A planned Big Island residential community with 2,330 homes initiated by the state to produce workforce housing is on pace to break ground next year despite a recent setback.

The estimated $734 million project called Kamakana Villages at Keahuolū recently was notified by the State Historic Preservation Division that a more thorough archaeological survey needs to be conducted prior to the developer petitioning the state Land Use Commission to urbanize the property.

Developer Forest City Hawaii LLC in March petitioned the LUC to reclassify the 272-acre site near Kailua, Kona, from agricultural to urban use.

A hearing was scheduled to begin last month, but was canceled after SHPD said additional archaeological surveying should be done.

Race Randle, Forest City's local development manager, said the company quickly began the work last month with a team of 16 archaeologists who as of Friday were on pace to finish surveying by today.

A report should be ready for submission to SHPD next month, which if approved would allow Forest City to return to the LUC for a hearing perhaps in September or October, Randle said.

The land-use change is one of the last remaining major regulatory approvals needed before construction can start. If construction begins next year, the first homes could be delivered in 2012.

Full buildout is projected to take 18 years.

Planning for Kamakana has been in the works for about three years already.

The land was given to the state by major Big Island landowner Queen Lili-'uokalani Trust as part of an agreement to provide land for affordable housing.

The Hawai'i Housing Finance and Development Corp., a state agency charged with facilitating affordable housing development, did some master-planning work in 2007 and issued a request for proposals from private firms to develop the project.

The agency said Kamakana will help meet an acute need for affordable housing in West Hawai'i and reduce regional highway traffic that's bad in part because many workers at nearby hotels commute to the area from far away.

In 2008, the agency selected Forest City Hawaii, an affiliate of giant Ohio-based development firm Forest City Enterprises Inc., which through another affiliate is building or renovating about 7,000 homes for the Navy and Marine Corps on O'ahu.

The agency also completed an environmental impact statement for Kamakana in 2008.

Last year, the agency and Forest City signed a development agreement, and the land was conveyed to the developer. Over the last year or so, Forest City has been refining project details.

Randle said Kamakana is supported by a county community development plan, and Hawai'i Housing Finance has provided a $25 million loan for predevelopment work such as permitting and infrastructure.

Under terms of the development agreement, half the homes must be reserved at rental or sale prices affordable for low- to moderate-income residents, which at present income levels translate to sale prices of about $170,000 to $400,000.

Kamakana is also designed with two school sites, parks, 27 acres of open space and close to 200,000 square feet of commercial space.

The project requires expansion of a county sewage treatment plant and development of new potable water wells.

There also would be some traffic impacts, though improvements are being made to the major thoroughfare, Queen Ka'ahumanu Highway. And Keohokalole Highway, a planned road bordering the project site, is under construction using $35 million in federal funds.

Archaeological impacts are a concern because of findings from a survey done by Queen Lili'uokalani Trust in 1989-90. Based on previous findings, Forest City proposed two archaeological preserve areas to protect important sites, including habitation and burial sites.

But after doing some additional sampling, Forest City made more archaeological discoveries than what the 1989-90 survey suggested might be found. Because of that, SHPD said Forest City should conduct an exhaustive survey of the entire property before the LUC hearing.

Randle said the latest work hasn't yielded any major new findings, so Forest City expects to proceed after only the slight delay.

"There's been no significant surprises," he said.