The Legislature is pushing for the state agency that guides development in Kaka'ako to make developers provide more moderate-priced housing than required under current rules for projects in the area.

However, some critics of the move say increasing the requirement during a slowdown in the housing market could discourage development and result in less production of moderate-priced housing.

The Hawai'i Community Development Authority currently requires developers that want to build above 45 feet up to 400 feet to provide 20 percent of units at below-market prices or a cash equivalent.

The below-market units aren't intended for people who earn below the median income, like typical county affordable housing programs. Instead, they are designed to provide housing for "gap group" residents who earn too much to qualify for low-income housing but not enough to afford market-priced homes.

Senate Bill 2294 would increase the moderate-priced housing requirement to 25 percent of units. The 25 percent rule also would apply to projects where a building's floor area is more than 1.5 times its lot size regardless of building height, and extend the requirement to include commercial as well as residential projects.

The bill also would require 20 percent below-market units for any multi-family housing project on lots between 20,000 square feet and 43,560 square feet.

Anthony Ching, Hawai'i Community Development Authority executive director, hasn't opposed raising the below-market housing requirement from 20 percent to 25 percent for residential projects above 45 feet, but said applying the requirement to smaller projects or nonresidential projects will stifle redevelopment.

"There needs to be a balance of wanting more (moderate-priced housing) and what the impact might be," Ching said in an interview.

As an example, Ching cited Servco Pacific's 1-acre lot on South Street. The company uses the lot to repair automobiles and might want to improve it with new facilities.

"Can you imagine residential above a Servco maintenance and service facility?" he said.

Servco and other large Kaka'ako landowners including Ward Centers owner General Growth Properties, Kamehameha Schools and The Gas Co. testified against the bill.

Jan Yokota, General Growth's local vice president of development and a former HCDA executive director, said in written testimony that high construction costs and land values already make development a risky business.

"Meeting the current (20 percent requirement) is challenging for developers, even in good economic times," she said. "General Growth agrees that there is a significant need for affordable housing in Hawai'i. However, the bill ... does not facilitate the development of (moderate-priced) housing in Kaka'ako."

Several others testified in supported the bill, including local affordable housing developer Marshall Hung, Central Pacific Bank and real estate consulting and appraisal firm The Hallstrom Group.

"As a member of the Hawai'i real estate community who has worked with first-time homebuyers for over 35 years, I have seen the decrease of affordable housing inventory for our growing population," said Norman Noguchi, president of local real estate firm Marcus & Associates, in written testimony supporting the bill.

"As more of our children graduate from high school, colleges or go off to the Mainland, an alarming number of them are finding they are unable to stay in or return to Hawai'i due to the rising and unattainable cost of housing."

Earlier this week SB2294 passed two House committees with amendments. It will go to a conference committee if Senate members disagree with the amendments. Details of the latest amendments were not available yesterday.

Providing increased housing supply for low- or moderate-income families has been part of the HCDA's residential development policy since the the Legislature created the agency in 1976.

The below-market housing rule was created as a trade-off for developers wanting greater development density.

But the rule hasn't produced as much housing as was envisioned. The HCDA program has resulted in about 1,400 below-market housing units for sale or rent in the area.

Most of the units were built between 1982 and 1996. But development paused in the late 1990s as the state's economy and housing market faltered, which prompted the agency to suspend the below-market housing rule for three years in 2001 just as the real estate market took off again.