Can we do something about being the most unaffordable place in America?
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As we all know, the cost of living varies greatly from city to city. Rents, food, transportation, utilities, are all expenses individuals across the United States face each month. But what exactly is the variance?
Hawaii is known for its beaches and beauty, but sadly it is also known for having some of the highest costs of living in the nation. This chart compares the cost of living in fourteen major cities including Honolulu across the United States in 2011.
In 2011, the cost of living in Honolulu was 168 (up 3 percentage points from 2010) based on the national average of 100. (That means the cost of living is 68 percent higher in Honolulu than the average city in the United States.) Individual staggering differences are illustrated in basic food staples, such as bread, priced at $3.27 in Honolulu, as compared to $1.50 in Phoenix, Arizona, and $1.36 as the national average. Additionally, the cost of individual other basic items, from potatoes to toilet paper, are 30 percent to 100 percent higher in Honolulu than other cities across the United States.
The average individual income in Honolulu, Hawaii reported by the U.S. Census Bureau in 2010 was $28,882. The comparable after-tax income in the 13 other cities is shown in the middle of the chart. An income of $16,121 in Austin, Texas is actually equivalent to a $28,882 income in Hawaii. In simple terms, that would mean an individual could take a 44 percent pay cut and still maintain the same lifestyle.
Why are these figures so extremely skewed?
It all comes down to the cost of entitled (developable) land, and in Hawaii, land values are always up. The cost of an average home in Hawaii is nearly three times the cost of an average home anywhere else in the United States. Home prices in Honolulu are back up over $650,000, and are projected to grow faster than wage increases, which will make it even harder to retain our workforce.
Most segments of the commercial real estate market are in short supply (except office buildings) and will also increase their price and rent, consequently exerting further pressure on the cost of living. Consider the median business in Hawaii; with the cost of property at triple the price, rent follows proportionally at triple the cost, thus leaving businesses with very little room to pay significant wages if businesses want to be profitable.
This very difficult situation of the high cost of living and minimal wages in Hawaii is why people cannot afford to live here. The youth of Hawaii are not moving back home after college. They are picking up and starting their lives somewhere where the cost of living will not put them further into debt.
The question is, can we do something about being the most unaffordable place in America, or do we want to keep kicking the same can down the road? If history is the best predictor of the future, things are not going to change. Land and home prices will continue to increase, while the only thing that will change is what our workforce lives in. Will history repeat itself with a return to a form of plantation housing?
This outcome is not farfetched by any means. Many resort market business operators currently provide housing for their employees—something that, if not provided, would be disincentive for employees, resulting in a lack of workers to operate the resorts. This trend has already started in Hawaii on a small scale and will increase as the cost of living continues to skyrocket. On a larger scale, Employer Assisted Housing (EAH) benefits the whole community, especially when provided to essential members of the workforce such as firemen, police, teachers and medical workers. Unfortunately, none of the large employers or organizations are willing to step up to the plate and commit to the recourse necessary to provide the much needed housing.
Land use regulation, NIMBY’s and a lack of competition (oligopoly) are the biggest problems Hawaii faces. Recent land use approvals help to mitigate the problem and new housing along the rail line could provide the competition we need. However, educating the public and our elected officials of the absolute need for changes in the system will be the surest and best solution.