Visitors to Sky Ala Moana’s website will notice a big sleek banner trumpeting the development’s recent news: “Sky Ala Moana West Sold Out.”

This means after years of construction – and countless pages of paperwork in order to qualify for city permit exemptions – Sky managed to sell its entire roster of market-rate units. 

But its affordable units are a far different story. Of the 84 affordable units in its east tower, only 14 have sold.

“That’s not success,” said Honolulu’s chief housing officer Denise Iseri-Matsubara. 

It’s a dynamic that may repeat itself in the coming years.

City officials are aiming to develop housing and businesses in areas around its upcoming rail stations as the rest of the Skyline project is completed. To accomplish this, officials are issuing permits on a case-by-case basis to development projects that fit certain criteria, including a dedicated number of affordable units.

Hard To Meet Criteria

The idea is to make sure these shiny new towers don’t just house the wealthy. But as the buildings go up, few people actually manage to purchase affordable units.

While people have shown interest and might have salaries low enough to qualify for affordable housing, those same salaries may be too low to prove they can make the monthly payments.

Affordable unit prices vary based on how much a buyer earns. The least expensive available at The Park on Keeaumoku is a fourth-floor studio that costs just below $350,000. It’s reserved for individuals who earn about $110,000 or less or for couples who make about $125,000 or less, both of which are 120% of the area median income.

Other affordable units, one-bedrooms above the 10th floor, cost almost $600,000 and are reserved for people who make 140% of the AMI. A neighboring market rate unit, also a one-bedroom, is about 120 square feet bigger and costs $772,000.

To tackle a housing crisis, the city is hoping to increase its supply of units by incentivizing developers to build more. That’s easier said than done.

In the case of affordable units not selling, some developers and mortgage lenders say it’s the city’s fault. 

Rules that regulate who qualifies for affordable units — a separate metric from AMI qualification — are overly restrictive, they say, with many prospective buyers failing to qualify.

Officials are now considering modifying those rules, a priority listed in the 2023 Housing Plan submitted by the mayor’s Office of Housing in early October.

“This is one of the initiatives that we’ve worked on, is taking a look at process and procedures,” said Iseri-Matsubara. “One of them is administrative rules within our own control that we maybe have to review and amend to better facilitate housing.”

‘They Had Literally No Success’

Two developments are among those most affected: Sky Ala Moana and The Park on Keeaumoku. Both are in Ala Moana and consist of two side-by-side towers. Both also cost about $500 million, Pacific Business News reported.

The buildings host amenities like pools, fitness centers and verdant pavilions, though residents of Sky Ala Moana’s affordable units are barred from accessing these amenities. This allows these residents to save on maintenance fees, said Mark Berkowitz, vice president of sales and development at JL Capital, the development group behind Sky Ala Moana.

Sky Ala Moana sits across the street from Ala Moana Center at 1388 Kapiolani Boulevard, while The Park on Keeaumoku is just a few blocks mauka of it at 825 Keeaumoku St. Both started selling their affordable units on Aug. 27, 2022.

Somebody who wants to buy an affordable unit in one of these buildings would first meet with a lending officer. But these lending officers have had to reject many prospective buyers. 

“Just from what I’m gathering from my team, it’s extremely frustrating,” said Tana Feeley, senior vice president of mortgage lending at Guaranteed Rate, an approved lender for The Park on Keeaumoku.

Housings sales metrics are complicated. Some say that demand is dampened by the city’s requirement to keep units affordable for a decade or more after initial sale, the argument being that a big appeal of homeownership is as a vehicle to build wealth. Some also point to current mortgage rates, which are the highest they’ve been in about 20 years.

But the overwhelming explanation, according to Feeley and others in positions like hers, is that the city requires a debt-to-income ratio of no more than 33% for buyers of affordable units. This ratio is too low for people who want to buy affordable units, they say. 

DTI is a measure of how much money somebody spends each month paying off debt compared to their income.

DTI ratios are used to avoid the nightmare scenario of sticking buyers with a monthly housing cost that eats up most of their income. A buyer with a DTI ratio of 75%, for example, would have little money left over for food, transportation or a decent quality of life – not to mention the high risk of defaulting on their mortgage loan.

But some lenders say it should be their job to determine what DTI is manageable and that new rules and focus since the 2008 financial crisis — which was spurred by mortgage lending run amok — make lending more disciplined than it once was.

There is no single ideal DTI ratio. That number varies depending on personal circumstances, said loan officers. 

San Diego’s affordable housing department limits total DTI, including credit card and car payments, to a maximum of 45%. The Consumer Financial Protection Bureau, a federal agency set up after rampant and often reckless mortgage approvals sparked the 2008 financial crisis, recommends a DTI of 36% or less. 

Honolulu’s 2023 Housing Plan, submitted Oct. 6, refers to the DTI ratio requirement as a major reason for why affordable units aren’t selling. It points out that some lenders allow DTI ratios up to 50%.

Prior to 2019, the city did not regulate specific DTI ratios at all, and state agencies like Hawaii Housing Finance and Development Corp. still do not regulate it.

Feeley said it’s hard to estimate exactly what fraction of prospective buyers end up qualifying for an affordable unit and emphasized that she can only speak for her institution. 

“I had one loan officer that says one out of ten,” she said. Another reported zero out of five; two former employees reported meeting with about five to 10 prospective buyers and relayed similar outcomes.

“They had literally no success as well,” Feeley said.

Spencer Lee works with people looking to purchase affordable units at Sky Ala Moana as part of his job as vice president and sales manager at Central Pacific Bank. He took note of the same phenomenon, saying that in his experience, only about one out of every 20 prospective buyers are financially qualified under the city’s DTI requirement.

“Nobody can meet a 33% debt-to-income ratio, because the payment is so high. Unless you put down a huge down payment” he said, adding that this would go against the spirit of affordability. 

City Considering Rule Changes

“We’ve had well over 500 people download the application and come in and request applications,” said Berkowitz at JL Capital, the development group behind Sky Ala Moana. 

Just 14 affordable units have been sold though, something that Berkowitz also chalks up to the DTI ratio requirement.

The Park is being developed by Nan Inc., and its vice president Wyeth Matsubara – no relation to Honolulu’s housing officer Denise Iseri-Matsubara – did not respond to a voicemail or email. 

Only 15 out of their 146 affordable units had been sold as of last month, according to what Iseri-Matsubara had heard from the development team. 

The current administrative rules were implemented by the Department of Planning and Permitting in March 2019. Changing them requires a public hearing, which Iseri-Matsubara said she hopes will happen by the end of the year. DPP did not respond to a request for comment.

“There’s several negotiations and reviews that have to go on internally. But that’s the process that we’re working through right now,” Iseri-Matsubara said.

“Struggling To Get By” is part of our series on “Hawaii’s Changing Economy” which is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.