SB3312 would create a state program to encourage the conversion of vacant or underused commercial properties into residential housing in Hawaii. The bill directs the Department of Business, Economic Development, and Tourism to certify “qualified conversion projects” and administer a new incentive program for projects that rehabilitate commercial buildings, office parks, or commercial centers into primarily residential or mixed-use developments. To qualify, a project must produce at least two residential units and dedicate at least 50 percent of the units to affordability, with rental units affordable to households at or below 80 percent of area median income and owner-occupied units affordable to households at or below 120 percent of area median income.
The bill also establishes a refundable income tax credit for developers based on certified development costs, capped at no more than 10 percent of allocable development costs, with the exact amount determined by the department. The credit would be available only after project completion and certification, and it would be subject to recapture if the project stops meeting program requirements within five years. The measure further requires periodic review of pending projects, completion certification, annual reporting to the Legislature, and rulemaking by DBEDT and the Department of Taxation. It appropriates $10 million in general funds for fiscal year 2026-2027 to establish and administer the program.
In terms of state law, SB3312 would add a new part to chapter 201, Hawaii Revised Statutes, governing qualified conversion projects, and a new tax credit section in chapter 235 for the related income tax incentive. It would create new definitions, certification procedures, compliance and revocation authority, reporting obligations, and tax administration rules. The bill is designed to shift state policy toward adaptive reuse of commercial real estate as a housing supply strategy, while tying public support to long-term affordability commitments.
The overall sentiment reflected in the bill text is strongly supportive of housing production and affordability, especially for workers and families priced out of the market. The findings emphasize the housing shortage, the decline in demand for office and retail space, and the value of converting existing buildings into homes as a sustainable and economically beneficial approach. The bill frames the program as a way to support neighborhood stabilization, economic development, and housing for essential workers such as teachers, health care workers, public employees, and service workers.
There is little recorded committee or floor debate in the provided materials, but the measure was deferred by the House Committee on Housing on February 10, 2026. Based on the bill’s structure, likely points of contention include the cost of the $10 million appropriation, the use of a refundable tax credit, the administrative discretion given to DBEDT to certify projects and set credit amounts, and whether the 50 percent affordability requirement and long-term affordability periods are sufficient or too restrictive. Another possible issue is whether the program will effectively convert commercial properties at scale or primarily benefit developers already positioned to undertake large rehabilitation projects.
SB3312 would amend Hawaii law by adding a new commercial-to-residential conversion program in chapter 201 and a corresponding refundable income tax credit in chapter 235. It would authorize DBEDT to certify projects, define eligible development costs and affordability standards, monitor compliance, revoke certifications for noncompliance, and report annually to the Legislature. The bill would also appropriate $10 million in general funds for program administration and implementation, and it would apply the tax credit to taxable years beginning after December 31, 2025.
The bill’s stated purpose and findings show a generally favorable sentiment toward using tax incentives to address Hawaii’s housing shortage by converting underused commercial properties into homes. The measure is framed as a practical, sustainable housing-supply strategy that supports affordability for moderate-income households and essential workers. However, the fact that the House Committee on Housing deferred the measure suggests there was not enough consensus to advance it at that stage, or that lawmakers wanted more review of the program design, fiscal impact, or implementation details.
The main areas of potential contention are the fiscal cost of the program, including the $10 million appropriation and the refundable nature of the tax credit, which could reduce state revenues. Some may question whether DBEDT should have broad discretion to certify projects, set fees, and determine credit amounts, or whether those powers need tighter limits. Others may debate the affordability thresholds, the requirement that at least half of the units be affordable, and the long affordability periods, as well as whether the program’s eligibility rules are too narrow by focusing on former office-tenant properties and buildings placed in service at least five years earlier. Developers may favor the incentive structure, while fiscal watchdogs, housing advocates, or local governments could differ on whether the program is sufficiently targeted, accountable, and likely to produce meaningful housing supply.