CASE STUDY: 1-hour Fire-Rated separation provided by Paint

The ASTM E 119 (Standard Test Method for Fire Tests of Building Construction and Materials) is a test standard that various construction assemblies must meet to be considered fire-resistive. As required by the 2003 International Residential Code, the 1-hour fire-rated wall between dwelling units in a two-family home must meet this ASTM E 119 standard. This is a change from the last building code. Before September 2007, our jurisdiction followed the Uniform Building Code 1997, which as amended by Honolulu County, did not require any fire-rated separation between units in a two-family dwelling.

A wall assembly that has been tested and approved as meeting the ASTM E 119 standard, describes such things as the type of screw used to secure the gypsum board to the wall, spacing of the screws, alignment of the gypsum board (ie. stagger joints). There are different ways of achieving the same fire-resistance rating, using the same or different materials or combination of materials.

The main difference between wall assemblies and coatings (ie. paint) is that in and of itself, paint is typically not tested as an assembly because it really depends on what the paint is applied to. However, its other properties like ability to resist the spread of fire or transfer thermal heat can be measured. Those properties can improve survivability in a fire. It would be possible to apply the Intumescent Coating to a specific type of wall assembly and test it to ASTM E 119 standards, however, the general appeal of an Intumescent Coating is that you can apply it on various types of existing construction and assemblies that do NOT meet the typical standard.

• National Gypsum Assoc - further info on ASTM E 119 and 5/8" gyp board
• American Wood Council - sample wall and floor-ceiling assemblies

When converting a portion of an existing home into an attached Ohana Dwelling or attached Accessory Dwelling Unit, an ASTM E 119 approved 1-hour fire-rated wall is required between the main house and the 2nd unit. This is a life-safety requirement.

For older single-wall homes in Hawaii (LEFT - image from State of Hawaii DCCA, Loss Mitigation Grant Program 2007), this often requires costly retrofits to construct a new 2x4 stud wall with 5/8" type "X" gyp bd on both sides. All structural members supporting the wall must also be provided 1-hour fire-rated protection.

In Honolulu, per our prelim discussions with the Department of Planning and Permitting, an Intumescent Coating is an accepted substitute in lieu of the stud wall. This can create an enormous amount of savings and time, as the intumescent coating, applied as per manufacturer's recommendations, can substitute for a new stud wall and 5/8: type x gypsum board.

BELOW: Video from FireFree Coatings, Inc., an Intumescent Paint manufacturer.

CASE STUDY: 48% of Homes Sold (June 2010) contain a 2nd unit

Accessory Apartments are quite common in Honolulu. That it cannot be legally rented or occupied as an independent living unit has not been much of a deterrent. We conducted an analysis of MLS data for Active listings in metro Honolulu in June 2010. Our subsequent analysis of SOLD properties over the same period shows that 48% (or 14 out of 29 sold listings) of every single-family home sold in June 2010 in the metro Honolulu region, contained a living area that was described as a 2nd unit.

Typical descriptions in the Listing Agent's own words:

• 2 Bedroom, bath,living rm and 2nd kitchen on 1st floor with separate entrance for extended family living
• separate entries upstairs and downstairs. for multi-generational living. Separate Gas Meters. Building Style: Duplex
• 3 BDRM, 1 BTH / STUDIO, 1 BHT - DOWNSTAIRS AND 3 BDRM, 1 BTH-UPSTAIRS. Building Style: Duplex
• 3/1 up & 2/1 dowm. Building Style: Duplex
• It includes a rompus room that can be used as a separate living area. Bathroom in rompus room is not permitted.
• One bedroom downstairs w/separate entry,
• great for multi-family living. An additional kitchenette area, a separate master bedroom
  

DISCUSSION OF FINDINGS
The purpose of this information is not to vilify Realtors, who are simply describing an  existing condition. Instead, this research suggests Buyers have a strong preference for residential properties that contain a 2nd unit.

Realtors recognize that Buyers are attracted to a home that is already pre-configured to accommodate an income producing rental space (to help them afford the mortgage payments). In other words, having a rental unit (legal or not) is a selling point that the marketplace perceives as increasing property value.

One previous study indicated only 9.5% of single-family homes sold in 2009 appeared to contain a separate living area. A second study that examined the publicly available comments realtors used to describe the home found 32% of all active for sale listings in June 2010 contained a potential 2nd unit. Our current study looked at different fields (ie. public comments vs comments avail only to realtors). Also, the curent study has a very small sample size (14 out of 29 homes total). Therefore, further research is indicated.

Estimated # of ADU's and Revenue Projections

3 Methods to Estimate Expected Annual # of ADU's if Ordinance is Approved:

NOTE: In Honolulu, the maximum # of allowable units is limited to areas with adequate sewer capacity. Is this a federal requirement? Or can this be modified at the local level? If so, then the # of eligible properties and the potential impact for this ordinance would be significantly higher.

1. If Honolulu experiences a similar adoption rate as Santa Cruz (which has a smaller base of residential housing units: 77,362 vs 190,512 residential homes in Honolulu), we would theoretically see 470 new ADU units per year. (Santa Cruz: 67 ADU permits vs 120 New Dwelling permits: 56% adoption rate. Honolulu: 856 New Dwelling permits in 2009 x 55% = (est) 470 ADU permits.
• FY2008 in Santa Cruz, new ADU's equal nearly 55% of all new Single Family permits
• Santa Cruz eased 2nd unit restrictions and permits for # of ADU's increased x12. 
• Santa Cruz ADU Program Success - Bar Chart
2. In early in 1980's an evaluation of Ohana Dwelling Units showed that approx 25% of new homes built were Ohana Units. In 2009, there were 856 Building Permits for New Single-Family dwellings. 
• By this estimation method, we estimate 214 new ADU's/year.
• Remember, there are approx 2,000 Ohana units in existence today, nearly all were built within the first few years (1982-1990) of when Ohana Units were initially legalized.
• Only 10 Ohana Units were permitted in 2008 and 11 Ohana Units in 2009.
• Ohana Units (unpopular) currently only 1 to 2% of all New Dwelling Permits.
• ADU's are often converted spaces and will cost less to build than a typical Single-Family home.
1. Average cost of new Ohana Unit = $205,980 (FY2008)
2. Average cost of new Single-Family Dwelling = $337,833 (FY2008)
3. As per MRSC of Washington: estimates 1 ADU per 1,000 housing units, based it says on a survey of 47 other cities. Therefore by this estimate, we would expect 190 new ADU's per year on Oahu.
• 190,512 residential homes in Honolulu  (one and two-family dwellings)
4. LONG RANGE: There are currently approx 2,000 Ohana units on the island of Oahu. Over time, the # of ADU's would be expected to increase. As per Patrick H. Hare's 1981 report, "Amending Zoning to Permit Accessory Apartments," other municipalities have seen a range of 8% to 20% of their entire single-family housing stock contain ADU's. Applying these estimates to Honolulu's 190,512 residential homes, would equate to a range of 15,241 to 38,102 ADU's. However, this number is capped at approx 15,000, as that is the quantity of homes in the Ohana eligible zone that have not yet built 2nd units. 
• Additional sewer capacity would be required to add more ADU's.

----------------------------------------------------------------------------------------

Estimates of Revenues Generated by ADU's - 1st Year of Adoption of ADU ordinance:

LOW ESTIMATE (214 new units/yr)

• Sewer Fees
• $    68.39 Sewer Base Charge x  214     = $  14,635/month (recurring)
• $1,146.00 Sewer Connection Fee x 214 = $245,244 (one-time fee)
• Sewer Usage Fee (amount varies and is not included in this analysis)
•  GET (Hawaii State General Excise Tax, 4%)
• $1,100.00* Est Rental Income from ADU x 214 x 4% = $9,416/month (recurring)

HIGH ESTIMATE (470 new units/yr) 

• Sewer Fees
• $    68.39  x  470    = $  32,143/month (recurring)
• $1,146.00 x 470 = $538,620 (one-time fee)
• GET
• $1,100.00* x 470 x 4% = $20,680/month (recurring)

LONG RANGE: Over time, ADU's will multiply the revenue stream.

• ALL AVAIL PROPERTIES IN OHANA ZONE (est 15,000 new units)
• Sewer Fees
• $    68.39 x   15,000    =  $  1,025,850/month (recurring)
• $1,146.00 x 15,000 = $17,190,000 (one-time fee)
• GET
• $1,100.00* x 15,000 x 4% = $660,000/month (recurring)

These amounts can be leveraged through Municipal Bonds to fund sewer upgrade improvements. The more revenue raised through New Customers, means less rate increases for all of the existing customers.


And remember, there are approx 2,000 existing Ohana Units already built. Without those dwelling units, the City would have less revenue today. Those 2,000 Ohana Units contribute:

• $    68.39 Sewer Base Charge x   2,000    = $136,780/month (recurring)

--------------------------------------------

*NOTE: Rental Income of $1,100 is based on HUD fair-market rent for a 1-bedroom unit, not including estimated utilities of $297/mo.

NOTE: Further information and research on historic numbers of ADU units built in other municipalities and community response to ADU's can be found in publications by Patrick H. Hare:

• "Accessory Apartments - Using Surplus Space in Single-Family Houses," by Patrick H. Hare, with Susan Conner and Dwight Merriam, Planning Advisory Service Report Number 365, American Planning Association, Chicago, IL, December 1981
• "Accessory Units: An Increasing Source of Affordable Housing," by Patrick H. Hare and John Danbury, PM, September 1991
• Accessory Units: State of the Art - Report I - Summary of Experience, by Patrick H. Hare, Washington D.C., December 1989
• Accessory Units: State of the Art - Report III - Model Zoning, by Patrick H. Hare, Washington, D.C., September 1991

CASE STUDY: How do ADU's promote affordability?

http://www.transformca.org/ia/acssdwel/sup/Strachan_ADUEconomics.pdf

or
http://www.abag.ca.gov/planning/housingneeds/pdf/secondunits/Alan_Strachan_materials.pdf

The above article by Alan Strachan discusses the Courtside Village development in Santa Rosa, CA, 2001. Alan states that prices of homes with an Accessory Dwelling Unit or ADU (he calls them Granny Units), sold for $50,000 more (in 2001) than homes without an ADU.

In Honolulu, I've noticed that homes that have a space configured as a separate rental will sell for more, regardless of whether the unit is legal or not. So there is concern that if ADU's are legalized in Honolulu, they might elevate the price of real estate even further.

Curious to see how ADU's affected Alan's neighborhood and its real estate prices, I sent him an email:

From: Questor Lau
Subject: Granny Units and Affordable Housing
To: strach@pacbell.net
Date: Wednesday, July 28, 2010, 4:43 PM

Alan,

I just read your article about how Granny Units can increase affordability of new homes.

In Honolulu, we are trying to get an ADU Ordinance adopted. There are concerns that allowing properties to have a 2nd Unit will be akin to upzoning and would increase the property value/sales price of these properties and thus defeat any gains in housing affordability. (ie. a Property that can have 2 dwellings would be worth more than a Property that can have only 1)

Do you have thoughts about this?

-Q

To which Alan responded:

From: Alan Strachan
Subject: Re: Granny Units and Affordable Housing
To: Questor@ALLKINDS.org
Date: Friday, July 30, 2010, 7:10 AM

Dear Questor,

Yes, a property with a granny unit will be worth more than one without. However, that price difference effectively produces an affordable housing unit (the granny unit) at a cost far lower than an equivalent unit can be produced via subsidy. The process also brings down the effective cost of the main house by making available the granny unit rent as an offset for a portion of the mortgage payment.

I live in the development described in the article; and I can tell you that it works exactly as described. The net effect is not only to improve the overall affordability of housing on a given piece of land; it also produces a broader mix of incomes, ages, ethnicity and household types in the neighborhood. I witness the social and cultural value of that every day when I look out the window.

Sincerely,
Alan Strachan

ps  It is important not to confuse the value of the property with the affordability and value of the housing units themselves. They are two different things. Higher density development generally means a higher price per square foot for the underlying land; however, it also generally means a lower price per unit of housing, all else being equal. Compare the per unit price of single family detached homes on a 10 acre parcel to the per unit price of attached units at 4 times the density on the same 10 acre parcel.

NOTE: Alan's reply was reposted with his permission.

CASE STUDY: How FEMA Map changes and Bill 24 could affect an Ewa Property:

Two recent changes will affect development on Oahu.

• FEMA is revising the flood maps to incorporate a Hawaii Hurricane study for the coastline along the southern shore of the Hawaiian islands. 
• For Oahu, the changes will mostly affect Ewa and Hawaii Kai to Kaneohe. Effective Jan 19, 2011 (tentatively), some properties will find that they have been reclassified to be within a high hazard flood zone. Other properties will discover that they are no longer in a high hazard flood zone.
• For existing homes, this may mean significant changes in the costs of flood insurance. According to information estimates provided by DLNR, annual flood insurance premium for a home in Flood Zone A is est $1,106 vs Flood Zone VE is est $5,149 (if the replacement cost value of the home is less than $334,000) but can go higher to $9,624 (if the replacement cost of the home exceeds $500,000).
• Here's what the various Flood Zones mean.
  
• Click here to see if your property will be within the revised flood high hazard zone. Click on the FLOOD HAZARD ASSESSMENT TOOL (orange box at upper right).
• Public Information Meeting Aug 24th, 2010 at the Ala Wai Golf Course Clubhouse 

• Bill 24 is working it's way through the City Council
• The ordinance will, among other things, increase the number of homes you can have on residential property by-right, from 2 to 8. 
• Current deadline for Council action:     September 20, 2010

What this means for our Client who owns a Property in Ewa:

1. Client owns 2 adjacent R-5 zoned properties, approx 12,000 sq ft each. Each property contains 2 detached homes each or a total of 4 single-family homes. Under current LUO standards, he would need to get a Cluster Permit and Joint Develop the properties to add any more dwellings. 
• Due to Cluster Permit application costs (ie. Topographic Survey, Landscape Plan, Fence Master Plan, Creation of Park Dedication Area and a Homeowner's Association) and subjective requirements (ie. appearance, configuration and even colors of homes subject to City input) imposed as conditions to approval, Client decided NOT to develop property further.
2. Current FEMA Map (blue and red pic) shows that approx 40% is within the blue AE flood zone and approx 60% is in the red VE or Coastal High Hazard flood zone. This means higher flood insurance premiums for a new home built in the VE zone. Also, he must build above the Base Flood Elevation, which means his living area would be on the 2nd floor (ie. walk-up) and the 1st floor would be entirely for parking, stairway or limited storage. The current FEMA map adds thousands in added construction costs.
3. Revised FEMA Map (green-hatched pic) shows he will be downgraded to the green-hatched XS (low hazard) flood zone. This means if he obtains financing, his Lender would not require flood insurance (ie. optional), his flood insurance for the other homes on his property may also decrease, and he can now build on-grade -- thus savings thousands on construction costs.



Existing FEMA Maps



Prelim FEMA Maps, eff Jan 2011

4. Additional Dwellings possible: When Bill 24 is approved, our Client will be able to construct 2 more dwellings by-right, on his property. A Cluster Permit would not be required, thus simplifying the permit approval process.

REFERENCE:

FEMA flood zone: current and preliminary (New)

Bill 24: Current Status and testimony

CASE STUDY: Epidemic of Hidden Rental Units (analysis of MLS data)

Based on MLS data, we conducted a study to see how many properties are being used as illegal rentals.

Study results show that in the Honolulu Metro area in June 2010, 32% of all active listings were highly suspicious for illegal rental activity.

MLS Search criteria:

1. Single Family category
2. Status: Active
3. Status Date: 6/1/10 thru 6/30/10
4. Region: Metro* (Honolulu TMK Area 111 thru 129)

Total # of Properties: 136
-----------------------
Based on Relator's own description of their property, cross-checked against Dept of Planning & Permitting records of Building Permits and zone, the following descriptions are highly suspicious for being illegal rental units contained within single-family homes.

The point is not to criticize Realtors or to single-out any specific homeowner. We want to highlight the common practice of illegal rental unit conversions. The market demand is so high, that properties that have the potential to be converted are actively marketed as such. I believe there is a tremendous public benefit to amending the Zoning Code to allow the already common practice of Accessory Dwelling Units (ADU's).

32% of homes in the Honolulu Metro* area are highly suspicious for illegal rental conversions. When should we consider this an epidemic and actively take steps to ease government regulation?

Realtors' descriptions of homes taken verbatim from MLS. These homes are listed under the Single-Family category [bracketed text is my comments]:

• 2BR 1BA bottom flr w/separate entry
• Tax record shows 3/1 but, it's a 2/1 house, with a seperate entry studio w/full bath. Living sq ft. larger than what the tax record shows.
• current duplex single family living.... Home is in good condition with some nonconforming structures but being sold 'As-Is.'
• Great deal for 2 house with 4 parking, 3 electrical meter. [1978 permit characterizes house as a single-family dwelling]
• Very good home to own in Kalihi with 1 bedroom and 1 bath downstairs 
• Live in one and rent the others for extra income....Square footage does not match tax records.
• Corner LEGAL OHANA Home. 5-bdrm/3-bath upstairs, 3-bdrm/1-bath and 2-bdrm/1-bath downstairs. Separate entrances, kitchens, and upstairs/downstairs metered separately. Live in one, rent the others. Great investment with Lots of possibilities! [3 separate units not allowed]
• Brand new four-bedroom, two-bath home with den & wet-bar. Building Style: Duplex. [permitted as a single-family home]
• multi-family home along Kalihi St with 4bedrooms/2bath downstairs; 3bedrooms/2bath upstairs. [1980: permit issued for Alterations to a Single-Family dwelling]
• Ideal for two family. Front house is 3 bedroom, 1.5 bath and Rear house has 3 bedroom 1 bath.... Houses are connected and raised on post and pier. [2008: permit issued for addition/alterations to a single-family dwelling]
• L-SHAPED LEGAL DUPLEX offers spacious living room with 3 bedrooms and 1.5 bath one side and 2 bedrooms 1 bath on the other side for rental income or for extended family living. [1987: permitted issued for Alterations to a single-family dwelling]
• A large downstairs bar area
• Back home built in 2004-1/1 down and 3/1 up. Front home-living, kitchen & 1/2 bathroom on 1st floor, 4 bed with den and bathroom on 2nd floor. Sq footage may not match tax records. Buyer to do own due deligence. Sold 'as-is'. [2003: permitted as a single0family dwelling; 2004: permit for Rec Rm on lower floor]
• 4 bdrm, 2 bath upstairs; 3 bedrm, 2 bath downstairs. Ideal for multi-family or nursing home. [2004: permitted as a single-family dwelling]
• 4 BEDROOM, 2 BATH, LANAI-UPSTAIRS & 4 BEDROOM, 2 BATH-DOWNSTAIRS [2007: Elec meter upgrade for a single-family dwelling]
• 12 BEDROOMS, 5.5 BATH: (5 UNITS/N0N-C0NFORMING-SEPARATE ENTRY) 3/1 & 2/1-UPSTAIRS * 3/1.5 $ 2/1-DOWNSTAIRS * 2/1 ADDITION [1989: Addition to single-family dwelling]
• 6 bedrooms, 2 full bathrooms with 2 kitchens [1992: Repairs to single-family dwelling]
• Upstairs is 3 bedrooms 1 bath, downstairs with a separate entrance are 2 bedrooms, living area and 1 bath.
• 2 existing dwellings. Bed and bath count may not match tax records. Front home rented as 2/1 up and 2/1 down. Back home rented to one family. Buyer to do own due deligence. Sold 'as-is'.
• 3/1 with kitchen downstairs, 3/1 with kitchen upstairs, and separate studio with kitchenette make this place ideal for extended family, care home or rental income.
• Two separate dwellings connected by covered patio. Front house has 3 bdrm 1 bth and back dwelling has 2 bdrm 1 bath. [hallway connection was an old loophole to allow 2 units but it's supposed to be a single-family dwelling]
• 2/1 upstairs and 3/1 down (2 beds currently used as a rec room) w/separate entrance.
• Why rent if you buy and rent some portion of the house, 4/2 down 3/1.5 up and poss studio. Number of rooms/bath doesn't match tax records.
• Live-in the upper floor and rent out the lower level bedroom with separate entry, wet bar, bath and split ac. Existing bldg floor plan does not match tax records.
• 3 living units: 3bdrm/1.5 bath; 3bdrm/1 bath unit; 1 large studio. Square footage does not match TMK records.
• 3 comfortable bedrooms and 2 baths + separate 1 bed/1 bath unit downstairs.
• 8 BEDROOM, 4.5 BATH * 3 SEPARATE ENTRANCES * FOR MULTI-FAMILY LIVING * GOOD RENTAL INCOME
• main home has 3 bedrooms, 2 baths and back lanai which leads to the 1 bedroom, 1 bath apt which can also be entered from the carport area of the home. Great for extended family or a caretaker.
• 8 bedroom, 3 bath home. Perfect for multi-family living. (Building Style: Multiple Dwellings)
• Currently configured as 3 units. Upstairs 3/1.5 @ $1695/mo. Downstairs 5/2.5 @ $2100/mo. (3/1.5 + 2/1). Can be configured as one home again - has interior stairway.
• 3bdrm 2 bath up & 1 bdrm 1 bath down w/ separate entrance. Remodeled in 2005.
• Single family home or as current 3 units with monthly rent roll of $3300. Great opportunity for investor (cash out =7.5% Cap rate),or live in the front 2/1 and continue to rent the other 2 units for $1700
• Fully remodeled in 2010, full kitchen and bathroom upstairs and down.
• multi-family home:upstair-3bed/2bath, downstair-2bed/1bath.[2003: New single-family dwelling]
• Circular staircase to Master & 2 BDRMS suites. Rec Room,wine cellar & guest rm lower level
• 4-unit apartment building that can be configured as a duplex with two 3BR/2BA townhouses [1972: New two-family dwelling]
• Multi-family building contains 7219sf interior. Originaly built as duplex but currently using as 3 units
• Perfect home for investors or extended family with 3 bedroom, 1.5 bath, full kitchen upstairs and 2  bedroom, 1 bath downstairs (hollow tile) with separate entrance
• Spacious 2/2.5 main home w/ easy conversion back to original 3/2.5! Sep 1/1 perfect for in-law/guests!
• one single family property. Unit #1 - 2/2 full kitchen, covered lanai, W/D. Unit #2 - 2/1.5, full kitchen, covered lanai, W/D. Separate studio w/full bath and stack W/D. Ideal multi-family dwelling

 *NOTE: Metro Region of Honolulu, as per MLS search criteria, includes the following neighborhoods: Military, Airport, Mapunapuna, Moanalua Valley, Aliamanu, Moanalua Gardens, Salt Lake, Kapalama, Kalihi-Lower, -Upper, Kalihi-Uka, Sand Island, Kapalama, Liliha, Nuuanu, Palama, Puunui, Alewa Heights, Old Pali, Downtowm, Punchbowl, Kakaako, Papakolea, Pauoa Valley, Pacific Heights, Dowsett, Nuuanu Pali, Ala Moana, Holiday Mart, Pawaa, McCully, Makiki, Makiki Area, Makiki Heights, Punahou, Waikiki, Moiliili, Tantalus, Kapiolani, Kapahulu, Manoa-Area, -Lower, -Upper, -Woodlawn, University.

Why it's difficult to get a permit for an Illegal Unit

This article is to help clarify for Realtors, who may be trying to help their Seller obtain a building permit. In general, unless there will be a huge increase in the living area that will significantly boost the sales price, my recommendation is to simply disclose the non-permitted area and give the Buyers a credit.

An after-the-fact building permit initially sounds like a good idea: The Sellers promise that it was built to code. It's been there for decades without any problem. And getting a permit would mean the appraiser could add square footage to the Appraisal, which means higher comps and (hopefully) a higher sales price.

However, applying for a building permit before a sale transaction is difficult because of the many unknowns ($$$) and unexpected delays ($$$) in the permit process. Also, the Seller is the most vulnerable (ie. they're on a tight timeframe and don't want unexpected surprises) and wost of all, may be burdened with added out-of-pocket costs to correct Code deficiencies, before the house is sold. The worst case scenario is receiving a Notice of Violation for a home that's already in Escrow. A City Inspector who comes to check on one part of the house could cite the owner for a different area.

During a sale transaction, Lenders (ie VA loans, sometimes FHA) may require that improvements built without a permit be removed or that a permit be issued for the improvement. Also, the process of obtaining a permit usually requires showing the layout of the entire house, which may reveal further areas not built with a permit. Issuance of a permit will trigger a City Inspector(s) to visit to the site. Retrofits are commonly required as either the work was never built to code or the codes have changed since (ie. New roof insulation requirements, Smoke detector upgrades now required). 

Also, during a sale transaction, the State of Hawaii requires that a General Contractor sign-on as being  responsible for the construction. This is a requirement to protect the public -- by having licensed professionals do the construction work, instead of a homeowner who may not be qualified or take dangerous shortcuts. If the work to be permitted includes plumbing or electrical, then a licensed Plumber and Electrician is also required to sign-on as being responsible for the work. (NOTE: recently, the state law was revised so that a General Contractor is NOT required for work <$10,000; the Owner-Builder can sign instead)

The difficulty is that the Seller is asking a General Contractor/Plumber/Electrician to endorse and be potentially liable for existing in-place construction that is often concealed behind a wall and that was installed by someone he never met.

Because of these complications, especially during a property sale transaction, Owners of illegally built rental units have a strong incentive to never apply for a Building Permit. (An Amnesty Program would come in very handy.)

How many Illegal Dwelling Units are there in Honolulu?

(Note: My study examined only single-family category homes Sold in 2009.)

In a previous post, I did a guesstimate based on a 1996 San Francisco Planning Dept study which estimated between 8% to 15% illegal units. Using 8% as a baseline, I used US census data to find the # of one and two-family households in Honolulu . (I did not include apt units or structures > 3+ dwellings) 

Multiplying 8% x 190,512 = 15,241 which is an estimate of # of illegal units.

Another method is to study past sales data. Relying on 2 sources of information: MLS data and OahuRE.com, I searched the public comments field (limiting my search to Single-Family Home category, Sold in 2009) for the following terms:

• separate entry
• rental
• studio
• multiple family / multi family / multifamily / multi-family
• extended family
• illegal 

Discrepancies could be explained by varying search criteria ie.OahuRE.com automatically added min List Date = 7/8/08, to the search criteria, whereas some of the sales in 2009 maybe from listings before that date. Anyway, the numbers from OahuRE vs MLS, are close. 

Excerpts of comments from MLS:

• 3 separate entrances; 4 bdrms/2 bth upstairs, 4 bdrms/1.5 bth downstairs, and 2 bdrms/1 bth in back house. Great for large families or Investors w/rental income.
• Spacious classic 3 bedroom home with 2 bedroom basement unit. Perfect for multi-generational family or extra rental income.
• This is a single family home converted into 5 rentals. Convert back to single family home, or home for family w/2 rentals
• permitted addition w/full bath & own washer/dryer-great rental or mother-in law quarters
• Main unit is 3 bedrooms, 2.5 baths, 2 living rooms/areas & 2 bonus rooms. Second unit is 2 bedrooms, 1 bath & 1 living room/area. Second kitchen is non-conforming
• 3/2 upstairs & 1/1 downstairs with wet bar, ideal for studio rental or multi-family Upstairs apartment could be incorporated into main house or used for additional family members or rental income.
• 3/1 upstairs and 3/1 downstairs, with separate entrances. The back cottage (in poor condition) has 2-bedrooms and 1-bath
• 3/2 up with study & 2/1 down with 1 individual studio in prestigious St. Louis Heights with excellent Hokulani school district. 3 separate entrances possible for extended family.
• Multiple dwellings w/separate entrances. Duplex w/ 2/1 on ea.side, & detached cottage (2/1)
• Currently configured as 3/1, 4/1.5 and 4/1.5. Back portion built in 1991, front in 1964. Great for extended family or live in part and rent the rest 

DISCUSSION OF FINDINGS 

Preliminary results suggest that 9.5% of all homes Sold 2009 in the single-family category were described by the listing agent as containing a separate living area. However, some of the homes listed are duplicates listed more than once, ie search terms occur in the same MLS listing and therefore would count more than once.

I did not review each house individually. Some may indeed be legal 2nd units (ie large lot size may allow multiple homes or additional units allowed in an Apartment zone). However, a few also have multiple illegal units or illegally converted uses, ie. Maid's Quarters upgraded to a full 2nd dwelling unit. Also, illegal units are not advertised as "illegal" and may be hard to find. Additional homes may be discovered under expanded search terms ie. "in-law" or "does not match tax records" or "nonconforming" or "live in one rent the other" or "cottage". 

The search I did was limited to single-family category of MLS and did not include Multi-Family listings that may also include illegal dwelling units. Also, this search was limited to text in the Public Comments section, as the search could be replicated on both databases (Oahure.com and the MLS).  Including Realtor's comments to other Realtors (not publicly available) may have produced greater results.

Interestingly, if a property is producing good rental income, chances are, it would NOT be sold now when prices are below the market high of a few years ago. It is reasonable to assume that owners who are desperate to cover the mortgage are more likely to add a separate rental unit.

Illegal Dwelling Units - a MILLION Dollar loss

In Honolulu, illegal units mean unregulated construction and occupancy that although serves the immediate needs of the community, removes a significant portion of revenue (taxes and utility metering fees) that could be used by local gov't to manage and improve existing utility infrastructure, not to mention sharing the cost burden amongst more taxpayer shoulders.

This article discusses the # of illegal units on Oahu and the $$ amount of revenue lost when a community turns to illegal units to fill its housing shortage.

# OF ILLEGAL UNITS:
Are there really that many illegal units? The precise # of illegal rental units in Honolulu is difficult to quantify, so let's look at studies from another municipality.

San Francisco is similar to Honolulu in terms of above average real estate prices and declining supply of buildable land. According to a report by the San Francisco Planning & Urban Research Assoc (see pg 4), a 1996 survey conducted by the SF Planning Dept, examined the external appearance of homes (ie. comparing address numbering to # of permitted units, counting # of mailboxes on site, etc) and concluded that approx 8% all housing units were illegal. The report states:

"This [8%] figure is probably low because many unauthorized units cannot be detected from the street and would not have been recorded in an exterior survey. In the mid-1980s, a survey of the sale records of single family dwellings indicated that approximately 10 to 15% of the dwellings had an illegal secondary unit. Given the current housing shortage and high rents, it is quite likely that the creation of new unauthorized units is continuing, but at what rate is unknown."

Applying a conservative 8% guesstimate to Honolulu and data on the # of households from a 2008 US Census Bureau survey, (including only 1-unit attached/detached and 2-unit dwellings; NOT included: multifamily or hi-rises) reveals:

190,512  Residential Households in Honolulu
x 8%       Conservative Guesstimate of Illegal Dwellings on Oahu
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15,241 estimated illegal units on Oahu

LOST REVENUE:
Every 2 months, the Board of water Supply sends a water bill that includes a Sewer Base Charge and a Sewer Usage Charge. (Sample BWS bill) In 2010, the City expects to collect approx $23 Million per month and is the primary source of revenue for the Wastewater system. Dwelling units built illegally without a permit do not contribute to this revenue stream and increase the burden for legal dwelling units, since there are fewer customers to shoulder the cost burden.

Based on figures from a 2009 Wastewater Bond Prospectus, the City Wastewater Branch has by its own count:

 136,019  Living Units (Prospectus--table 14)

x $68.39  Monthly Sewer Base Charge (Eff. FY2010 rate increases to $68.39 per dwelling unit per month.)

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$9,302,339 Monthly Sewer Charge collected every month (not including $2.88/1,000 gal Usage fee)

Theoretically, if every estimated illegal unit were instantly converted into a legal unit with a landlord that paid the required sewer fee per dwelling unit, the City Wastewater Branch monthly revenues would increase by:

   15,241  Estimated Illegal Dwelling Units on Oahu

x $68.39  Monthly Sewer Base Charge

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$1,042,329 Additional Monthly Sewer Base Charge collected - if all illegal units were legal and paid their share of the sewer fee. 

That's an 11% increase in fees for the Wastewater Branch. 

That's a total of $1 Million in revenue that can fund sewer maintenance and expansion that will create new sewer capacity that has prevented so many other housing projects from getting off the ground!

To reduce the number of New illegal units, the City could to take steps to amend the Zoning Code to allow secondary units. The current Zoning Code encourages the creation and perpetuation of illegal units that rely on public infrastructure and taxpayer dollars but do not contribute to fees and taxes (note: Illegal rentals are also not likely to pay the 4% GE tax or properly assessed their share of property taxes) and raise the cost of living for those units that were legally established and therefore diminish the capacity of City officials and local developers to create new housing units.

I'm not advocating a citywide manhunt for illegal rental units. From a public policy standpoint, it is more difficult and costly to evict a person from their home and remove a source of income that the landlord had come to rely upon. Instead, as a community, we would have more to gain by reducing the barriers to creating new housing in Honolulu by simplifying the permit process and legalizing the already widespread practice of adding a secondary unit to a home, or Accessory Dwelling Units (ADU's). 

If the Wastewater Branch is not able to collect sufficient funds from the existing supply of legal residential units, they will increase the monthly Sewer Base Charge and Usage Fees to compensate. Increasing the number of customers will help reduce the individual financial burden on each customer.

Monies collected for the Sewer Fund, remain in the Sewer Fund and cannot be transferred (verify), which is esp important when City offices are being furloughed and gov't budgets squeezed.

"As part of the commitment to ensure the financial strength of the Wastewater System, they City Council adopted Ordinance No 05-006 on March 31, 2005, pledging not to transfer Sewer Fund monies to the City & County's General Fund." 2009 Wastewater Bond prospectus, pg 25.

UPDATE: 7/5/10:

Bond Prospectus (2009 senior and junior series):

http://www.honolulu.gov/budget/wwrb2009seniorseries.pdf

http://www.honolulu.gov/budget/wwrb2009juniorseries.pdf

2008_San Francisco_2nd Units Painless way to increase housing supply

ADU's in other states

"The national shortage of affordable housing has made accessory dwellings an important component of the housing strategy of many communities. Accessory dwellings help increase the supply of affordable housing without government subsidies, increase the overall housing stock, and facilitate elders’ ability to age in place. To promote the creation of accessory dwellings, four states (California, Massachusetts, Vermont and Washington) have enacted laws encouraging or requiring localities to amend their zoning ordinances to permit homeowners to add accessory dwellings. Below is information on those state laws and some links to further information."



2008_ADU laws in other states

The Legacy of Ohana Dwelling Units in Honolulu

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.”  (In 1982, Honolulu Mayor Anderson was already thinking Green and demonstrating principles of Smart Growth)

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 permits, 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 (see attached chart compaing ADU’s, Ohana Units, and illegal Rec Rooms). 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 in existence, nearly all were permitted between 1982 to 1997. According to a 2005 Dept of Planning & Permitting report (or download it here), 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 Units.



RESOURCES:

• “Ohana Housing: A Program Evaluation,” Office of Information and Complaint, Sept 1984.
• 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 Alternatively, if the like to the 2005 DPP report does not work, you can also view it here.
• Pacific Business News. “Ohana Program gets Cool Reception” 1/9/98

Accessory Dwelling Units (ADU's) as a way to Achieve Affordable Housing in Honolulu

Accessory Dwelling Units (ADU’s) provide a rare opportunity to create (affordable) legal dwelling units in Honolulu from the existing inventory of homes. It will cost the taxpayers very little – if anything – and it would not alter the character of our cherished residential neighborhoods.

This can be accomplished by amending the Zoning and Building Codes to legalize the already common practice of illegally renting a Rec Room (accessory to a single family dwelling) as a separate studio.

Historically, Ohana Units were intended to address the issue of home affordability and accommodate extended family living. However, creating an Ohana Unit comes with high permit fees and numerous restrictions (ie. occupancy strictly limited to family related by blood marriage or adoption) that have discouraged the widespread creation of Ohana Units

ADU’s are a potential compromise: while Ohana Units bear the highest permit fees and restrictions, illegally rented Rec Rooms contribute the least permit fees and tax revenue and have the least restrictions. (see attached Table comparing: ADU’s, Ohana’s and Rec Rooms) 

Realtors walk a fine line when we euphemistically describe illegal conversions as “great for multi-generational living” or “floor area does not match tax records” or “separate rental potential”. Yet we do this because the market has spoken. The fact that these illegal conversions are so common and so desirable, speaks to the urgent need of otherwise law-abiding homeowners to beat the high costs of living in Hawaii.

Although the City’s Sustainable Community Plans are moving towards the notion of ADU’s, any substantial policy shift is years away from approval. What’s needed is grass-roots community involvement to catalyze the process.



2010.05.26_Accessory Dwellin Unit as a way to achieve Affordable Housing in Honolulu -


2010.05.26_Talking Points -


2010.05.26_ADU vs Ohana vs Rec Room_Table -

The Dreaded Zoning Variance

Rule #1: Never apply for a Zoning Variance
Rule #2: See Rule #1...

If you've ever run afoul of the building or zoning code, chances are you've had to deal with a City Inspector. And in a miracle of biblical proportions, you (probably) managed not to strangle said Inspector. Well, their job is no fun either -- imagine a job defending the complex and often overwhelming rules that relate to what you can and cannot build.

So it's no surprise when we get calls from homeowners who just want drawings for a Variance.

As it turns out, when an Inspector says, "Oh, just apply a Variance..." what (s)he's really trying to do, is distract the angry homeowner, like a dog with a bone.

Variances are rarely granted approval and in most cases, you're back to square one. Alternatively, we are able to find enough gray area in the Zoning code that allow us to find workable solutions for our Clients -- without needing a Variance.

Even if you get "Approved!" Zoning Variances come with conditions and additional requirements that may turn the sweet victory, sour. Limiting hours of operation, number of occupants, or approval being limited to the specific business or applicant, so as to void any transfer of rights to a new Buyer, are examples of typical restrictions.

The purpose of a Variance is (usually) to deviate from the strict interpretation of the code. Presumably, because strict conformance would create an undue hardship that is unique to the land and not to the user.

It is a possible strategy to apply for a Variance simply to stall for time. Some Variances take 6 months to a year before they are scheduled for a public hearing.

There are many different kinds of Variances: Zoning Variances, Bldg Code Variances, Driveway Variances, etc. Everyone seems to want a Variance. Even the City & County of Honolulu is trying to get a variance from the EPA to avoid having to upgrade the Honouliuli and the Sand Island wastewater treatment plants to provide secondary treatment. Incidentally, the EPA denied the Variance in Jan 2009 and the City has since appealed that decision to the Environmental Appeals Board.

This process is typical of variances: If the initial Variance application is denied, you can appeal to the Board of Appeals. Failing that, you can hire an attorney and sue. If that still doesn't retun a favorable result, it climbs up the appeals court system until it reaches the state Supreme Court. Where most people run out of money or time or both and the matter is settled.

In reading the results of several of these appeals (in various states across the US), I've noticed a pattern that most Variances involve disputes over Zoning matters and most of these Variances are denied. Overturning of a zoning board of appeal's decision by the courts are rare, since most courts seem to allow the local authority having jurisdiction broad interpretive powers in enforcing and upholding the (in this case) zoning code. And in those rare instances where the heavens part and the courts decide the Variance should not have been denied, they remand the issue back to the Zoning Board of Appeals to reconsider their decision.

Here's one example. The last sentence reads: "Accordingly, the matter must be remitted to the BSA [(Board of Standards and Appeals of the CIty of New York)] for a determination of whether the construction meets the standards of the Zoning Resolution for the issuance of a special permit...."

It's not like Judge Judy where you argue your case as an innocent Homeowner vs the City, and Judy eyes you up and decides the fate of your illegal structure or use. No, the best outcome is that the judge rules that your case has merit and should be sent back from whence it came: the Board of Appeals (the people who now loathe you for challenging their authority), to be reconsidered. As if going through the process was not enough fun the first time, you get to rehash your case all over again.

The one Achilles heel i've read about is the RLUIPA. Go ahead and google search it. I promise you will have a new found respect for religion. The only time a Zoning Variance is recommended is if you are a well funded church.

To those i haven't persuaded, here's a link to the Honolulu's Zoning Variance Guidebook.
Good luck.

Case Study: Nonconforming Rental Units in Residential Zone

CASE STUDY:

My Client is looking for a residential property in town. A property that offers room to expand and has character.

Subject property is in the Moiliili neighborhood ("metro" region Honolulu)

• List Price: $695,000
• Zone: R-5
• Lot Area: 5,000 sf
• Liv Area: 962 sf
• Bed/Bath: 4/2

FEATURES: Of particular interest was that the property is in the Ohana Zone, so it could potentially have a 2nd dwelling unit. Lot is level and rectangular shaped. Expansion potential at rear. Potential city/mountain views if building a 2nd story addition.

ANALYSIS from Realtor-Assoc: Subject property's List Price seems on the high end and may therefore be on the market a while. Price may be justified due to Low Inventory of avail homes. Here's what I figure as the Sold comps when i ran my market analysis in early Feb 2010. The main house is a 3 bed / 1 bath. The rear structure contains 2 bed / 1 bath.

• sold comp #1: (McCully St) Listed for $499K, sold for $477K, 52 days on market (DOM). Approx 2 blocks away,similar age of house, similar lot size, zone, but larger living area. This property abuts a commercially zoned lot that built up to the property line, so light and ventilation is blocked from that side. However, short time on market suggests this property was well priced.Also, view is the McCully Bridge overpass and high traffic area. However, as a recent sale in the neighborhood, this will adversely affect an appraisal.
• sold comp #2: (Koali Rd) Listed at: $549K, sold at $525K, 172 DOM.Although 2,374 sf lots size and 2/1.5 bed/baths are substantially smaller, this is on of the few sold comps in area.
• sold comp #3: (Kamakini St) Listed at $725K, sold at $644K, 16 DOM. This property has 7,200 sf lot size, R-5 zone, but similar living area at 816 sf. Quiet neighborhood. Looks like a stream runs behind property.

 

• Listed in order from top to bottom, 
• comp #1,
• comp #2 and 
• comp #3

Analysis from Architectural Drafting Service:

• Siting of house makes it difficult to add to. House is located towards front of property. Although there appears to be plenty of room, any structure must be setback a min 10' from the street. Consequently, there is insufficient room for a covered Carport or Garage in the front of the house. It may be possible to squeeze one in front, but it will alter the character of the front entry and possibly block the bedroom/living room windows that face the street.
• Existing Carport on the left side of the house is within the 5' side yard setback. It was probably built without a permit and therefore cannot be grandfathered. Thus, there may be no existing legal space for covered car parking. 
• If there is a complaint or a new permit application, the examiner will likely question the permit status of the existing carport structure in the side-yard setback. This is a fire-hazard. Historically, structures may have been allowed along street frontages since no other structures could be built there but not along side yards, where fire could easily spread to neighbor.
• Rear detached structure consists of two bedrooms and a full bathroom. This structure is likely the original Carport that has been converted into bedrooms without a permit. The structure is rather poorly constructed and appears to be partially within the 5' side yard setback.
• 1975 City Zoning Report indicates that a connecting patio connected the main house to the rear bedroom structure. However, that patio has been demolished and the City does not allow detached bedroom structures.
• In 1968, a City Inspector, responding to a complaint that the property was being used as an illegal boarding house for 10 people, noted that a building permit could not be found for the 3 bedroom structure on the left side. At that time, the City issued a Notice of Violation and required that a 3rd detached structure be demolished. It allowed the left detached bedroom structure to remain, as their research was inconclusive. Today however, the zoning ordinance is clear when it comes to Nonconformities: ROH Sec 21-4.110 "...In other than criminal proceedings, the owner, occupant or user shall bear the burden to prove that a lot, a structure, as use, a dwelling unit or parking or loading was legally established as it now exists...."
• Therefore, even if the inspector did not require proof of a permit in 1968, today, the inspector may decide it is an illegal structure. 
• This will be an issue if there is a complaint or a new building permit application is filed.

• There is potential for a rear attached Ohana unit. It would require a 2nd-story addition to peek out above the rear neighbors, who are built-up quite close to the 3 adjacent side property lines.
• As is typical for older homes, the Buyer should budget for Electrical re-wiring, re-Plumbing and misc termite repairs.
• a New Building Permit will be required for any significant repair work to this property. It will need to show the floor plan and indicate the use of the rear structure. At that time, these issues will need to be resolved.

When Buying or Refurbishing a home, it's important to know what you're getting into. 

And if you are brave and still decide to take the leap into a new Property, we can help avoid potential problems and offer design solutions to satisfy Your unique requirements and meet City Planning & Permitting approval.