October 16, 2003

Low Interest Rates Fueling a Boom in Big Island Construction, Real Estate Sales

(Kailua-Kona, Hawaii, October 16, 2003) --Record low interest rates are fueling a 2003 boom in construction and real estate sales on the Big Island, particularly in Kona-Kohala, First Hawaiian Bank economics consultant Leroy Laney said today. He said Hawaii County tourism is holding steady because the island is not overly dependent on Japanese visitor travel.

At the annual First Hawaiian Bank Economic Outlook Forums at the Keauhou Beach Hotel, Laney said Big Isle visitor arrivals in the first half of 2003 ran a little below last year.

"All Neighbor Isle destinations continue to benefit from lower dependence on weak Japanese tourism, unlike Oahu," Laney said. "But also important in today's uncertain world is the fact that Hawaii is U.S. soil and perceived as a safe destination, unlike Europe which is closer to Middle East strife or Asia which might have some lingering taint of SARS."

Laney said the two sides of the Big Island have different visitor profiles. Almost half of visitors to Kona in the first half of 2003 were from West of the Rockies, while almost two-thirds of Hilo's visitors came from East of the Rockies. The international component remained small for both sides, he said.

Like the other Neighbor Islands, Laney said, Hawaii County tourism is being affected by the increased role of cruise ships.

"Hilo exceeded 100,000 passengers in 1999 and 200,000 passengers in 2002. Projections indicate that with added vessels the size of the current Norwegian Star, Hilo will see over 300,000 in 2005 and over 400,000 by 2007. The same kind of increases can be expected for Kona," he said.

Visitor spending on the Big Island by cruise passengers could approach $73 million yearly by 2007, Laney said, adding that work is needed on harbor facilities on the Big Island to accommodate both the added cruise ships and other traffic.

Laney, who is also a professor of economics and finance at Hawaii Pacific University, made these points about Hawaii County's economy:

Construction

"One of the strongest areas of Big Isle economic activity has been construction, boosted by record low interest rates." He said county construction permit values have risen a dramatic 40 percent above last year, with special strength in residential construction.

Laney said the boom is island-wide, but particularly in West Hawaii with its trend toward multi-million dollar homes in Kona-Kohala. A study by the Hawaii Leeward Planning Conference shows 21 percent of the island's total property tax base comes from these resort-residential developments.

He also pointed to Kamehameha Schools' plans for $6.5 million in construction this year at its new Puna campus and pending government projects in Hilo including the Pacific Basin Agricultural Research Center, a State Veterans Home and a new judiciary building.

Jobs

Job growth in Hawaii County was above the state average last year (2.1 percent vs. 0.1 percent) and is beating the statewide average again this year (2.9 vs. 2.1 percent).

Housing

The visibility of upscale housing development in West Hawaii has focused attention on the shortage of affordable housing for island residents, Laney said. "Some of that is coming, though more is needed. For example, Schuler Homes has begun projects at Pualani in Kailua-Kona and at Lualai in Waimea as a joint venture with Parker Ranch," Laney said.

Real estate market

"Due to low interest rates, real estate activity has been surging on the Big Island like everywhere else," Laney said noting that median prices for homes in South and North Kona rose 22% through July compared to the same period of 2002.

High-technology

"The Big Island's most unique link to high-tech is astronomy. Observatories atop Mauna Kea attract money and higher-income jobs to both Hilo and Waimea," Laney said. He said if cultural and environmental opposition scuttles the KECK Outrigger Telescope Project, global observatory investment could shift to places like Chile, "which has suitable summit sites and no such opposition."

Agriculture

"Despite sugar's exit, agriculture still accounts for a greater share of the Big Island's economy than in any other Hawaii county. It is especially important in East Hawaii. Flowers, nursery products, bananas, macadamia nuts, coffee, tropical fruits, forestry, dairy products, cattle, and other products all have a role."

Higher education's economic role

"The growing economic importance of higher education, especially on the East Side, is hard to overestimate. UH Hilo had over 3,000 students last year (half of them Big Island residents), and enrollment has grown 20% since 1997."

Laney noted that UH-Hilo projects in the pipeline include the U.S. Pacific Basin Agricultural Research Center, Mauna Kea Astronomy Education Center and a China-U.S. Center intended to include conference facilities, retail shops, museums and housing.

East vs. West Hawaii

"The Big Island's East and West sides have fundamentally different economies. On the East side, UHH and agriculture dominate; the tourism/resort economy of the West is more similar to Maui or Kauai. The West accounts for most of the growth nowadays, but the East is actually a more diversified and stable economy that isn't subject to some of the cycles of tourism and construction," Laney said.

"The economy is showing strength, something most economists and business people applaud. But anytime the economy in Hawaii heats up, concerns arise about the negative effects of growth -- traffic, pollution, inadequate infrastructure. Especially on the Neighbor Islands, those tensions will probably always be there."