Will affordable housing guidelines change in 2020?
This is a common question I get from buyers that frequent Kakaako.com and we're going to fill you in on everything you need to know for 2020. First off we need to familiarize ourselves with some of the new changes coming to the affordable housing and reserved housing rules in 2020. The big change on the affordable housing side is the designated term that the unit must remain an affordable housing before it can be sold at market value.
Looking at the two most recent projects that have launched Kapiolani Residence and The Central Ala Moana, we saw a 10 year designated term. This means purchasers have to live in the unit for the duration of the 10 years before they can rent the unit out or sell it at market value. Of course, owners have the right to sell at anytime but if it's within the 10 year term it'll be at a lower predetermined value. This rule is in place so that owners aren't flipping their units for big profits over the short term, which is not the intent of the program.
In 2020 we will see this 10 year term extended to 30 years for some projects. Yes, 30 years! This is not for all projects but the ones that are coming up on the radar to launch in 2020 will have a 30 year term. That may seem like a long time but we have to address the affordability of real estate here in Honolulu and keeping units in the affordable housing program for a longer period of time is one step in the right direction. Projects like Ililani that launched in 2019 will keep their 10 year designated term.
On the reserved housing side of things, we've previously seen 2 year and 5 year designated terms at condos like Ke Kilohana and Aalii. I think moving forward we're going to see this extending to a much longer term as well.
One of the stipulations of purchasing a reserved housing unit is that the applicant cannot have previously owned any real estate interest. With the new 2018 reserved housing rules a current reserved housing owner can apply to purchase a unit in a new condo project provided the unit they're applying for is larger than the current unit. So you're in luck if you've already purchased a one bedroom and you're looking for a larger unit in one of the newer buildings launching in 2020.
The qualification AMI is still 140% of the area median income.
Let's take a look at the Honolulu affordable housing requirements. Affordable housing in Honolulu is certainly in short supply. When developers offer them for sale, often because they are required to by state law, hundreds and often thousands apply for the very limited supply. The Ala Moana neighborhood will go through a high-rise boom over the next five years where we could see four or five residential towers along with some rentals and possibly even a condo-hotel. Each of these projects will offer some sort of Affordable Housing whether it be in the form of rentals or for sale units. Some of the projects with affordable housing coming on the market can be found on the right side sidebar.
To be clear, the affordable housing program is not the same as the reserved housing program that you may be familiar with. The reserved housing program is overseen by the HCDA which is another government agency that oversees all development in the Kakaako neighborhood. They have some similar eligibility requirements but the programs are different.
To see if you're qualified, take a look at some of the FAQs for affordable housing below.
What is HHFDC?
The HHFDC or Hawaii Housing Finance and Development Corporation is the agency that oversees all of the affordable housing in Hawaii. They also oversee the financing and development of the actual affordable housing units as well.
What are the benefits of HHFDC's Affordable Housing?
- The program allows eligible and qualified applicants to purchase below market pricing
- The opportunity to own and live in a new construction project in town
What are the income limits for Affordable Housing?
This questions differs from project to project. Many of the HCDA projects in Kakaako will have a 140% AMI restriction with the HHFDC projects in the Midtown Ala Moana area having a 120% AMI restriction. Yes, this means you can make more money in the Kakaako area than the Midtown area. See below for 2019 AMI for the Honolulu area. Find your household size at the top of the chart. Please be aware that some, not all, affordable housing projects have a minimum income requirement.
Are you eligible for Affordable Housing?
This is a loaded question and one not easily answered. There are various components that go into determining a buyer's eligibility status as well as understanding if the developer has any specific requirements for their building.
Ultimately it's at the discretion of the HHFDC to determine one's eligibility. Some of the basic requirements are:
- U.S. citizen of permanent resident alien with a valid government issued ID.
- At least 18 yeas old.
- Resident of the State of Hawaii and currently residing in the State of Hawaii.
- Shall physically occupy the unit.
- Does not own a majority interest in a fee simple or leasehold property anywhere in the world.
- Has sufficient gross income to qualify for a loan to finance the purchase of a unit.
One example of developers introducing their own requirements beyond what the HHFDC requires happened recently with Korean developer Sam Koo's two Honolulu Projects, Kapiolani Residence and The Central Ala Moana. With Kapiolani Residence (his first project) as long as you made under the maximum income you were eligible. With The Central Ala Moana you had to be under the maximum income, but also over a minimum income requirement. This eliminated a lot of buyers who are getting help from a family member because if you didn't make a certain amount of money, you couldn't purchase regardless of how much help you could get.
What is the deposit required?
Some projects are 10%, while others only require 5%. Please keep in mind this is only what the developer requires, your loan officer may require a larger downpayment in order to secure a loan. For the project Ililani, only 5% downpayment is required.
What is the buyback program?
The buyback program is one of two programs that are imposed on all new HHFDC sponsored projects. In short, the program requires the owner to occupy the unit as their primary residence for 10 years or the duration of the program. The buyback program allows the HHFDC the first right to purchase the unit back in the event the owner no longer can occupy the unit or chooses to sell or transfer unit in the first 10 years of ownership. At the end of the 10 year period, the buyback program goes away.
If you decide to sell the property within the first 10 years you will get 1% appreciation plus any improvements that you've done to the property.
Please keep in mind that not every project has a 10 year buy back restriction. Some projects can be much longer like Sky Ala Moana which I've heard will be 30 years.
What is the SAE program?
The SAE program or Shared Appreciation Program is designed to help fund future HHFDC affordable housing projects. The affordable housing program is providing you the opportunity to purchase a unit at below market prices and to help perpetuate the program, a percentage of your profit will be returned back to the state when you sell.
The sale of your property can only take place after the 10 year buy back period is over. If you're selling within the first 10 years the SAE program does not apply.
The SAE percentage is calculated prior to closing and doesn't ever change. The SAE is due when the unit is sold, transferred, or rented.
How is the SAE amount calculated?
Original fair market value (determined by HHFDC's appraisal prior to closing) minus the purchase price, divided by original fair market value, rounded to the nearest 1%.
$500,000 (Original Fair Market Value) minus $400,000 (Purchase Price) equals $100,000.
$100,000 divided by $500,000 equals 20%
20% is the SAE percentage when you sell. So regardless of what you sell for you'll pay 20% of your appreciation to the HHFDC.
So let's say you purchase an affordable housing unit and your SAE percentage is 20%. After you live in the unit for the entirety of the designated term you decide to sell it. The unit is now worth $800,000 and you initially paid $400,000. Your gain is $400,000 which will be subject to the 20% shared appreciation.
Here are the projects you should be considering:
Keeaumoku Towers - Launching in the fall of 2020 (maybe later)
Ililani Condo - Currently selling
Sky Ala Moana - Launching in Summer/Fall of 2020 (maybe later)
If you're interested in applying for an affordable housing unit, before you start doing research into what's available and anything about specific condos, I would reach out to a loan officer. Having a deep understanding of your financial situation will determine the best way to move forward on these projects. Perhaps you need to save a little more or that raise you're about to take will push you over the maximum income limit. Having a plan and being prepared will make this entire buying process less stressful and more enjoyable.
Need a loan officer recommendation? Reach out to me and I'd be happy to put you in touch with one!
Contact me if you have any questions.