How Maui County’s Deed Restrictions May Be Affecting Access To Housing

Editor’s note: This commentary was written by Liam Lynch, Annalise Lambert, Satya Fisher, Damien Chang, Adrea Sipalay and Faith Christy Soliven.

As current college students and recent graduates, we worry about housing affordability and Hawaii’s future. Decisions about housing policy today affect whether our generation can afford to stay in Hawaii.

This summer, we researched deed restrictions in Maui County as part of a policy fellowship with Housing Hawaii’s Future. Housing Hawaii’s Future is a nonprofit movement creating opportunities for Hawaii’s next generation by ending the workforce housing shortage.

One of the most popular ways to keep housing affordable is a deed restriction. A deed restriction or covenant is a rule or limitation on what a property owner or renter can do with their home. Deed restrictions range from occupancy limits to prohibiting certain activities.

In affordable housing, deed restrictions refer to a set of rules designed to maintain the affordability of a unit over time. At best, deed restrictions are a valuable tool to help preserve affordable housing supply. At worst, deed restrictions create another barrier to home production and ownership.

The most important deed restrictions to know about are owner-occupancy requirements, buyback programs, equity sharing programs, and proximity-to-work requirements.

• Owner-occupancy deed restrictions require that the owner of the unit must occupy it. This prevents an owner from renting their unit out. For example, the Hawaii Housing Finance and Development Corp. requires up to 10 years of owner occupancy for some of the for sale units that it helps finance.
• Buyback programs allow a governing body to buy back the unit if the homeowner decides to sell before the term ends. For example, during HHFDC’s 10-year term, HHFDC has the right to buy back the unit. However, this buyback option is not used often.
• Equity sharing programs allow the homeowner to sell at market price, but a percentage of the profit from the sale goes back to the governing body. For example, HHFDC has a shared equity program that remains for the life of the property. When an owner sells, they have to share profit with HHFDC.
• Proximity-to-work restrictions are less common. They require that units are sold to people that work near the housing. For example, Hawaii County offered units in its 91-home Kamakoa Nui project to low- and moderate-income residents employed within 45-miles from the community. This favored West Hawaii workers over Hilo workers.

Maui’s current deed restriction policy is in Chapter 2.96 of the Maui County Code. But when first introduced in 2006, Maui County’s deed restrictions were more stringent. The county required any project with 10 or more units to provide 50% of units as affordable. These affordable units also had a 25-year deed restriction.

A lack of housing production led to loosening of the rules in 2014. Now, only 25% units need to be affordable. Of these affordable units, 30% are set aside for below-moderate income individuals (80-100% AMI) with a 10-year deed restriction attached to these units; 50% of units are set aside for moderate income individuals (100-120% AMI) with an eight-year deed restriction; and the last 20% are set aside for above-moderate income individuals (120-140% AMI) with a five-year deed restriction.

Maui County’s current deed restriction includes an owner-occupancy requirement, a buyback program, and an equity sharing program.

Maui’s Chapter 2.96 has not been without controversy. Some critics say that Maui’s deed restriction policy reduces production of housing. And these critics have a point.

To finance a for-sale workforce housing project, a developer must presell a set percentage of units. Otherwise, they cannot get their loans underwritten by a bank. Deed restricted units are harder to sell than unrestricted units. Thus, deed restrictions make it harder for developers to pre-sell units. And if a lender deems a project unprofitable, the loan requested by the developer will not be underwritten. This means that fewer projects “pencil,” and less workforce housing is built.

Another concern about deed restrictions is enforcement. If buyback options are not exercised or owner-occupancy rules are not honored, then the covenants are less effective. Maui County’s new Department of Housing must ensure enforcement of existing deed restrictions.

In recent years, Maui County has considered reforming its deed restrictions. Bill 103 (2022) would have required workforce housing (80-140% AMI) to remain owner-occupied in perpetuity and include a 30-year shared appreciation equity program. This bill was passed by the County Council but vetoed by Maui Mayor Michael Victorino. 

Bill 12 (2023) aims to double the length of the deed restriction terms for each group. This would increase deed restriction periods from 10 to 20 years for below-moderate income individuals; from 8 to 16 years for moderate income individuals; and from 5 to 10 years for above-moderate income individuals. The council has heard but not passed this bill.

Creating an effective deed restriction regime is difficult. Deed restrictions must strike a balance between promoting new development and keeping housing affordable.

The reform conversation has centered on lengthening or shortening deed restriction periods. But Maui County lacks data on how deed restriction lengths affect affordable housing supply and demand, so these discussions remain speculative.

Maui County should consider unorthodox ideas, such as proximity-to-work restrictions. Proximity restrictions have the added benefit of decreasing commute times and localizing traffic. And these restrictions have been tested on Kaua‘i and Hawaiʻi Island.

Also, Maui should consider waiving the owner-occupancy requirement if a unit is rented to an income-qualified Maui resident that works in the area. In recent years, “owner-occupancy” has been treated as a goal in itself. But the intent behind owner-occupancy policies was to create housing for local, working families rather than speculative investors. Insisting on owner-occupancy is putting the cart before the horse.

Our research helps to chart a path forward for Maui County. We propose alternatives to the polarized debate about reducing or lengthening deed restriction terms. Thus, we’re helping Maui County find 21st century housing solutions.

As next generation leaders add their voices to the conversation of housing reform, we will find solutions that work. Then we can achieve true sustainability, and our children and grandchildren can afford to stay.

More on the authors:

Liam Lynch is a student at Pomona College, where he studies Economics. He is passionate about making informed decisions to build a sustainable Hawaii.

Annalise Lambert is a student at the University of Denver studying Real Estate and the Built Environment. She was born and raised in Upcountry, Maui.

Satya Fisher was raised on Maui, but currently lives and works in New York. He is a project manager on the real estate development team at Habitat for Humanity NYC and Westchester.

Damien Chang is a student at Harvard College where he studies Government and Chemistry. Born and raised in Honolulu, he loves nature and learning about Hawaiian history.

Adrea Sipalay is a graduate of the University of Hawaii Manoa, where she studied Political Science and American Studies.

Faith Christy Soliven is a Cinematic Arts student at the University of Hawaii Manoa, born and raised in Maui.