Let leasehold problem die a market-force death
Leases of about 1,500 condos and apartments are set to expire in the next decade.
Owners of about 1,500 apartments and condominiums on Oahu face tough choices as the terms of their leased properties expire in the next 10 years.
Some will confront higher payments to stay put. Others will have to move away as landowners decline to extend leases, perhaps to redevelop low-rise buildings to larger high-rises or convert sites to different uses.
Because housing is in short supply, particularly for middle- and low-income people, and homelessness an ever-growing problem, it is tempting for state and city leaders to seek solutions. But with the difficulties of dealing fairly with private property owners -- some charitable trusts -- and with real estate experts predicting leasehold markets will die away, it might be best to let matters lie.
In two reports, the Star-Bulletin's Allison Schaefers noted that residential leaseholds began in postwar Hawaii to provide needed housing on a less costly basis. Buyers could own homes with long-term leases without paying expensive land costs. But as time went on, people feared losing their homes as lease rents increased, and the instability proved damaging to Hawaii's economic health.
The 1967 Land Reform Act empowered more than 14,600 residents to buy their home lots, many of which had been retained since the mid-1800s by fewer than 40 large landowners.
In 1991 the city adopted an ordinance allowing condo owner-occupants similar rights to buy the leasehold land under their buildings. But when the lease-to-fee conversion law was repealed in 2005, many who had bought leasehold units in hopes of future conversions saw their dreams disappear.
Most of the co-ops and condo buildings where leases will expire between now and 2018 hold fewer than a few dozen units. Many are older but are in prime locations where increasing density could bring profits far exceeding current leases.
Landowners terminating leases to redevelop their properties should consider that selling new units fee-simple might prove more advantageous because today's potential buyers are shying away from leasehold properties. During the first nine months of this year, fee-simple condo sales significantly exceeded leasehold sales -- 3,729 compared with 615. In addition, average prices for fee-simple units have gone up 4.6 percent while leaseholds have dropped 1.7 percent.
Reinstating mandatory conversions wouldn't necessarily ease Oahu's housing shortage. Instead, city leaders should increase or at least strictly enforce affordable-housing requirements, which often are waived or traded for concessions like lower building heights or larger so-called public spaces.
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