BIG ISLAND TOURISM, CONSTRUCTION, JOB CREATION REMAIN STRONG
Spiraling Housing Prices Raise Concern: A Bubble, Or Not?
(Keauhou and Hilo, Hawaii, September 15, 2005) – The Big Island economy is hitting on all cylinders, entertaining 17 percent more tourists than in 2004, fueling extensive construction activity and creating jobs faster than the state as a whole, while leaving employers struggling for qualified people to hire, First Hawaiian Bank economics consultant Leroy Laney said today.
"The Hawaii County economy in 2005 and 2006 should see continued economic strength, but with some cooling off from 2004's heated pace. Both job growth and inflation-adjusted personal income growth will hover in the 2 to 3 percent range," Laney said at the 31st Annual First Hawaiian Bank Economic Outlook Forum held today at two sites – the Sheraton Keauhou Bay Resort and the Naniloa Hotel in Hilo.
"One fly in the ointment is concern over the escalating price of housing, leading to concerns about affordability for residents and newcomers alike," he added. "The Big Island's disparate geographic areas lead to a wide range of prices and markets, but price increases have been rapid everywhere."
Because of the diversity of Hawaii County real estate, and the island's size and room for expansion, local concerns about affordability may be slightly less than on Maui and Kauai, Laney said, but added: "One wonders about the longer term future of any economy in which those who make it run can't afford to relocate or stay here. Eventually affordability will bring the current real estate cycle to an end -- hopefully with a soft landing."
Laney acknowledged increasing debate about whether housing prices in the Islands are in a "bubble" that’s bound to break. "If a market is overvalued, eventually adjustment will occur. Most of us remember times during the tech stock boom of the late 1990s, or the Hawaii real estate boom of the late 1980s that was fueled by Japan's bubble, when thoughts like that occurred to us. That's the time to take caution and be realistic," he said.
"In real estate, of course, downward corrections usually aren't as sharp as in financial markets. But in the 1990s, those who bought at the top of Hawaii's previous real estate boom were punished -- and it contributed to one of the worst decades for our economy in modern times."
One way to bring down prices is to increase supply, he noted, and the Big Island has more room for that than elsewhere in Hawaii. "Of course, adverse legal developments -- such as the Hokulia case still under litigation -- don't help any, because they add up to an uncertain investment climate that no developer wants to deal with," Laney said.
He made these points about major sectors of the Hawaii County economy:
Labor market: "Big Island unemployment -- 3.3 percent in the first half of the year -- is still slightly higher than the statewide total of 2.8 percent, which is the lowest in the nation, but the gap is closing. The estimated unemployment rate on the Kona-Kohala side is below 1 percent, with all sectors having difficulty filling open positions at every level," Laney said.
Tourism: "The Big Island visitor industry has been having an extremely good year so far in 2005, with total arrivals up 17 percent through June. Both domestic and international arrivals have been strong, and visitor spending was up 23 percent over the same period," he said. He noted that Sheraton Keauhou Beach Hotel has reopened after extensive renovations and renovations could be in the works for the Naniloa Hotel in Hilo.
Construction: "The construction sector seems to be hot everywhere nowadays, and the Big Island is certainly no exception. Those in the industry expect the current pace will continue for at least another couple of years. The labor shortage is most acute in this sector," he said. Laney noted that infrastructure struggles to keep up with development "but it seems to be a losing battle. Traffic congestion in Kona has reached gridlock proportions."
UH-Hilo: "UH-Hilo has increased its economic contribution to East Hawaii in recent years," he said with a planned new program in pharmacy, a huge increase in grant funding (from $3 million in 1998 to an estimated $18 million this year) and plans for a China-U.S. Center. There are also plans for a new Hilo community college campus and West Hawaii University Center.
"At the UH-Hilo University Park, the Mauna Kea Astronomy Education Center should open in December 2005. Its exhibit hall, blending astronomy and Hawaiian culture, should prove to be a desired stop for visitors, including cruise passengers, as well as residents," Laney said.
Natural Energy Lab: "The big industry at the Natural Energy Lab at Keahole Point continues to be bottling desalinated deep sea water for export -- a lucrative, very high margin business," Laney said, with the original producer (Koyo) doubling its output and competitors coming on line.
"If oil prices remain high, maybe the lab’s original purpose -- alternative energy creation -- will be resurrected at some point," he said.
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