Mission, Money & Markets: Kresge supports the efforts of Native Hawaiians to topple barriers to home ownership
By Krista Jahnke
In Hawaii, owning a home can be a challenge. That’s especially true for the Native Hawaiian population.
Thanks to the Hawaiian Homes Commission Act, which passed in 1920, anyone who is at least 50 percent native Hawaiian is eligible to receive homestead land from the state and federal government, on which they can build a home. Hawaiians can lease this land for 99 years for $1 a year.
However, to get an assigned plot, Hawaiians must demonstrate financially that they can put a home on it. This is challenging; many traditional lenders will not provide a mortgage for these plots because they cannot foreclose on them through the standard process if needed. (There is an alternative method for acquiring a foreclose on the property if the lender submits for and receives an insurance payment through the Department of Housing and Urban Development.)
"You might own the house, but you’re leasing the land,” said Kresge’s Social Investment Portfolio Manager Joe Evans. “The land is assigned by the government – it is not legally yours. As a result, the bank cannot sell the property in the event a homeowner defaults, so conventional mortgage financing is unavailable.”
This factor is compounded by the fact that, like other indigenous people, the Native Hawaiian community has suffered from a longstanding deficit of opportunity in education, the banking system, health care, and employment, leading to lower levels of financial empowerment and greater poverty. And building in Hawaii is much more expensive than the continental United States, because of the cost of shipping in supplies. According to The Atlantic in 2017, the average price of a single-family home on Oahu, for example, was $750,000. Even building a modest home on a homestead lot costs about $280,000, an amount out of reach for the clear majority of people on the waitlist.
It all adds up to a path to home ownership riddled with obstacles that many families just can’t overcome. Some Native Hawaiians will resort to building shacks of corrugated steel, for instance, on their parents’ or grandparents’ property, as they wait to receive the land the government has declared should be their birthright.
“People die on the waiting list,” Evans said. “Some people are on the waiting list for decades, which has led to younger generations losing confidence in their ability to take advantage of this birthright, even when living with housing insecurity and homelessness.”
A CAPITAL SOLUTION?
This is where the Council of Native Hawaiian Advancement (CNHA) comes in. CNHA is a trade group serving Native Hawaiian nonprofits and individuals. CNHA provides a convening, capacity building and shared learning platform for its members and is also a Community development financial institution (CDFI), bringing the tools of finance to its membership. CNHA also works on public policy issues and runs the Hawaii Way Fund that operates much like a United Way, collecting donations and then distributing them back out to member organizations that serve Native Hawaiians.
“They’re the leading voice for Hawaiian policy at both the state and national level,” Evans said.
Kresge became interested in working with CNHA when it applied for investment through Kresge Community Finance, an initiative to pump $30 million of program-related investments (PRI) into CDFIs doing work aligned with Kresge programs. CNHA stood out for Kresge’s Human Services team because of its reach into and service to the Native Hawaiian community, both in Honolulu and throughout the state of Hawaii. Although it was smaller than the CDFIs Kresge typically invests in, the Social Investment team pushed for the foundation to find a way to support it, because the Native Hawaiian community is particularly cut off from access to the tools of community development finance. This presented a chance to help build the capacity of not only CNHA, but also other CDFIs and the larger funder network focused on improving opportunity for this community.
“We had to stretch a bit,” Evans said. “But given our focus on equity, this investment gives us a platform to address a particularly inequitable finance system that presents outsized barriers for this population.”
In 2017, Kresge made the $500,000 PRI loan to CNHA. The organization had never received a PRI from a national foundation like Kresge; in fact, we believe this was the first PRI from any foundation to a Native Hawaiian-governed organization, and one of only a very tiny handful of PRIs ever made in the state.
The investment is now being used primarily to support loans to member organizations. Some supports a community space and storefront that gives residents a place to reach tourists and sell Native Hawaiian arts and crafts, offer community classes in Native Hawaiian heritage, and hold artist performances. Some will support small, homeowner energy efficiency loans for homeland houses. The PRI also enabled CNHA to lend to a member organization to establish the first LISC Financial Opportunity Center in Hawaii. According to LISC, “Financial Opportunity Centers (FOCs) are career and personal finance service centers that help low- to moderate-income people build smart money habits and focus on the financial bottom line.” The Hawaiian FOC opened in June in Hilo.
“CNHA has been an innovative leader in community finance in Hawaii," said Kuho Lewis, CNHA's CEO. "Kresge’s investment in our loan fund ensures capital flows to our Native Hawaiian member organizations, so they can implement solutions and drive policies that enhance the cultural, economic, political and community development of their local Hawaiian communities."
PARTNERSHIP BEYOND THE DEAL
Beyond the financial dollars, Kresge’s Social Investment team has invested through its partnership, coming alongside CNHA and other local institutions to build their impact investing muscles.
“Impact investing in Hawaii is at a very early stage,” Evans said. “What was clear in our conversations early on was that there was a strong interest in impact investing among funders and trusts both for Native Hawaiians and within the state more generally. And that those stakeholders would really benefit from a transfer knowledge about what is it and how do you do it.”
Evans stepped into this role conferring with funders, CNHA and other organizations, and traveling to Hawaii to share Kresge’s experience both with CNHA members and with a broader funder and trust community.
Meanwhile, an effort was underway to gain state financial support for a potential solution to the issue of lack of access to homestead land – tiny homes. These homes cost less than $80,000 to build, an amount that’s much easier to finance. The Homestead Housing Authority (HHA), a CNHA member, asked Evans for input on how best to leverage and structure any state money that might become available for CDFI capacity building and to build and finance tiny homes on homestead lots. The hope is that if people can build homes at the cost of only $80,000 – and if CDFIs have more capacity to serve them – capital will begin to flow more quickly to residents waiting for a home.
Evans suggested that instead of asking the state to provide funds to finance homes, they request funds to serve as the equity source in a larger fund, and that HHA and its partners use this as an opportunity to put the tools of social investing to work.
“We developed a straw man and presented it to a funder group,” Evans said. “This doesn’t sound like much, but they said that having a national funder come in and help them surface the possibilities helped give them something to organize around and discuss.”
This sparked the group to begin assembling a fund. For now, it’s called Kukulu Kauhale, which means “build a village,” and while it is still in the conceptual phase, there has been positive movement within the Hawaiian Legislature and continuing discussions amongst stakeholders.
“There is still a lot of work to be done in Hawaii to move the social enterprise agenda forward, but there is also evidence that the capacity to do so is growing and if further supported, could produce deeper and longer-term results,” said Janis A. Reischmann, executive director of the Hau`oli Mau Loa Foundation.
A bill to support the fund passed both the Hawaii State House of Representatives and Senate in the 2018 session and made it all the way to conference committee before being stalled in April. While the legislation did not pass, it pushed this fund one step closer to reality.
“We’re always happy when we can use Kresge dollars to make an impact,” Evans said. “But we do hope that our partnerships with organizations go beyond just dollars. We know impact investing as a field is still in its early days, and sharing our knowledge and experience is important, too.
“We can’t be in every room like this, but to be able to play even a small role in helping the Native Hawaiian community begin on a path toward a more sustainable financial future is very gratifying.”
Krista Jahnke is a communications officer at The Kresge Foundation and works with the Social Investment Practice and the Education Program. Find her on Twitter @kristajahnke.