FIRST HAWAIIAN BANK ECONOMIC FORECAST - Kauai
KAUAI CONTINUES TO ENJOY ROBUST TIMES
The Downside? (Un)Affordable Housing, Bad Traffic
(Princeville, Hawaii, September 27, 2005) – "Kauai continues to enjoy very robust economic times, but some trade-offs always exist when growth heats up in an island environment. Two negative by-products of today's economic strength are on the minds of practically everyone on Kauai -- affordable housing for residents and traffic congestion," First Hawaiian Bank economics consultant Leroy Laney said today.
The forecast for the Kauai economy in 2005 and 2006 calls for job growth in the low 2 percent range, with inflation-adjusted personal income growth of 2-3 percent, Laney said at the 31st Annual First Hawaiian Bank Economic Outlook Forum at the Princeville Hotel.
Housing prices are the main topic of conversation on the Garden Island, he said.
"The median price of a single family home on Kauai was $600,000 in the first half of the year, up 29 percent from the same period in 2004. Some areas have risen in price more than others, but increases have been big everywhere," Laney said. "One wonders about the future of an economy in which those who make it run can't afford to relocate or stay here."
He said the situation is "especially painful for new entrants to the market and those considering relocation here. Even more, it extends well beyond working-class families into the professional ranks. An economy cannot continue to function without many of these positions.
"Eventually affordability will bring the current real estate cycle to an end, hopefully with a soft landing," Laney said. "Speculation, buying not for use or income but just to take advantage of expected higher prices in the future, contributes to a bubble that pops at some point. As with any sharp run-up in prices in any market, there comes a time when we begin to question the sustainability of the rise. We are beginning to ask that question with the housing market now in Hawaii."
"Economics 101 teaches that the only way to effectively bring down the now exorbitant home prices is to increase supply," Laney said.
He made these points about major sectors of the Kauai County economy:
Traffic Congestion: "During periods of economic strength, falling behind on infrastructure can be very serious because it's so hard to catch up. Traffic congestion on Kauai seems to be concentrated on along two main arteries -- Route 50 coming into Lihue from the West, and Route 56 running into Lihue from the North along the East side," Laney said. "Congestion along the latter comes to a head about the Wailua River Bridge. The situation around the bridge could get worse in the future, with developments in Kapaa town and the rebirth of the Coco Palms Hotel."
Labor market: "The Kauai unemployment rate has now caught up with that of the state, an odd development because usually in Hawaii the Neighbor Islands have a higher unemployment rate than Honolulu, the center of the economy," he said. "Kauai's heated economy has been creating jobs faster than the state, but a slowdown is evident in the face of a shrinking labor supply."
Tourism: "Kauai tourism has continued to be very healthy in 2005 on all fronts -- hotels, time share, rentals, activities, restaurants, and retail. Total visitor arrivals were up 2.1 percent in the first half of 2005. That's less than Oahu or the Big Island, but both Kauai and Maui have enjoyed strength for a longer time and big gains are harder to come by," he said. "Like Maui, Kauai has been making bigger gains in the U.S. East market, which has grown almost 8 percent in 2005."
He noted that Kauai’s visitor inventory has been shifting away from hotels in recent years, such as the conversion of the Radisson Kauai Beach Hotel to condotel. "Another aspect that distinguishes Kauai is the greater importance of independent vacation rentals. Kauai Vacation Rentals reports that its business has been up 6 percent in the first half of this year," he added.
Construction: "Probably the biggest contributor to Kauai economic growth for several years has been construction and development," Laney said, and the pipeline is full thanks to such projects as Kukui'ula, Alexander & Baldwin's 1,500 unit residential project with DMB Associates on the South Shore; a proposal by Knudsen Trust for up to 500 single and multi-family units on its South Shore landholdings; the Pikake I project on Grove Farm land in the Puhi-Puakea area, where 88 lots sold out in six days recently and more phases are coming online soon; and a 440-unit Schuler Homes project at the Hanama'ulu Triangle near the airport.
Auto sales: King Nissan on Kauai seems on track for close to a 10 percent increase in new vehicle sales, continuing a multi-year growth trend.
Agriculture: Positive developments include plans to repair the Tropical Fruit disinfestation Facility, which has been shut for four years; formation of the Kauai Agricultural Tour Operators Alliance, an industry group promoting and cross-selling visitor experiences; and exploration of ethanol production at Gay & Robinson, one of the state's two remaining sugar plantations.
# # #
Equal Housing Lender |