HB1741 SD1

SECTION 1. The legislature finds that Hawaii cannot close its housing shortage without a large increase in homebuilding, especially in formats that add meaningful unit count in already‑urbanized areas. In Sheetz v. County of El Dorado, 144 S. Ct. 893 (2024), the United States Supreme Court held that legislatively imposed land-use permit conditions, including impact fees, must satisfy the two-part test requiring (1) essential nexus and (2) rough proportionality. These constitutional limits require a publicly available record that identifies the specific, project-related impact being mitigated and caps any exaction at an amount proportionate to that impact. Yet many jurisdictions adopt inclusionary or other development exactions based on generalized affordability goals or regional "housing need" tallies rather than a quantified, project-caused impact and proportional remedy, an approach that misstates causation and is legally vulnerable under Sheetz v. County of El Dorado unless the county's record identifies a project-caused impact and a proportionate remedy.

The legislature further finds that because inclusionary mandates operate as permit-linked exactions, they must satisfy constitutional essential nexus and rough proportionality. The assumption that new market-rate housing causes unaffordability and therefore must be offset by a surcharge on that same housing is contradicted by the preponderance of evidence. In most cases, adding homes lowers rents and prices through filtering and moving chains, so imposing a surcharge on by-right, non‑luxury projects rests on a flawed methodology and risks suppressing production and increasing prices. Income-restricted housing is an important component of overall affordability, but it should be funded transparently by the government rather than by loading undisclosed costs onto new homebuyers through mandates embedded in private development.

The legislature also finds that workforce mandates have repeatedly failed to deliver housing at scale in Hawaii and, in practice, have deterred feasible projects, particularly multifamily apartments and condominiums, while shifting production toward higher-price, lower-density development. Experience from other jurisdictions likewise shows that when not narrowly tailored, inclusionary mandates reduce overall supply and increase the share of luxury units. Exceptions may be appropriate where new development is low-density and requires extensive infrastructure or where development is visitor-serving and increases local workforce demand tied to tourism.

Accordingly, the purpose of this Act is to:

(1) Treat county inclusionary mandates as housing affordability impact fees; and

(2) Require a straightforward, professional study showing feasibility and market prices or rents with and without any inclusionary mandate across common prototypes.

This Act does not apply to resort or vacation-rental construction and does not limit actions of the Hawaii housing finance and development corporation or Hawaii community development authority.

SECTION 2. Chapter 46, Hawaii Revised Statutes, is amended by adding a new section to part VIII to be appropriately designated and to read as follows:

"§46- Inclusionary mandates; housing affordability impact fee; needs assessment study. (a) Any county inclusionary mandate shall be deemed a form of development exaction and shall be treated as a housing affordability impact fee pursuant to this part. Beginning July 1, 2028, no county shall adopt, amend, or enforce an inclusionary mandate applicable to residential or mixed-use development unless the county council has first approved, by ordinance or resolution, a needs assessment study that:

(1) Complies with this section and section 46-143; and

(2) Includes the analyses described in subsection (b).

(b) In addition to the requirements of section 46-143, the needs assessment study required by this section shall:

(1) Disclose data sources and methodology;

(2) Analyze various representative market-rate prototypes commonly produced in the county, which may include single‑family, duplex, townhome, condominium, and apartment formats;

(3) Evaluate various compliance options, which may include on-site units, off-site units, in-lieu fees, or land dedication;

(4) Evaluate the financial feasibility and general economic impacts of the proposed inclusionary mandate to ensure it supports, and does not suppress, overall housing production; and

(5) Publish a residential nexus and affordability-gap analysis and summary tables of results.

(c) Beginning July 1, 2028, no county shall adopt, amend, or enforce an inclusionary mandate on a residential or mixed-use residential project unless the county makes written findings demonstrating compliance with essential nexus and rough proportionality.

(d) Notwithstanding any other law to the contrary, any inclusionary mandate enacted before July 1, 2028, shall be unenforceable with respect to applications deemed complete on or after July 1, 2028, until a needs assessment study is conducted pursuant to this section and section 46-143. Once a needs assessment study demonstrates compliance with subsection (c), enforcement of an inclusionary mandate may resume prospectively for applications deemed complete thereafter.

(e) Each county shall provide a clear process by which an applicant may contest the application of an inclusionary mandate or any findings made under this section, including a determination under subsection (c)(1).

(f) This section shall not apply to:

(1) Projects located on lands classified within the agricultural district or conservation district pursuant to chapter 205;

(2) Resort or vacation-rental construction, including any dwelling unit or building that is used, intended, designed, or marketed, or that may be used for transient accommodation purposes, including hotels, timeshares, resort condominiums, transient vacation units, or other transient accommodations as defined by county ordinance or chapter 237D;

(3) Conditions required by federal or state funding or financing programs; voluntary commitments not required by county law, including codified voluntary opt-in incentives programs established by county ordinance; or generally applicable impact fees unrelated to inclusionary obligations;

(4) Projects undertaken by, or subject to approvals, permits, exemptions, rules, or actions of, the Hawaii housing finance and development corporation under chapter 201H or Hawaii community development authority under chapter 206E; or

(5) Minor amendments to county ordinances, including amendments that repeal ordinances, reduce regulatory burdens, or make changes solely for administrative purposes.

(g) For purposes of this section:

"Inclusionary mandate" means any county requirement that a development provide or fund below-market-rate dwelling units on site or off site, pay an in-lieu fee, dedicate land, or comply with equivalent exactions tied to permits, approvals, or development agreements.

"Single-family detached" means a dwelling unit in a freestanding building designed for occupancy by one household, not attached to any other dwelling unit by a common wall or floor or ceiling.

"Transient accommodations" has the same meaning as in section 237D-1."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2050.

HOUSE OF REPRESENTATIVES	H.B. NO.	1741
THIRTY-THIRD LEGISLATURE, 2026		H.D. 2
STATE OF HAWAII		S.D. 1