Utility Allowances in Hawaii: How High Energy Costs Impact Your Net Operating Income

In the mainland US, a Utility Allowance (UA) is often a budgetary rounding error. In Hawaii, where electricity costs hover around 40 to 45 cents per kWh (roughly triple the national average), the UA can make or break your project’s financial feasibility.

Many owners, especially those new to the islands, do not fully grasp that the Gross Rent limit set by HUD includes the tenant’s electric bill.

• The Golden Rule: The more your tenant pays HECO (Hawaiian Electric) for electricity, the less rent you are legally allowed to charge them.

If you are using the default utility schedule provided by the local Public Housing Authority, you are likely leaving thousands of dollars of Net Operating Income (NOI) on the table every month.

At Hawaii Affordable Properties, Inc. (HAPI), we help owners optimize their utility strategies to maximize asset value while remaining compliant. Here is the insider guide to stopping the revenue bleed.

Key Takeaways

• The “Seesaw” Effect: Since Gross Rent is capped by the government, every dollar the UA goes up is a dollar your Net Rent goes down.
• Avoid the “PHA Schedule”: The standard county chart is often based on older, inefficient housing stock. Using it on a renovated building usually hurts your bottom line.
• The “Split System” Revolution: Replacing old window AC units with modern split systems is the single fastest way to lower a UA in Hawaii.
• Neighbor Island Reality: Rates on Lanai and Molokai are even higher than Oahu, making accurate UA modeling critical for survival.

The Math: Gross Rent vs. Net Rent (The NOI Killer)

Why high energy estimates hurt the landlord.

In the LIHTC and other affordable programs, the government sets a Max Gross Rent based on AMI. Let’s say the 2026 Max Gross Rent for a 2-bedroom unit in Honolulu is $2,000.

This $2,000 bucket must cover Contract Rent (what you get) + Utility Allowance (what HECO gets). You cannot exceed the bucket.

Scenario A: The Inefficient Building (High UA)

• You use the standard PHA schedule. It estimates the tenant pays $300/month for electricity because the building has old jalousie windows and inefficient AC.
• Max Rent You Can Charge: $2,000 (Gross) – $300 (UA) = **$1,700 Net Rent**.

Scenario B: The Optimized Building (Low UA)

• You install solar PV and high-SEER split ACs. You hire an engineer to model the actual usage. The new UA is calculated at $150/month.
• Max Rent You Can Charge: $2,000 (Gross) – $150 (UA) = **$1,850 Net Rent**.

The Financial Impact: By lowering the UA, you just increased your revenue by $150 per unit/month.

• On a 100-unit building, that is $180,000 in extra revenue per year—pure NOI.
• At a 5% Cap Rate, that single change just increased the value of your asset by $3.6 Million.

The “Split System” Revolution

The single biggest factor in Hawaii energy modeling.

In Hawaii’s humid climate, Air Conditioning is the primary energy driver.

The standard PHA schedules often assume tenants are using older, inefficient window AC units. These units have low SEER ratings and, crucially, they require keeping jalousie windows partially open, allowing humid, salty air to leak inside constantly.

The Upgrade Play: Replacing window units with modern, high-SEER Ductless Split Systems changes the math entirely. Split systems are far more efficient and require sealed windows. When an engineer models this switch, the estimated energy consumption drops dramatically, lowering your UA and raising your rent potential.

The 3 Ways to Calculate UA in Hawaii

You have a choice. Choose wisely.

Most owners default to Option 1 because it’s free and easy. This is often an expensive mistake.

1. The PHA Schedule (The Default)

• What is it? A generic chart published annually by the local Housing Authority (e.g., Hawaii Public Housing Authority or the City & County Section 8 office).
• The Problem: It assumes “average” consumption for the region’s housing stock, which includes many unrenovated 1970s walk-ups. It often overestimates usage for modern buildings, resulting in a higher UA and lower rent for you.
• Best for: Old, inefficient buildings where actual usage is likely very high.

2. The HURES / Energy Consumption Model (The Engineer)

• What is it? You hire a qualified engineer to simulate the building’s specific energy usage using software (like HURES in Hawaii). They input data on your insulation, window glazing, AC SEER rating, and water heater type.
• The Benefit: If you have a modern or renovated building, this model will almost always prove that your tenants pay less than the average schedule.
• The Process: You must submit the engineer’s report to HHFDC for approval before you can implement it.

3. Actual Usage Data (The HUD Method)

• What is it? You collect actual utility bills from a sampling of tenants (typically a minimum of 10 units of each bedroom size) for the past 12 months to calculate an average.
• The Challenge: Getting tenants to hand over 12 months of private HECO bills can be difficult due to privacy concerns, though HECO has programs to assist with aggregated data.

The “Neighbor Island” Factor

It’s not just an Oahu problem.

If you are developing on the Neighbor Islands, this math is even more aggressive due to higher fuel surcharges and smaller grids.

• Oahu: ~41 cents/kWh.
• Maui / Hawaii Island: ~43-45 cents/kWh.
• Lanai / Molokai: Can exceed 50 cents/kWh.

On Molokai, a standard PHA schedule might set the UA at $400+. If you don’t aggressively implement energy efficiency measures and use an Energy Model, your collectable rent might drop so low that the project fails to cover its debt service.

Designing for Low UA (For Developers)

Don’t build to code; build for NOI.

If you are in the pre-development phase, you have the best opportunity to maximize future rents. Do not just build to the minimum energy code.

Work with your architect and HAPI early on to design features that will perform well in an Energy Consumption Model:

• Orientation: Utilize mauka/makai breezes to reduce reliance on AC.
• Water Heating: Specify Heat Pump Water Heaters instead of standard electric resistance tanks. They are vastly more efficient in our warm climate.
• Windows: Invest in double-pane, low-E glazing, even if code doesn’t strictly require it. The modeling software rewards this heavily.