7/14/10

Accessory Dwelling Units (ADU’s)

as a way to achieve
Affordably Priced Housing in Honolulu
WHY IS AFFORDABLY PRICED HOUSING important for Honolulu?
A 2008 State of Hawaii Affordable Housing Regulatory Barriers Task Force study said:
“Adequate supply of affordable homes is a critical component of economic viability and economic
development. In 2007, U.S. Census Bureau statistics showed that 45.7% of homeowners in Hawaii, the
second highest in the country, were paying at least 30% of their income toward housing costs, almost
ten percent above the national average of 36.9%. More money being spent on housing costs means
less money invested in other sectors of our economy, and impacts the quality of life for the
homeowner or renter. The statistics also showed that Hawaii residents pay the highest median rent in
the nation, and that owner mortgages are third highest in the nation (emphasis added), second to
California and New Jersey.”

WHAT IS AN ADU – AFFORDABLY PRICED HOUSING

Accessory Dwelling Units (ADU’s) “are most commonly understood to be a separate additional living
unit, including separate kitchen, sleeping, and bathroom facilities, attached or detached from the
primary residential unit, on a single-family lot. ADUs are usually subordinate in size, location, and
appearance to the primary unit…. [ADUs] usually involve the renovation of a garage, basement,
attached shed, or similar space in a single-family home.

Allowing the development of accessory dwelling units, or ADU’s, in single-family homes is becoming
an increasingly popular technique for creating low- and moderate-income housing for both
homeowners and renters. Homeowners benefit from the additional rental income that they can use
to pay part of their mortgage payment or to help with the upkeep on their homes. Renters benefit
from the availability of moderately priced rental housing in single- family neighborhoods. The
community benefits from the addition of affordable housing for little or no public expense.”1

THE LEGACY of OHANA DWELLING UNITS

Since ADU’s and Ohana’s share the same intent, infrastructure requirements, and community
perception, it’s helpful to understand the history: success and pitfalls of Ohana Dwellings in
Honolulu.

In 1982, Mayor Eileen Anderson coined the term “Ohana Dwelling” to describe the second units that
were allowed to be added to residential property. A 1984 Program Evaluation of Ohana Housing
states, “It was a slow year for single family residential construction on Oahu in 1982-83. However, in
the program’s first year of implementation, ohana units comprised roughly one-fourth of all single
family construction (emphasis added). Without the ohana zoning provisions, these units probably
would not have been built. Theoretically, about 45 acres of additional land would have been
required had these additional units been constructed in a typical subdivision.”2
 7/14/10

But due to abuse, the program was suspended and no Ohana permits were issued from Jan 1990 to
early 1994. Developers had been using the Ohana Dwelling provisions as a loophole to build, CPR
and then sell the 2nd (Ohana) dwelling unit. What was originally one residential property zoned for
single-family dwelling use, became built-out with two separate single-family homes, as if the
property were subdivided into two lots.

On Jan 22, 1994, the City once again started issuing Ohana Dwelling permits3, but this time, under
strict limitations designed to prevent the previous abuses.

In 2006, an Ordinance removed the floor area limitations for Ohana Dwelling Units in an attempt to
encourage the adoption of Ohana Units. Despite this, Ohana Units still have not gained widespread
adoption among eligible properties because the provisions are too restrictive. Some of these
restrictions include:

 Ohana eligible areas limited to areas with adequate road, water and sewer
infrastructure,
 Ohana Unit must be attached to the main house (cannot be a separate structure),
 $5,380 sewer connection fee (increasing to $5,541 in July 2010),
 2 additional parking stalls,
 a Restrictive Covenant stating the unit can only be rented to people related by blood,
marriage, adoption, and
 the extensive amount of retrofit work required to provide the required 1-hour fire wall
separation (a wall/floor assembly that must comply w/ ASTM E-119). It is difficult to
upgrade the older single-wall homes in Hawaii to comply with a building code written
on the mainland.

Interestingly, the rules meant to discourage abuse of the Ohana Unit program created a morass of
red tape, grinding the production of new Ohana Units to a halt. At the same time, homes
overcrowded with growing families and landlords desperate for rental income, found a new
loophole – the Recreation Room.

Compared to an Ohana Unit, an Illegal Rec Room Rental Unit does not require any retrofits or fees.
Consequently, more and more homeowners are opting for noncompliance and the government is
losing revenue from permit fees, monthly sewer base charges (billed by BWS), GET from rental
income, etc.

With all these restrictions, it is then of no surprise that of the approx 2,000 Ohana Units inexistence4,
nearly all were permitted between 1982 to 1990,5 before the restrictions limiting occupancy to
family. According to a 2005 Dept of Planning & Permitting report, 17,098 properties are eligible for
Ohana Units. The majority: 1,300 of existing Ohana Units are located in the Primary Urban Center,
which can accommodate approx 7,059 additional Ohana or ADU Untis.
 7/14/10

SENIORS AND YOUNG FAMILIES MOST AFECTED

The rental income from ADU’s will allow the land-rich-but-cash-poor the opportunity to collect
rental income and much needed cash flow. This can supplement fixed retirement incomes, subsidize
needed repairs for the home or medical bills. ADU income can promote Senior’s independent living
or aging–in-place and reduce dependence on government resources and subsidies.

According to a recent article in Honolulu Magazine, "in Hawaii… the number of older adults has
grown twice as fast as the national average over the past decade." To illustrate what this Silver
Tsunami will look like: Currently, 20% of the population in Hawaii is over 60. "Twenty years from
now, one of every four people living here will be over 65," according to AARP. Hawaii also has higher
housing costs for seniors. AARP says, "Hawaii Nursing homes are the 5th most expensive in the
country…. We also have the country's highest occupancy rate (95 percent)."5a

Working Families, Nurses, Firemen, and Teachers are commonly caught in a wealth deficit. While
they can often afford a monthly mortgage payment, they often lack the 20% downpayment to
purchase their own home. ADU’s can provide affordably priced rental housing opportunities and
help this sector of the community save money towards a downpayment.

The Baby Boomer generation is increasingly finding themselves sandwiched in the middle: taking
care of aging parents and needing to deal with their own children moving back home. ADU’s can be
adapted to provide flexible (yet separate) living arrangements.

THE POTENTIAL OF ADU’s

ADU’s are flexible housing accommodations that can provide separate living quarters for family (as
Ohana Units were intended to) or can be rented for passive income. By not amending the Zoning law
to allow what is becoming a widespread (non-permitted) accessory residential use, the City is
encouraging the proliferation of illegal Rec Rooms, which will be more painful and harder to remove
once a tenant has taken up residence and the landlord has begun to rely on the rent to meet day-to-
day expenses.

While ADU’s will increase density in urban areas, ADU’s are consistent with the concept of Smart
Growth and reducing urban sprawl. ADU’s make more efficient use of existing housing inventory and
concentrate growth in areas that are already equipped with the infrastructure to handle the added
density.

By allowing ADU’s as a ministerial permit process rather than a discretionary permit – which requires
a public hearing and other arbitrary design requirements – municipalities can eliminate regulatory
barriers to affordable housing. ADU’s also help to reduce housing costs and “have emerged as an
important component of the affordable housing strategies being carried out in many cities.”6
 7/14/10

According to the Honolulu Dept of Planning & Permitting, “There appears to be a major revival of
[accessory dwelling units], especially on the West Coast (California, Washington) with developers of
new subdivisions including accessory units to attract people from diverse age and income groups.
The units are no longer marketed as elderly housing, but are being designed and built to
accommodate either an older generation or a newer generation seeking affordable units, with the
principal appeal to a buyer who has this particular family need. The option is popular in markets
where housing costs have risen significantly, and where extended family living is not necessarily a
cultural practice, but a very real social and economic necessity.”7

The 2004 Primary Urban Center Development Plan acknowledges that although the Urban Core is
the place where the majority of Oahu works and sleeps, it “is essentially ‘built-out’ – ie., there is no
reservoir of vacant land designated for future urban use.”7a Thus, any future additional housing units
in the Urban Core must come from increasing the density of an existing use. ADU’s provide an
opportunity for the residential sector to absorb some of the demand for housing in town.

THE NEED FOR DE-REGULATION

Experience has shown that where a municipality is unable to create enough workforce or affordable
housing, the market will create it illegally. “By 1960 San Francisco housed between 20,000 to
30,000secondary units, 90 percent of which were built illegally.”8

A 2008 State of Hawaii Affordable Housing Regulatory Barriers Task Force study stated that
government regulation added approx $60,000 to $200,000 to the cost of a home in Hawaii.
Furthermore,
A 2007 Demographia survey placed the national… median house price to median household income
multiple, at 3.7 in the United States. This means, in general, that median house prices average 3.7
times… the median household income. In contrast to the U.S. national average, this survey showed
Honolulu’s median multiple to be 10.3, the third highest in the world, making Honolulu the third most
unaffordable housing market in the world in 2007. (emphasis added) Honolulu maintains a 10.3
median multiple in the 2008 survey and is ranked the fourth most unaffordable market for 2008. The
Demographia survey findings conclude that housing affordability is determined and controlled by
regulatory restrictions on residential land supply.9

The level of regulation is a key component of ADU’s and affordable housing. Too many rules will
disincentivize ADU’s and make illegally rented Rec Rooms more attractive.

Similarly, a Massachusettes model ADU guidebook to local municipalities suggests that if the overall
goal is to diversify housing supply to create affordable housing opportunities, then less regulation is
preferable. “Do not restrict tenants. Allowing only family members is easiest politically and may limit
the overall impact of the units, but it will also limit the use (and reuse) of these units and may result
in additional administration costs associated with enforcement. Having no restrictions on accessory
dwelling unit tenants gives greater control over the unit to the homeowner while offering more
diverse housing opportunities.”9A
 7/14/10

Easing restrictions may also increase reporting of GET on rental income. Illegal rental units are not
likely to pay any tax on the rental income, which implies lost revenue from the taxation stream. By
allowing individuals a legal source of additional revenue, government widens its tax base and
elevates individual income levels, versus imposing added taxes on a shrinking tax base.

Other sources echo this suggestion that over-regulation of land-use artificially restricts the supply of
housing, creating conditions that are “ripe for housing bubbles”10.

ADU’s GENERATE REVENUE (for Honolulu)

Based on information in the City's Wastewater System Revenue Bond Disclosure (2009)11, if 10% of
properties create ADUs, 1,510 new Customers will be added to the wastewater revenue stream,
contributing $1.7M in one-time (Wastewater Service Facilities Charge, WSFC) fees and $103,255 in
re-occurring monthly fees (paid via BWS billing).

Add to this the added GET revenue on rental income and spillover and economic stimulus effects for
Builders, Designers and material suppliers for these ADU conversions. Not to mention realtors and
loan officers to finance and acquire these properties.

THE FUTURE OF ADU’s in Honolulu

Details are crucial to shaping a successful ADU ordinance, but we should not get hung up on the little
things and instead keep our eyes on the larger goal: expanding the supply of affordable rental units
and addressing the Silver Tsunami (elderly housing needs) in Honolulu.

Although, the City is moving towards the notion of ADU’s any substantial policy change is years away
from approval. The Dept of Planning & Permitting is in the process of revising 7 of the 8 regional
Development/Sustainable Communities Plans for Oahu. The draft Ewa Development Plan contains
language indicative of ADU’s: “accessory apartments (‘granny flats’) and Ohana units could be used
to provide housing for seniors, students, and young families where infrastructure will support the
additions.”12 It is anticipated that similar wording will be included in all Community Plans.

We have this opportunity to step-back from NIMBY’ism (Not-in-My-Back-Yard) mentality and see the
overall potential of ADU’s.

We can learn from our past mistakes and the limitations of Ohana Units and illegal Rec Rooms. While
ADU’s cannot single-handedly solve Honolulu’s housing crisis, it is one piece of the puzzle to creating
affordable housing, easing the burden of homeownership, and broadening our tax base.

SOURCES:
1, 6
Municipal Research and Services Center of Washington, “Accessory Dwelling Units” October 1995 – Report No. 33.
2
“Ohana Housing: A Program Evaluation,” Office of Information and Complaint, Sept 1984.
 7/14/10

3, 4, 7
Detailed analysis of the history and purpose of Ohana dwelling units submitted with Memorandum to the Members of
the Planning Commission, dated 1/3/05 by Henry Eng, Director of Planning & Permitting.
http://www4.honolulu.gov/docushare/dsweb/Get/Document-39468/0zsj5mdc.pdf
5
Pacific Business News. “Ohana Program gets Cool Reception” 1/9/98
5a
“Caught In Between.” Honolulu Magazine, May 2010.
7a
Primary Urban Center Development Plan (2004). http://honoluludpp.org/planning/Puc/Puc3.pdf
8
HUD Office of Policy Development and Research, “Accessory Dwelling Units: Case Study,” June 2008.
9
2008, Report of the Governor’s Affordable Housing Regulatory Barriers Task Force.
http://hawaii.gov/gov.%202/leg/session-
2009/reports/AffordableHousingRegulatoryBarriersReport.pdf/?searchterm=affordable%20housing%20regulatory%20bar
riers (or go to http://hawaii.gov/gov.%202 and search for “affordable housing regulatory barriers” at upper right corner)
9A
http://www.mass.gov/envir/smart_growth_toolkit/bylaws/ADU-Bylaw.pdf
10
Policy Analysis. “How Urban Planners Caused the Housing Bubble,” by Randal O’Toole. Oct 1, 2009, Cato Institute.
11
C&C of Honolulu 2009 Wastewater Revenue Bond disclosure www.honolulu.gov/budget/wwrb2009seniorseries.pdf
12
2008 Draft Ewa Development/Sustainable Community Plan.
http://honoluludpp.org/Planning/ewa/ewa5yr/PublicReviewDraft/SummaryOfPolicyRevisions_Oct08.pdf
 7/14/10

The Proposal: Amend Honolulu’s Zoning & Building Code

for “Accessory Dwelling Units” or (ADU’s)

Proposed ZONING CODE AMENDMENT:

 New Use: “Accessory Dwelling Unit” (ADU) in Residential zoned (R-5, R-7.5, and R-10) property
o Not allowed on lots within a zero lot line project, cluster housing project, agricultural
cluster, country cluster, planned development housing, R-3.5 zoning districts, or on
duplex unit lots.
o Not allowed on any nonconforming lot (ie. R-5 min lot size is 5,000 sf)
o Not allowed on properties that contain 9 or more dwelling units.
 Kitchen: allowed full kitchen and separate entry from main house
 Configuration: May be attached or detached from the main house
 Floor Area Max: to be determined (limiting size is simplest way to discourage overcrowding)
 Parking: Require 1 additional off-street stall min; +1 stall for each bedroom over 1.
 Occupancy: Require Owner-Occupant to reside in either ADU or main house
 CPR: ADU’s cannot be CPR’d or sold separately from the main house
 All other provisions of the zoning district shall apply
 Sewer Fee: ADU’s must pay a sewer connection fee (too expensive will deter compliance and
encourage homeowners to retain existing/illegal rec room status)
o Propose same fee as Low-Income housing WSFC charge: currently $1,146/unit
 NOTE: Honolulu has a history of allowing a similar use: Guest Quarters or Maid’s Quarter’s, in
Honolulu’s older homes.

Proposed BUILDING CODE AMENDMENT:

 1-hour separation required between main house and an attached ADU, but not required to
meet ASTM E-119 standards.
o This is too onerous for existing/retrofit construction to comply. For example, there is
no tested assembly that is approved for retrofitting a single-wall Hawaiian-style house.
Therefore, the common walls may require structural alterations to upgrade from a
single-wall to a double-wall with new gyp bd on each side.
o Propose allowing 5/8” type “x” gyp bd on both sides of all walls/ceilings/supporting
construction. Would provide a similar level of protection and be much simpler to
achieve compliance in a retrofit.
o Smoke Detectors - hardwired and interconnected, as per existing residential code.
o NOTE: until 9/17/2007, Honolulu’s Building Code did not require any fire-rated
separation between Two-Family Dwellings or between Main House and the Ohana.