prorated share of twenty per cent of the sale price of the project, based on the number of years the tenant lived in the project.

     (c)  The board may adopt rules pursuant to chapter 91 to implement this section.

     (d)  This section shall apply prospectively and only to housing projects that are approved after July 1, 2025.  This section does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date."

     SECTION 3.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect on July 1, 2025.

Report Title:

Housing Development; Exempt Projects; Rent-to-Equity

Description:

Requires developers of housing projects that are exempt from certain laws to enter into profit-sharing agreements with the tenants of those properties.  Applies to new housing projects approved after July 1, 2025.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO. 474

Honolulu, Hawaii

RE:    S.B. No. 612

       S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Sir:

     Your Committee on Housing, to which was referred S.B. No. 612 entitled:

"A BILL FOR AN ACT RELATING TO RENT TO BUILD EQUITY,"

begs leave to report as follows:

     The purpose and intent of this measure is to require developers of new housing projects that are approved after July 1, 2025, and exempt from certain laws to enter into profit-sharing agreements with the tenants of those properties.

     Your Committee received testimony in support of this measure from three individuals.

     Your Committee received comments on this measure from the Hawaii Housing Finance and Development Corporation (HHFDC).

     Your Committee finds that developers of affordable housing who receive certain subsidies are only required to keep the units "affordable" for a specific period of time.  When the affordability commitment period ends, the developer can sell the units or project, realizing all the equity, or can rent the units that were once deemed "affordable" at market rates.  Accordingly, residents who relied on the affordability of those units are put at risk of being displaced if they cannot afford the market rent.  Furthermore, despite some tenants paying decades worth of rent to the developer, the developer solely realizes all the equity from any sale of the units or project.  This measure would therefore require developers of new housing projects to enter into an agreement with tenants that would allow the tenants to share in these profits in certain circumstances. 

     Your Committee notes the concerns raised in testimony that this measure may have the unintended consequence of exacerbating the State's housing shortage and potentially leading to developers being unable to cover rehabilitation costs.  Other options could be explored to disincentivize developers from selling their properties at market rates after the initial affordability commitment period ends.  Accordingly, amendments to this measure are necessary to address these concerns.

     Your Committee further finds that nearly fifteen thousand state-financed affordable housing units will expire by the year 2100.  As a result, the expiration on affordability will potentially displace these existing tenants.  Therefore, data from a study will allow the State to examine rent-to-build equity options to mitigate the impacts of expired affordable housing units.

     Accordingly, your Committee has amended this measure by:

     (1)  Deleting language that would have required HHFDC to establish a statutory rent-to-build equity requirement;

     (2)  Inserting language that requires HHFDC to conduct a study on rent-to-build equity for existing and future state financed housing, including additional options such as:

          (A)  The imposition of conveyance tax, capital gains tax, or other taxes on projects following the expiration of the affordability period; and

          (B)  Requirements to pay for tenant assistance for any displaced tenants;

     (3)  Requiring HHFDC to submit a report of its findings and recommendations, including any proposed legislation, to the Legislature no later than twenty days prior to the convening of the Regular Session of 2026;

     (4)  Inserting an effective date of July 1, 2050, to encourage further discussion;

     (5)  Amending section 1 to reflect its amended purpose; and

     (6)  Making technical, nonsubstantive amendments for the purposes of clarity and consistency.

     As affirmed by the record of votes of the members of your Committee on Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 612, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 612, S.D. 1, and be referred to your Committees on Commerce and Consumer Protection and Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Housing,