Hawaii has record-low unemployment and it’s not a frozen hellscape. Why are people leaving?

https://www.washingtonpost.com/news/wonk/wp/2018/01/05/hawaii-has-reco
BYby Andrew Van Dam
January 5
The sun sets on December 31, 2015 in Honolulu. (Brendan Smialowski/AFP/Getty Images)
The sun sets on December 31, 2015 in Honolulu. (Brendan Smialowski/AFP/Getty Images)

Hawaii has the lowest unemployment rate of any state in recorded history, a good economic outlook, and — most attractive at this time of year — little chance of polar vortex or ‘bomb cyclones’. Yet in 2017 its population fell for just the third time since statehood in 1959.  

It only dropped a tenth of a percent, but that's a worse showing than all but four states (Wyoming, West Virginia, Illinois and Alaska), according to a recent Census Bureau release.

Which brings us to the core conundrum: people are leaving Hawaii even though the labor market is stronger than on the mainland, and even though it’s the high 70s in Honolulu this week. What could possibly be driving them away?

Hawaii’s unemployment rate is exceptionally low. The preliminary seasonally adjusted reading for November was 2.0 percent — the lowest of any state since the Labor Department started keeping track in 1976, and less than half of the 4.1 percent national rate reported in November.

These state numbers are often revised, and the low rate can partly be explained by a labor force that shrank for most of 2017, an aging population, and peculiarities of the state's labor market. But "any way you cut it, 2.0 is extremely low," said Carl Bonham, economics professor and director of the University of Hawaii's economic research organization.

Even beyond the unemployment rate, the economy looks strong. A recent report from Bonham's organization projected continued growth for 2018, based on another record year of tourist arrivals, steady activity in the construction sector, and growth in health and tourism jobs.

So why is anyone leaving?

One answer trumps all others: home prices. Hawaii has the most expensive housing in the nation, according to the home value index from housing website Zillow. Rent costs trail only D.C. and (in some months) California. Overall, Hawaii had the highest cost of living of any state in 2017 (D.C. was higher), the Center for Regional Economic Competitiveness found, and housing was the main driver.

It's always been expensive to live in Hawaii, but it's getting worse. There's just not enough housing on the islands, and Hawaii now has one of the worst rates of homelessness in the country.

The Department of Housing and Urban Development found that 51 out of every 10,000 people in Hawaii were homeless on the day they were counted in January 2017—that’s worse than 49 other states and ahead of only D.C. Hawaii had the fourth-fastest increase in homelessness over the past decade, the same study found.

How can homelessness and house prices be high even as the state's population is steady or falling? Some factors—tight zoning regulations, lack of land suitable for development, and not-in-my-back-yard-ism—have long been present on the islands, but there's one issue that has come to loom over all others: tourism.

Tourism has long been key to Hawaii's economy, but today it dominates. Tourists have arrived in all-time record numbers each of the past six years, and Bonham's organization predicts they will continue to do so for years to come.

But these record arrivals haven't come with record spending. Adjusted for inflation, today's tourists are more frugal than their predecessors.

Many are repeat visitors. They've already checked the big-ticket items off their bucket list and are just coming to relax and enjoy the absence of whatever apocalyptic winter storms and chores they left back home.

"They’re just not spending like they used to," Bonham said. "They’re probably shopping at Target and Kmart and probably staying in a condo or at an Airbnb."

That second part is the key.

All those extra visitors must be staying somewhere, and that somewhere is private residences. Bonham estimates there were 14,000 rooms on the vacation-rental market in 2016 (that's assuming full-time use, so the actual number is probably much higher), and every one of those is another unit that's not available for residents looking to buy.

The state granted about 4,100 residential housing permits in 2016, but Bonham estimated that they'd need about double that to accommodate demand and rein in prices.

The rise of the frugal tourist is also putting the squeeze on jobs and earnings. Residents who might have found work at higher-paying resorts in the past are now waiting on those same tourists at Target and Kmart instead. And they're not likely to afford Honolulu housing on retail wages.

Average hourly earnings for private-sector employees in Hawaii ranked 15th in the nation over the past year, and they consistently grow more slowly than home prices.

As the changing character of Hawaii's visitors squeeze residents on both ends, they may have no choice but to leave.

"There’s a connection there between that booming number of arrivals and that vacation-rental market and ... some of the exits of people from the state because of rising costs," Bonham said.

Military deployments are another factor. Bonham noted there was a net reduction of about 1,000 troops and dependents in 2016, when the state saw only 0.2 percent population growth. And the islands' fertility rate has fallen almost every year since 2008, according to the most recent data from the Centers for Disease Control and Prevention.

The high price of land and the shortage of affordable labor has also pushed sugar and pineapple plantations out of business, Brittany Lyte reported for The Washington Post in December.

“We have put all our eggs into one basket, and that is tourism. But not everybody who lives on this island wants to work in the hotel industry, and it’s almost impossible to feed a family here working as a farmer,” Lyte quoted Maui County Councilman Alika Atay as saying.

“We are now seeing drastic displacement of young people leaving Maui because of a lack of economic opportunity," Atay told Lyte.

Bonham agreed that heavy reliance on tourism had foreclosed other options.

"If you’re looking in manufacturing or you’re looking in certain areas of the sciences we simply don’t have some of those jobs," he said.

Preliminary data back up the notion that Hawaii residents are continuing to vote with their feet. Moving company Atlas Van Lines found that, among its customers in 2017 (through Dec. 15), there were three moves out of Hawaii for every two moves in. The state is clearly a very nice place to visit.  But it's getting harder and harder to stay.