Ditch the equity cap: How to make “locals-only” housing actually work

Over the past year, deed-restrictions—legally binding limits on property use—have gained traction as a way to address the housing crisis by creating “locals only” housing markets. This practical tool would allow the state and countries to sustain programs that genuinely benefit Hawaiʻi’s residents in an increasingly unaffordable housing market. 

Deed restrictions are not new. The state and counties use them for the majority of their new affordable, for-sale housing projects, with restrictions placed on what a resident can do in the unit, how long the unit is restricted for, and what price the unit can be sold at. 

In Ala Moana, Honolulu’s affordable housing deed restrictions are used to require an owner occupancy requirement, with up to a 30-year resale restriction on the Sky Ala Moana. The restriction also stipulates that if the unit is sold within the 30 years, the owner can only gain 1 percent in equity. It must be sold at a restricted price. 

Prospective buyers must carefully weigh whether they can commit to a studio for 30 years, afford to sell before the restriction ends, or would be better off renting. A quick calculation shows that renting may be the wiser choice for a young person building a life in Honolulu.

The initial price for one of these units is roughly $400,000. With a 10 percent down payment and a 1 percent annual equity limit, selling within the 30 year restriction could not help them move up the housing ladder. A buyer's equity would be restricted to just $8,000 in two years, $20,000 in five, and $40,000 in 10 years. This minimal equity does little to help residents upgrade from a studio or one-bedroom to a larger condo or a home, where a six figure downpayment is often needed to afford the monthly housing costs.

The current use of deed restrictions traps residents, preventing them from downsizing or upsizing as their needs change without facing a financial penalty. We must reform these programs to ensure their primary purpose is to give residents a true advantage in the housing market—not to confine them with limited equity and a hidden financial cliff. If we are serious about a “locals only” housing market, we must eliminate deep equity caps and re-focus on residency and long-term use. 

Public intervention should not micromanage a buyer’s equity, but ensure that the home remains locally owned and occupied. That means eliminating restrictive resale formulas and instead enforcing permanent rules that require every deed-restricted home be sold, again and again, to an owner‑occupant who lives and works here.

When outside demand is effectively infinite, deed restrictions that focus on creating a diverse resident-owner base across multiple housing types—rather than just capping prices—do more to shift the market toward locals than any single “affordable” building will. 

In a place where outside capital consistently outbids local wages, the best strategy is to move beyond equity caps and instead use deed restrictions to create a permanent, resident‑only buyer pool across many buildings and housing types. This strategy is the best way to build a durable, diverse foundation of local owners, instead of trapping them on the bottom rung.