Posted on: Wednesday, September 22, 2004
Economic boom on Kaua'i poses risk
By Jan TenBruggencate
Advertiser Kaua'i Bureau
LIHU'E, Kaua'i —The economy on Kaua'i is booming and likely to boom further, but the fast growth has within it the seeds of its own end, according to Leroy Laney, consulting economist to First Hawaiian Bank.
Laney's annual report on the island's economy is one of a series of reports he gives across the state.
A potentially serious risk of the superheated economy is that housing prices are now so high, most working folks can't afford homes. Despite a persistent global demand for Hawai'i real estate, that can't continue, he said.
Laney calls this the "dark side" of the economic boom. Kaua'i already has a higher percentage of people holding multiple jobs than the state or national average, and it has a higher proportion of workers without bachelor's degrees than any other island.
"But even young professionals often can't afford to buy, leading to out-migration and more hurdles to diversifying Kaua'i's tourism and resort home-oriented economy," he said.
A very healthy tourism economy creates an additional housing strain as rental properties are converted from long-term rentals for residents to short-term vacation rental units.
He said the rest of the state economy is headed upward, and Kaua'i is no different. In some ways, Kaua'i's growth is faster because it builds on the severe economic conditions following 1992's Hurricane 'Iniki.
Unemployment statewide dropped 2.8 percentage points from 1997 to early this year, but Kaua'i's dropped 7.2 percentage points from a much higher level. Yesterday, the state reported August unemployment at 2.9 percent, a 13-year low.
For the first six months of this year, Kaua'i had 4.1 percent unemployment, a little higher than the state's 3.6 percent, but jobs are being created at a fast pace, Laney said.
"Overall job growth on Kaua'i has easily outpaced the state as a whole. ... And Kaua'i's job strength in the past couple of years has been pervasive across most sectors of the economy. Construction and tourism jobs have remained strong, and other service sectors such as professional, business and health services have also shown strength," he said.
But there are nagging problems here, as well. While job applications are double the number of openings, employers say it's harder than ever to find qualified employees, especially in skilled jobs, Laney reported.
The good: Visitor arrivals are strong, adventure tourism is a growing activity, resorts are upgrading and cruise ship traffic is increasing; high-end housing and resort development are soaring; military spending associated with the Pacific Missile Range Facility is growing.
The not-so-good: Agriculture is a weaker force in the economy than it once was, with just one sugar plantation remaining. Also, the island provides a limited array of job opportunities and needs "diversification that leads to higher-skilled, living-wage jobs with career paths, plus better educational opportunities."
He said the cost of housing will work against making the needed improvements in the economy, because it will create a labor shortage — people unable to afford homes here will not move to the island to work, or will leave Kaua'i to find work where housing is affordable.
At some point, the cost of real estate will be self-limiting, since high-priced properties will eventually languish for lack of buyers.
"Reaching some kind of threshold of pain is one of the things that will bring it to an end," Laney said.
Reach Jan TenBruggencate at jant@honoluluadvertiser.com or (808) 245-3074.
