Hawaiʻi’s high cost of living is tied to low wages and weak job growth

Summary

A report from economists at the University of Hawaiʻi Economic Research Organization argues that Hawaiʻi’s high cost of living has been treated as the central explanation for people leaving the state, but that prices alone do not capture the full problem. In interviews and in the report’s findings, researchers pointed instead to the combination of high prices and low incomes—describing it as an affordability gap that helps predict outmigration.

Bond-Smith and co-author Erich Schwartz said the key issue is the lack of high-paying jobs, even as residents face prices that remain difficult to navigate. The report frames the state’s situation as one where middle-income households can struggle to get by because wages do not keep pace with living costs, and it says the affordability gap between Hawaiʻi and other places is widening.

The economists said their analysis compares Hawaiʻi to other high-cost regions and also to places that researchers describe as “left behind,” using economic performance and outmigration pressures as points of comparison. Bond-Smith said the report’s conclusions are that Hawaiʻi’s affordability patterns look more like Mississippi, Alabama, or West Virginia when measured through prices and incomes together.

In describing the state’s economic trajectory, Bond-Smith pointed to tourism as a driver that has not produced broad-based growth. He said tourism spending peaked in 1989 and that spending in 2019 was about the same as it was three decades prior, arguing that the absence of growth has not been matched by new economic development.

Bond-Smith said the outmigration risk does not stem only from a general pattern of population loss, but from how eroding income opportunities affects residents over time. He said outmigration can also be damaging as the people who remain get older and retire, and he said Native Hawaiians and people from long-time kamaʻāina families have faced pressure to leave their home. The report warns that as outmigration erodes “the presence of both Kānaka Maoli and multi-generational kamaʻāina,” it threatens “not only cultural continuity but also the local networks and place-specific knowledge that have long underpinned the economy and community in Hawaiʻi.”

The report also takes aim at what it describes as incomplete policy responses. It says officials and policymakers often focus on the price side of the affordability crisis, including housing policies designed to develop homes to rent or sell at below-market rates and steps discussed by local governments to increase housing supply. The cluster reports that Gov. Josh Green’s administration is building dozens of tiny home villages for homeless residents, and that mayors and city councils have tried to curtail the use of homes as short-term vacation rentals.

Bond-Smith argued that addressing only costs would not close the affordability gap if income and job growth do not improve. He said that even if housing becomes more affordable, “all we’re doing is kicking the can down the road,” because the gap would keep widening, leaving people looking in later years at how much they can earn in Hawaiʻi and what that income buys. In his account, some residents may remain because of lifestyle amenities and cultural or family ties, but those benefits have not been enough for everyone facing the affordability gap.

The economists said the report offers few direct solutions, focusing instead on assembling data to support their thesis about how prices and low incomes interact to drive departures. The cluster describes the report as 44 pages long and says it argues for strategic investment in infrastructure broadly defined to include physical assets, digital connectivity, human capital, research and innovation capacity, and institutional support systems to enable new industries. Bond-Smith said the purpose was not to drill down on solutions, but to address what he described as a misunderstanding among politicians and media about what should be the top priority.

In his view, the “number-one” problem is not just cost of living, and he argued that the lack of growth is even more important for policymakers to address. He said the state needs to lift productivity or “value per person working in Hawaiʻi,” because that is what allows people to afford to stay.