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In the world of Hawaii real estate development, “small lots” (under 20,000 sq. ft.) were historically ignored. They were too small for a high-rise, but the setbacks and parking requirements made building a walk-up financially impossible.
Enter Bill 7 (Ordinance 19-8).
Passed originally in 2019 and significantly expanded through 2026 with new amendments (like Bill 3 and Bill 6), this legislation has become the single most important tool for increasing rental inventory in Honolulu’s urban core. It effectively tells landowners: “If you build affordable rentals, we will let you break the usual zoning rules.”
At HAPI, we are seeing a wave of these “micro-unit” projects finally finishing construction. For landowners and investors, here is the definitive guide to the opportunities—and the operational challenges—of Bill 7.
What is Bill 7? (The “Grand Bargain”)
Trading parking for affordability.
The core concept is simple: The City grants massive zoning variances in exchange for a commitment to rent to households earning 80% to 100% of the Area Median Income (AMI). In a city where land costs are astronomical, Bill 7 effectively creates “land” out of thin air by allowing you to build up rather than out.
The Major Incentives:
- No Parking Required: This is the game-changer. Digging an underground garage can cost $50,000 to $75,000 per stall in Honolulu. Bill 7 allows you to build zero parking stalls (though you must provide bike/moped storage). This savings alone often makes a project financially feasible.
- Density & Height: You can typically build up to 60 feet (approx. 5 stories) with a Floor Area Ratio (FAR) of 4.0. On a standard apartment lot, you might only get 0.9 FAR. This effectively quadruples your rentable square footage.
- Setback Reductions: You can build much closer to the property line (often 5 feet instead of the standard 10-20 feet), maximizing the building footprint on tight urban lots.
- Tax & Fee Waivers: Projects receive exemptions from real property taxes (typically for 10 years during the affordability period) and waivers for expensive wastewater system facility charges and building permit fees.
The “Grand Bargain”: Standard A-2 vs. Bill 7
See how the math changes on the same 5,000 sq. ft. lot.
| Feature | Standard A-2 Zoning | Bill 7 (Affordable) | The Benefit |
|---|---|---|---|
| Max Density (FAR) | 0.9 | 4.0 | 4x more buildable area. |
| Max Height | 30 – 40 feet (3 stories) | 60 feet (5 stories) | +2 extra floors. |
| Lot Coverage | 50% max coverage | 80% max coverage | Larger building footprint. |
| Parking | ~1 stall per unit. | 0 stalls required. | Save ~$50k/stall. |
| Setbacks | 10 ft front / 10 ft side. | 5 ft – 10 ft. | More usable land. |
The 2026 Updates: Bill 3 & Bill 6
Fixing the bottlenecks.
While Bill 7 looked great on paper, the initial reality was a “permitting nightmare.” The promised 90-day approval timeline often stretched to 2+ years. In response, the City Council has passed new measures that are actively helping projects in 2026:
1. Bill 3 (The Cash Grant) To offset rising construction costs (and the high interest rates of 2025), Bill 3 introduced a post-construction grant program. Qualified affordable projects can now receive $15 per square foot (or roughly $25,000 – $35,000 per unit) in grant funding upon completion. This “gap financing” is critical for making the numbers work when insurance costs are high.
2. Bill 6 (Self-Certification) The Department of Planning and Permitting (DPP) backlog is legendary. Bill 6 allows qualified, licensed architects and engineers to “self-certify” that their plans meet code, bypassing months of DPP review. Note: This comes with high liability for the architect, so finding one willing to sign off can be tricky, but it is the fastest way to break ground.
Is Your Lot Eligible?
The “Bill 7 Checklist”
Not every scrap of land qualifies. To use these incentives, your property must meet strict criteria designed to target urban “in-fill” areas rather than quiet suburbs.
1. Zoning Requirement Your lot must fall into one of the following zones. (Bill 7 cannot be used on residential R-5 or R-3.5 lots).
- Apartment: A-1 (Low Density) or A-2 (Medium Density).
- Mixed Use: AMX (Apartment Mixed Use) or BMX (Business Mixed Use).
2. The Size Limit The lot must be 20,000 square feet or less.
- Why? The City wants to encourage small landowners (families with a spare lot) to build, rather than massive corporate developers who focus on high-rises.
3. Ownership & Subdivision Rules You generally cannot have successfully subdivided the lot in the last 5 years just to qualify for Bill 7. This prevents developers from taking a massive 1-acre parcel, chopping it into ten 4,000 sq. ft. lots, and building a “Bill 7 compound.”
The Management Challenge: “No Parking” Living
It sounds eco-friendly, but it requires active management.
As property managers, HAPI sees the operational side of Bill 7. Managing a building with 20 units and zero parking spots requires a specific strategy:
- Tenant Selection: You must market specifically to tenants who do not own cars. We verify this during screening. If a tenant sneaks a car in and parks on the neighbor’s lawn, the neighborhood board will come after the property owner.
- The “Moped Army”: Tenants in these buildings rely heavily on mopeds and Biki bikes. You need robust, secure moped parking areas, or they will end up in your hallways (a fire hazard).
- Location Matters: These projects only work in “Transit-Oriented” zones like McCully, Moiliili, and Makiki, where the bus/rail connections are strong.
Frequently Asked Questions
How long must the units stay affordable?
Typically 15 years. During this period, you must rent to households earning 100% AMI or below (and sometimes 80% AMI depending on the specific tax exemptions you claim). After 15 years, you could theoretically convert to market rent, but many owners choose to renew their affordability status to keep the property tax exemptions.
Does "Affordable" mean "Low Income"?
Not necessarily. Bill 7 targets 80-100% AMI. In Honolulu 2026 numbers, 100% AMI for a family of four is roughly $152,000. These are teachers, nurses, and construction workers—the “Missing Middle.”
What happens if I build no parking and my tenants park on the street?
This is the #1 complaint from neighbors. While you cannot legally forbid a tenant from owning a car, you can write a lease addendum stating that no on-site parking is provided and that parking in unauthorized neighborhood spots is a lease violation. HAPI enforces this strictly to maintain community relations.
Can I build a Bill 7 project on a residential (R-5) lot?
No. Bill 7 is strictly for Apartment and Business zones. It is designed to densify areas that are already urban. If your lot is zoned Residential, you would need to go through a lengthy (and expensive) Zone Change process first.
Have a Small Lot? Let’s Talk Strategy.
Developing a Bill 7 project is a high-risk, high-reward venture. Once built, you need a management team that understands compliance and the unique needs of car-free tenants. Contact HAPI to discuss your development’s future management plan.
