HomeMy WebLinkAboutCOM 0072.008 2004-2006 Bethea, Skip
From: R.J. Kirchner (Paradise Appraisals) [rj1 @hawaii.rr.com]
Sent: Tuesday, January 25, 2005 4:07 PM
To: counciltestimony@co.hawaii.hi.us RE~YV~ T
Subject: Affordable Housing
Dear Council Members, tar®---•-"~=~OS~
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I have been a real estate appraiser in Hawaii now for 15 years. I have worked
with inner city development agencies in major metropolitan areas on the
mainland in trying to create housing for the poor. I have a great deal of training
and experience in housing economics.
Most politicians can recognize a complex problem such as the lack of affordable
housing when it arises. Its easy to see. Few can find a logical solution to such a
complex problem. Like most complex problems there are no easy answers. The
only easily recognizable point involved in housing economics is that the market
works on supply and demand. Increase the demand and decrease supply and
prices will rise sharply. Decrease demand and increase supply and prices will
fall.
The current proposed solutions of charging developers higher fees or forcing
them to develop more of the land they hold into less expensive housing, will only
result in developers building fewer homes. The developer is a business person
who needs to create a certain profit level to make the business run. If you
increase the costs of creating the product (higher government fees) or force the
developer to sell more of the product at a lower cost, you will take away the profit
motive needed to build homes or increase the cost of the product. Developers
create their product with investor money that is attracted to a high potential
return. If you reduce that return, you will reduce the number of investors willing to
risk money in housing. Housing market's price homes based upon supply and
demand. The reason prices have escalated so rapidly here is that supply has not
come close to keeping pace with demand. If we force developer's to pay higher
fees, we will only further restrict supply and further raise home prices.
A more reasonable approach might be to force developer's to set say 20% of
their development's size aside as land lease properties. This set aside must be
located within 10 miles of the original development. In exchange for creating
these areas the County will allow the developer to create higher density housing
(say 7,000 square foot site) with less infrastructure requirements (don't require
concrete curbs & sidewalks or underground electrical). Reduce the cost of the
roads and improvements and allow the developer to build more homes in the
space. In exchange the developer must lease the land for 50 years at no more
than 4% of the land value. Have the lease be made with regular 5% step ups in
rent every 5 years for the duration of the lease (all rents are set with no
renegotiation periods). By setting the rents in advance you will take the wild
gyrations of rents in the future out of the equation. At the end of the lease the
home owner should have the contracted right to purchase the land at its then
Comm. No. 7 2-
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market value. In this way a large portion of the overall up front purchase price
can stretched out over time reducing that price significantly and allowing many
more home buyers to get a home. The developers can still maintain their profit
levels and the home buyers can gain extra purchasing power by extending the
land portion of the purchase price over 50 years.
I hope this idea is helpful
Sincerely,
R. J. Kirchner SRA, CGA 275
Managing Partner
Paradise Appraisals LLC