Hawaiʻi’s Cost Of Living Is High. But There’s Another Huge Problem

“ Beyond the price of paradise: Is Hawai‘i being left behind? ” compares Hawaiʻi to prosperous, high-cost locales such as San Francisco, where many people feel they’re being priced out by rising housing costs, gentrification and inequality, despite overall wage growth.

Instead of stopping there, UH professor Steven Bond-Smith and graduate research assistant Erich Schwartz show how Hawaiʻi’s economy resembles that of the most economically distressed areas, where a lack of opportunity drives outmigration, despite low living costs.

The conclusion: Hawaiʻi’s dubiously unique mix of low wages and scant opportunity make it more like West Virginia than San Francisco.

“Crucially,” the report says, “the combination of high prices and low incomes predicts as much outmigration as in some of the nation’s most struggling cities, where low costs of living typically cushion economic disadvantages.”

In essence, Hawaiʻi’s economy is defined by a toxic economic brew combining the worst of both worlds: high costs and low incomes and opportunities.

Based on real per capita income alone, Hawaiʻi isn’t that bad, about the U.S. average. But that changes when factoring in the state’s cost of living

“Our prices and incomes combined actually make us look more like Mississippi or Alabama or West Virginia,” Bond-Smith said in an interview.

Bond-Smith describes those areas as “left behind” because nothing has come in to replace previously thriving industries such as coal mining.

“That’s exactly the same story really in Hawai‘i, if you look at tourism spending,” he said. Adjusted for inflation, tourism spending peaked in 1989, with spending in 2019 about the same as it was three decades prior.

“And so our tourism industry has basically stopped growing,” he said, “but nothing else has emerged to support the lack of growth.”

The Cost Of Hawaiʻi’s Unaffordability

The report also notes the cost of outmigration beyond usual observations that a stagnant or shrinking population threatens Hawai‘i’s economic productivity and stability, especially as people who stay here get older and retire. Native Hawaiians in particular have felt economic pressure to leave their ancestral homeland, the report notes. The same goes for people from long-time kamaʻāina families.

“As outmigration erodes the presence of both Kānaka Maoli and multi-generational kamaʻāina,” the report says, “it threatens not only cultural continuity but also the local networks and place-specific knowledge that have long underpinned the economy and community in Hawaiʻi.”

A key takeaway is that policy responses to the affordability crisis are incomplete, focusing primarily on the price of paradise and not the other side of the equation.

State and local policymakers are well aware of the state’s high cost of living. Particularly concerning housing, political leaders regularly adopt policies to develop homes to rent or sell at below-market rates. Gov. Josh Green’s administration is building dozens of tiny home villages for homeless residents. And mayors and city councils are continually trying to curtail the use of homes as short-term vacation rentals to increase housing supply.

But Bond-Smith said policies to reduce costs won’t solve the problem of stagnating or declining income that contributes to the affordability gap — and outmigration.

“If we resolve cost of living, if we make housing more affordable, all we’re doing is kicking the can down the road, because that gap is going to continue to widen,” he said. “In 10 to 15 years’ time, people will be looking at the incomes they can earn in Hawai‘i and what that buys them.”

Bond-Smith agrees that Hawaiʻi has lifestyle amenities that keep people here; others stay because of deep cultural roots or family ties. But he notes that such benefits haven’t been enough to stop the flow of outmigration by people who no longer want to struggle with the affordability gap.

“These are people who’ve decided the benefits that Hawaii has to offer,” he said, “are no longer enough to get past that gap.”

Report Offers Few Solutions

At 44 pages, the report offers a plethora of data supporting Bond-Smith’s thesis that it’s not merely the cost of living but a more complex affordability gap driving residents from Hawaiʻi. It offers few solutions, beyond promoting higher-value tourism and a broad suggestion to diversify the economy.

“Revitalization will depend on strategic investment in infrastructure — broadly defined to include not just physical assets, but also digital connectivity, human capital, research and innovation capacity, and institutional support systems that enable new industries to emerge,” the report says.

Bond-Smith said the purpose of the paper wasn’t to drill down on such solutions but to address something “where I think both politicians and the media have kind of got it wrong.”

“Rather than just having the cost of living as being the number-one problem, I think actually the lack of growth is probably an even bigger, higher priority to address,” he said. “We need to lift productivity, or value per person working in Hawaiʻi, and that’s what allows people to be able to afford to continue living in Hawai‘i.”

“ Hawaiʻi’s Changing Economy ” is supported by a grant from the Hawaiʻi Community Foundation as part of its work to build equity for all through the CHANGE Framework.

This story was originally published by Honolulu Civil Beat and distributed through a partnership with The Associated Press.