Editorial: Leasehold project needs more work

There’s a lot riding on a first-of-its-kind, 99-year leasehold condo tower the state wants built on land it owns at the corner of Ward Avenue and Kapiolani Boulevard. It needs to be both affordable and desirable to attract buyers, since the lease is finite, and in its very public location, people will be reminded of its outcomes daily. Further, the project is under close scrutiny as a potential model for multiple leasehold towers in the New Aloha Stadium Entertainment District.

In its first iteration, though, the project has faltered. Private developers chosen to plan and build the condos say their costs will be too high to make all the condos affordable, while Hawaii Community Development Authority administrators doubt that leasehold units offered at higher “market” prices than comparable fee-simple condos will sell at all.

That’s an unsatisfactory prognosis, all the way around — but going back to the drawing board is not defeat. The state can little afford to push a flawed or unattractive project through, then watch it flounder; better to use these stumbles as insights for a better, more viable model.

Hawaii Sen. Stanley Chang, who’s championed state-supported leasehold development in Honolulu for years, has offered one potential solution in Senate Bill 2061. It removes restrictions that could repel buyers even more than a 99-year lease — including life-of-lease restrictions on resales or owners renting out their units, and prohibitions against owners having other properties.

The changes seem reasonable; they compare favorably to rules imposed by Singapore, which houses about half of its 6 million people in leasehold towers built by the government. Singapore long imposed a mere five-year restriction on resales, but the restriction was lengthened to 10 years in 2024, after prices started to spike. SB 2061 would set the resale restriction at 10 years. Singapore also allows sub-letting, but only with approval by authorities, and income limits are applied to rentals and resales; these are stricter conditions than SB 2061 imposes.

If these changes can make the project pencil out, they should be adopted. In the process, however, legislators also need to take a hard look at all the assumptions made on costs and sale prices in predicting that leasehold homes will be a success — chief among them results of a Legislature-ordered study from 2021 and 2022 concluding that two-bedroom condos selling for $400,000 would be in high demand. Condos around that price would certainly be highly competitive with private projects that offer affordable housing in exchange for state incentives and subsidies. Can the state incorporate other methods to approach this price point? Perhaps the Legislature should consult with Department of Hawaiian Home Lands Director Kali Watson, whose mission is creating thousands of affordable homes for Hawaiians on 99-year leasehold sites.

One principal that most observers agree on is that when more condos are built, competition for this housing is reduced, and prices stabilize or even drop. The University of Hawaii Economic Research Organization reports that this can also cool the single-family home market when families opt for a lower-cost home.

Condos have long been a secondary option for Hawaii homeowners, but they’ve grown to be preferred by many residents. It’s not a stretch to see that adding leasehold condos to the mix — particularly affordable, attractive units poised to hold value — below-market value, that is — can reduce inflationary pressure on market-value condos and stand-alone homes.

There’s great demand for state-run leasehold condos in Singapore. The nation’s strategy of building en masse and encouraging ownership has transformed housing there.

On Oahu and in other parts of Hawaii where land is scarce and prices are off the charts, there’s good reason to believe that the more than half of Hawaii’s households who earn up to 140% of median income will value this alternative. Leasehold towers can be a valuable tool in Hawaii’s affordability playbook, if legislators hit the right balance between cost and benefits. SB 2061 is a good start at seeking that out.