RELATING TO HOUSING.

HB1741

HOUSE OF REPRESENTATIVES

H.B. NO.

1741

THIRTY-THIRD LEGISLATURE, 2026

STATE OF HAWAII

A BILL FOR AN ACT

relating
to housing
.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

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SECTION 1.
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The legislature finds that Hawaii cannot
close its housing shortage without a large increase in homebuilding, especially
in formats that add meaningful unit count in already-urbanized areas.
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In Sheetz v. County of El Dorado (144 S. Ct.
893 (2024)), the United States Supreme Court held that legislatively imposed
land-use permit conditions�including impact fees�must satisfy the two-part
tests of essential nexus and rough proportionality.
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These constitutional limits require a
publicly available record that identifies the specific, project-related impact
being mitigated and caps any exaction at an amount proportionate to that
impact.
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Yet many jurisdictions adopt
inclusionary or other development exactions based on generalized affordability
goals or regional "housing need" tallies rather than a quantified,
project-caused impact and proportional remedy, an approach that misstates
causation and is legally vulnerable under Sheetz v. County of El Dorado unless
the county's record identifies a project-caused impact and a proportionate
remedy.

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The legislature further finds that
because inclusionary mandates operate as permit-linked exactions, they must
satisfy constitutional essential nexus and rough proportionality.
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The assumption that new market-rate housing
causes unaffordability and therefore must be offset by a surcharge on that same
housing is contradicted by the preponderance of evidence.
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In most cases, adding homes lowers rents and
prices through filtering and moving chains, so imposing a surcharge on
by-right, non‑luxury projects rests on a flawed methodology and risks
suppressing production and increasing prices.
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Income-restricted housing is an important component of overall
affordability, but it should be funded transparently by government rather than
by loading undisclosed costs onto new homebuyers through mandates embedded in
private development.

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The legislature also finds that
workforce mandates have repeatedly failed to deliver housing at scale in Hawaii
and, in practice, have deterred feasible projects, particularly multifamily
apartments and condominiums, while shifting production toward higher-price,
lower-density product.
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Experience from
other jurisdictions likewise shows that when not narrowly tailored,
inclusionary mandates reduce overall supply and increase the share of luxury
units.
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Exceptions may be appropriate
where new development is low-density and requires extensive infrastructure,
where development is visitor-serving and increases local workforce demand tied
to tourism, or where the product is luxury and does less to relieve price
pressures.

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Accordingly, the purpose of this Act
is to:

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(1)
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Treat county
inclusionary mandates as housing affordability impact fees under section
46-143, Hawaii Revised Statutes;

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(2)
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Require a
straightforward, professional study showing feasibility and market prices or
rents with and without any inclusionary requirement across common prototypes;
and

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(3)
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Adopt a dual
compliance framework under which non-luxury, by-right housing is protected by a
no-price-increase or full-offset standard, while luxury housing and projects
that receive discretionary increases in entitlements may be subject to
proportionate inclusionary requirements supported by a needs assessment study.

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This Act does not apply to resort or
vacation-rental construction and does not limit actions of the Hawaii housing
finance and development corporation or Hawaii community development authority.

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SECTION 2.
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Chapter 46, Hawaii Revised Statutes, is
amended by adding a new section to part VIII to be appropriately designated and
to read as follows:

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"
�46-
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Affordable housing mandates; housing
affordability impact fee; needs assessment study.
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(a)
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Any county affordable housing mandate shall
be deemed a form of development exaction and shall be treated as a housing
affordability impact fee pursuant to this part and conform to subsection (c).
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No county shall adopt, amend, or enforce an
affordable housing mandate applicable to residential or mixed-use development
unless the county council has first approved, by ordinance or resolution, a
needs assessment study that:

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(1)
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Complies with this section and
section 46-143; and

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(2)
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Includes the analyses described in
subsection (b).

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(b)
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In addition to the requirements of section
46-143, the needs assessment study required by this section shall:

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(1)
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Disclose data sources and methodology;

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(2)
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Analyze
various representative market-rate prototypes commonly
produced in the county, including single‑family, duplex, townhome,
condominium, and apartment formats
;

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(3)
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Evaluate each compliance option, such as on-site units, off-site units,
in-lieu fees, or land dedication;

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(4)
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For
each representative market-rate prototype, state principal assumptions for
prices or rents, costs, financing, and target returns, and show feasibility and
market-rate prices or rents with and without the affordable housing mandate;
and

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(5)
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Publish a residential nexus and
affordability-gap analysis and summary tables of results.

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(c)
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No county shall adopt, amend, or enforce an
inclusionary requirement on a residential or mixed-use residential project that
does not receive a discretionary increase in density, floor area ratio, or
height and is not a luxury residential project, unless the county makes written
findings demonstrating compliance with essential nexus and rough
proportionality and satisfies at least one of the following:

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(1)
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A needs assessment study approved by
the county finds that the requirement will not increase the price of
market-rate dwelling units nor suppress feasible production for the applicable
prototypes; or

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(2)
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The county concurrently adopts
incentives that fully offset all compliance costs, including the fair market
value of any required land or units and any quantifiable lost revenue or
density, such that there is no net price increase or feasibility suppression.

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(d)

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For a luxury residential project, or for
any residential project that receives a discretionary increase in maximum
allowable density, floor area ratio, or height, a county may adopt or enforce
an inclusionary requirement only if:

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(1)
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A needs assessment study approved by
the county establishes essential nexus and rough proportionality between the
requirement and the development's impacts; and

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(2)
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The requirement does not exceed the
lesser of:

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(A)
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The full mitigation cost for
attributable workforce-housing demand; or

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(B)
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One hundred per cent of the net
land-value increment conferred by the discretionary approval; provided that
this subparagraph shall not apply to luxury residential projects that do not
receive a discretionary increase.

Enforcement
under this subsection shall apply prospectively to applications determined
complete after approval of the study.

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(e)
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For mixed-use residential projects,
determination of whether the project is a luxury residential project under:

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(1)
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Paragraphs (1) and (2) of that
definition shall be determined on a unit-by-unit basis, and a county may apply
any monetary exaction only to units that meet paragraph (1) or (2) of that
definition; and

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(2)
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Paragraphs (3) and (4) of that
definition shall be determined at the project level, and a county may apply any
monetary exaction to a project that meets paragraph (3) or (4) of that
definition.

Contiguous or commonly controlled
parcels permitted within twenty-four months shall be evaluated in the
aggregate.

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(f)
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Notwithstanding any other law to the
contrary, any affordable housing mandate enacted before the effective date of
this Act shall be unenforceable with respect to applications deemed complete on
or after the effective date of this Act until a needs assessment study is
conducted pursuant to this section and section 46-143.
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Once a needs assessment study demonstrates
compliance with subsection (c), enforcement may resume prospectively for
applications deemed complete thereafter, including enforcement pursuant to
subsection (d) upon the findings required therein.

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For
any inclusionary requirement adopted or enforced pursuant to subsection (d),
the requirement to establish an essential nexus and rough proportionality shall
be presumed satisfied if the inclusionary requirement is based on a county‑commissioned
financial feasibility study or nexus analysis that is no more than five years
old at the time the mandate is adopted or enforced.
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This presumption shall be rebuttable only by
clear and convincing evidence demonstrating that the existing study's
methodology is flawed or the resulting inclusionary requirement exceeds the
actual cost of providing the required housing.

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(g)
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Each county shall provide a clear process by
which an applicant may contest the application of an affordable housing mandate
or any findings made under this section, including a determination under
subsection (c)(1).

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(h)
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This section shall not apply to:

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(1)
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Projects
located on lands classified within the agricultural district pursuant to
chapter 205;

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(2)
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Projects located on lands classified within the conservation district
pursuant to chapter 205;

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(3)
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Resort or vacation-rental construction, including any dwelling unit or
building that is used, intended, designed, or marketed, or that may be used for
transient accommodation purposes, including hotels, timeshares, resort
condominiums, transient vacation units, or other transient accommodations as
defined by county ordinance or chapter 237D;

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(4)
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Conditions required by federal or state funding or financing programs,
voluntary commitments not required by county law, or generally applicable
impact fees unrelated to inclusionary obligations; or

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(5)
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Projects undertaken by, or subject to approvals, permits, exemptions,
rules, or actions of, the Hawaii housing finance and development corporation
under chapter 201H or Hawaii community development authority under chapter
206E.

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(i)
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For purposes of this section:

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"Affordable
housing mandate" means any county requirement that a development provide
or fund below-market-rate dwelling units on site or off site, pay an in-lieu
fee, dedicate land, or comply with equivalent exactions tied to permits,
approvals, or development agreements.

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"Federal
Housing Finance Agency conforming-loan limit" means the one-unit
conforming-loan limit published annually by the Federal Housing Finance Agency
for the county.

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"Initial
monthly contract rent" means the first base rent stated in the lease at
initial occupancy, excluding promotional concessions and separately metered
utilities.

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"Initial
sales price" means the first bona fide arm's‑length sale price
recorded against the unit or lot, net of seller credits and excluding optional
upgrades not required for certificate of occupancy.

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"Luxury
residential project" means a residential or mixed‑use residential
project in which, at initial sale or initial lease, any of the following apply:

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(1)
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Ownership units:
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the published initial sales price per dwelling
unit exceeds one hundred twenty-five per cent of the Federal Housing Finance
Agency conforming‑loan limit for a one-unit property in the county on the
date of building-permit application;

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(2)
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Rental units:
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the published initial monthly contract rent
for the unit exceeds two hundred per cent of the United States Department of
Housing and Urban Development fair market rent for a unit of the same bedroom
count in the county for the applicable fiscal year;

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(3)
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Density:
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the project's net residential density is less
than ten dwelling units per acre; or

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(4)
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Building type:
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a majority of the project's dwelling units are
single-family detached dwellings.

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"Net
land-value increment" means the increase in residual land value
attributable to a discretionary approval, calculated using the same pro-forma
assumptions (costs, prices or rents, and target returns) used in the study
conducted pursuant to section 46-143, and equal to residual land value with the
discretionary approval minus residual land value under base zoning.

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"Net
residential density" means dwelling units per acre measured on the net
residential site area as defined by county ordinance; provided that if
"net residential site area"
is not defined
by ordinance, "net residential site area" excludes public
rights-of-way dedicated with the project and areas required to be reserved as
public open space or protected natural-resource buffers.

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"Single-family
detached" means a dwelling unit in a freestanding building designed for
occupancy by one household, not attached to any other dwelling unit by a common
wall or floor or ceiling.

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"Transient
accommodations" has the same meaning as in section 237D-1.

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"United
States Department of Housing and Urban Development fair market rent" means
the value published by the United States Department of Housing and Urban
Development pursuant to title 24 Code of Federal Regulations part 888 for the
county and bedroom count.
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SECTION 3.
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New statutory material is underscored.

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SECTION 4.
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This Act shall take effect on July 1, 2026.

INTRODUCED BY:

_____________________________

Report Title:

Affordable
Housing Mandate; Housing Affordability Impact Fee; Luxury Residential Projects;
Needs Assessment Study

Description:

Deems a
county affordable housing mandate as a form of development exaction and treats
the mandate as a housing affordability impact fee, with certain
exemptions.
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Prohibits a county from
adopting, amending, or enforcing an affordable housing mandate or inclusionary
requirements for residential or mixed-use development, under certain
circumstances.
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Establishes additional
requirements for a needs assessment study for a county-imposed affordable
housing mandate.
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Establishes a criterion
that allows luxury residential projects or projects that receive discretionary
value-add approvals to be subject to inclusionary requirements.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.