Jun 27, 2010

Securing funding for ADU's

Many land owners will be unable to obtain 2nd mortgages or Equity Lines of Credit to finance improvements on their homes. Even those homeowners whose real estate has realized significant appreciation over the years are still not able to qualify for financing.

Interestingly, there is a state-level program called PACE (Property Assessed Clean Energy), which was designed to address this segment of "Land Rich, Cash Poor" owners. However, this program currently only covers energy efficiency upgrades that will decrease a home's overall utility costs.

PACE was introduced to the Hawaii State legislature in 2010, but failed to pass. Included below is testimony from the:

City & County of Honolulu -- opposes PACE
State of Hawaii, DBEDT -- supports PACE
Blue Planet Foundation -- supports PACE

The City opposed PACE, stating that using state bonds to finance improvements for owners that would otherwise not qualify for conventional financing, is a bad idea and would further erode the state's bond/credit rating.

Even considering the numerous positive aspects PACE can provide to Honolulu, the City's objection is a difficult line of reasoning to overcome. While it is true that homeowners would realize cost savings in their utility bill, the state is taking a risk that owners will not be able to repay the PACE loan amount every 6 months when property taxes are due.

Also, saving on your electricity bill will not be enough to pay for other items that need routine maintenance. For example, replacing a worn roof, replacing rain gutters, repaving a driveway, repainting exterior of a house, installing a ramp or grab bars; can all overshadow the benefits of a solar water heater, especially for an older couple over 60 that may not use a lot of hot water to begin with. (Remember, compared to the nation, Hawaii has a greater % of people older than 60-years-old and by 2025, 25% of the population is expected to be 60+).

However, if Accessory Dwelling Units or ADU's were included as an allowed use of PACE funds, that would address the City's concerns. ADU's can add an income component to offset the additional monthly costs of financing the energy efficiency improvements. At the same time a homeowner reduces their expenses with energy efficiency upgrades, they could also increase their income (rental income) and provide affordable housing for the community.

Alternatively, it is possible for the state to secure the same type of state underwritten bond funding for ADU improvements. Santa Cruz's award winning ADU program offered construction financing at attractive interest rates. Interestingly, the City of Honolulu has already adopted the 2006 International Energy Efficiency Code that applies to residential construction. So there is already a built-in energy efficiency awareness for all building permits.

2010.02.08_City_testimony opposing PACE -