Priced out of Paradise: What drives Hawaii's high cost of living?

HONOLULU (HawaiiNewsNow) - There's no question it's expensive to live in Hawaii. And the premium for living in paradise is only rising.

Even though fuel prices have d ropped by more than $1 a gallon in the past year, filling your car with gas still costs more here than most anywhere else in the nation. Meanwhile, Hawaii's cost of electricity continues to be the highest in the country.

And then there's housing. In September, the median sales price of a home on Oahu was a record-high $730,000 in September, up 7.6 percent from the year before and 17 percent from 2010, according to the Honolulu Board of Realtors.

Economists say goods, services, and housing drive cost of living calculations.

And while Hawaii does have some reason for concern, there are also bright spots, say economists.

Lawrence Boyd, an economist and associate specialist with the University of Hawaii Center for Labor Education Research. said when it comes to high prices, one of our biggest concerns should be the cost of power.

"Our electricity prices run — on a per kilowatt basis — between 200 percent to 330 percent of the mainland," he said, "and electricity is your basic business cost."

He also dispelled a big myth: Shipping costs aren't the cause for Hawaii's higher-than-average prices for food.

In 2010, regional price indexes were developed, which offer experts better comparisons between local prices and the mainland. One of the first things this new data dispelled is that shipping costs make our goods considerably more expensive here than elsewhere.

"It's more expensive to ship from California to the East Coast using rail than it is to ship here using water," Boyd said.

Experts say breakfast cereals and milk are two of the few anomalies here; the latter could be solved by bringing local dairies back to Hawaii, he said.

Paul Brewbaker, an economist and Principal of TZ Economics, said goods in Hawaii now cost the "least different" compared to the mainland, thanks to changes in technology and retail distribution.

Services, meanwhile, continue to cost more, largely because of high real estate costs.

But the biggest cost-of-living driver in the islands is — no surprise — housing, he said.

"The main thing that moves around that causes Hawaii's living cost differential with the mainland, which is the usual comparison, is housing costs," Brewbakers said.

Economists said home prices are almost always determined by the incomes of the people who live there; Hawaii is an exception to that rule.

Boyd said he thinks outside demand is the biggest factor driving Hawaii's high housing costs. "Basically what Hawaii has become is a preferred place for the international 1 percent to buy property," he said.

What's the solution?

Boyd said he thinks government should aim to stunt outside demand — and lower housing prices — by raising property taxes for non-residents and vacation rentals.

"If you engineered the exemption properly, more of these places would be rented long-term rather than as vacation rentals and because
there would be an increase in that, that would lower the prices for local rentals," Boyd said.

Brewbaker, however, disagrees that the problem is demand-based. Rather, he said, it's an issue of supply.

He said the solution to Hawai''s skyrocketing housing prices is reducing housing and development regulations to make it easier to build

"The only thing a jurisdiction can do to reduce the cost of housing -- since it can't control the cost of the land and since it can't control the cost of the materials and the skilled labor putting together the housing unit -- is the cost of acquiring the entitlement," Brewbaker said.

Economists say the one other major factor impacting Hawaii's cost of living is our electricity rate, which is twice as expensive per kilowatt hour as the next costliest state, Alaska -- and more than three times the national average.

Experts say lowering Hawaii's energy costs would lead to lower prices in the grocery store, more opportunity for business start-ups and a vast improvement in income levels because it would attract more high-tech industries that pay better.

This is the first in an ongoing series, "Priced out of Paradise," in which Hawaii News Now will explore Hawaii's high cost of living and why so many island families are struggling to make ends meet.

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