HAWAII LAND REFORM ACT OF 1967

INTRODUCTION

The Hawaii Land Reform Act of 1967 made it possible for lessees to buy the fee interest to
their leased land. In a Honolulu Advertiser article dated July 2, 2006, Mike Gordon reported
on the 1967 land reform act: While the state and federal government owned almost 49
percent of Hawaii, another 47 percent belonged to only 72 private landowners. On O'ahu,
the most urbanized of the islands, 22 landowners owned 72.5 percent of the fee-simple titles.

The Legislature decided to force landowners to break up their holdings, and the result was the
Hawai'i Land Reform Act of 1967. The hope was to reduce home prices in the process.

The law made it possible for lessees to buy the fee interest to their land. The state now had
the authority, in some cases, to condemn private residential land and sell it to the people who
had leased it.

More than 14,600 families were able to buy the land under their single-family homes.

The law was challenged in 1979 by the Kamehameha Schools, which used money from the
leases to finance school operations.

In 1983, the 9th U.S. Circuit Court of Appeals declared the law unconstitutional, but when
the case went before the U.S. Supreme Court in 1984, it ruled in favor of the state1.

Hawaii Housing Authority v. Midkiff2,

Background
Only 22 landowners owning 72.5% of the fee simple titles in the island of Oahu, and the

Hawaii state legislator concluded that there was an oligopoly in land ownership that was

"skewing the State's residential fee simple market, inflating land prices, and injuring the

public tranquillity and welfare."

1
www.dkosopedia.com/static/h/a/w/Hawaii_Land_Reform_Act_of_1967_21ae.html

2
Hawaii Housing Authority v. Midkiff 467 U.S. 229 (1984)
However, the shortage of buildable land on Oahu largely because roughly half of the island is

government-owned and thus unavailable for privately-owned housing.

The Hawaii legislature enacted a condemnation scheme, which was intended to transfer titles

to the lots from its owner, the Bishop Estate, to the home lessees. The case focused on the

taking of land held by the Bishop Estate, a charitable trust that held the residual lands of

the Hawaiian monarchy and used the proceeds to support the Kamehameha schools, which

provide an education to Hawaiian children. The Bishop Estate had subdivided some of its

land on Oahu and leased individual lots to land lessees, who built homes on them and at first

paid nominal rents to the estate.

However, as Oahu land values rose, as did rents, the tenants demanded for the state to acquire

the Estate's title and to reconvey title to the individual lots to the lessee-homeowners, who

would have to pay fair market value to reimburse the state for the acquisition.

Decision
The Court's decision looked to Berman v. Parker (1954) in which eminent domain power had
been used to redevelop slum areas and for the possible sale or lease of the condemned lands
for private interest.

The Court decided that the United States Congress had the power to determine what was for
the public good over the judiciary. The decision equated police power with the eminent
domain of the sovereign's public use requirement.

In an 8-0 decision, the Court voted that the Hawaiian act was constitutional. Hawaii's act to
regulate the oligopoly was seen as a classic exercise of the State's police powers, and a
comprehensive and rational approach to identifying and correcting market failure and
satisfied the public use doctrine. Land did not have to be put into actual public use in order to
use eminent domain. It is the taking's purpose, and not its mechanics that were important.
Here, eminent domain was used to provide an overall market benefit to the wider populace.

The decision suggested that a judicial deference to the legislature was involved. If the
legislature determines there are substantial reasons for the exercise of the taking power,
courts must defer to the legislature's determination that the taking will serve a public use.

The Court held that the takings to correct concentrated property ownership was a legitimate
public purpose.

Limitations of the decision

The decision, though, placed limits on the power of the government, stating:

A purely private taking could not withstand the scrutiny of the public use requirement; it
would serve no legitimate purpose of government and would thus be void.... The Court's
cases have repeatedly stated that 'one person's property may not be taken for the benefit of
another private person without a justifying public purpose, even though compensation be
paid.’

Aftermath

However, the aftermath of the Midkiff decision failed to achieve the stated purpose of the
redistribution legislation. It could not create new housing because it transferred title from the
land lessor only to the lessee-homeowners who already occupied existing homes on the
subject property. As soon as the former lessees acquired fee simple titles to their homes, they
became attractive to Japanese investors who paid outlandish prices for those homes, largely
in the upscale Kahala and Hawaii Kai neighborhoods. That led to a ripple effect throughout
the island.

Home prices on Oahu, far from falling, as had been intended by the legislature, surged
upward and more than doubled within six years.
The primary holding of Midkiff was reaffirmed by Kelo v. City of New London (2005).

Violation of 5th amendmend

The Fifth Amendment permits the Government, after paying ''just compensation,'' to take
private property for ''public use.'' The United States Court of Appeals for the Ninth Circuit
ruled that the Hawaii law violated the Fifth Amendment by permitting the state to condemn
private property not for ''public use'' but for the ''private use and benefit'' of the tenants who
would acquire it.

How govt. would grant compensation to land owners

Compensation must equal the fair market value of the owner's leased fee interest. § 516-
1(14). The adequacy of compensation is not before us.

How to solve dispute between lessor and lesse on fee simple title

As originally enacted, lessor and lessee had to commence compulsory arbitration if they
could not agree on a price for the fee simple title. Statutory formulae were provided for the
determination of compensation. The District Court declared both the compulsory arbitration
provision and the compensation formulae unconstitutional. No appeal was taken from these
rulings, and the Hawaii Legislature subsequently amended the statute to provide only for
mandatory negotiation and for advisory compensation formulae. These issues are not before
us.

Eligible tenant

An eligible tenant is one who, among other things, owns a house on the lot, has a bona fide
intent to live on the lot or be a resident of the State, shows proof of ability to pay for a fee
interest in it, and does not own residential land elsewhere nearby