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Making Heads or Tails of Hawaii’s Dilemma

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By Lowell L. Kalapa

As the campaign battles roar on, it has become obvious that voters listening to the political rhetoric have become even more confused about what ails our island economy.

The following does not pretend to be a complete and comprehensive analysis, it is musing and thoughts that are being shared with readers to initiate discussion within your own community be it with the gang around the water cooler or on Sunday after church services. In any case, the following thoughts are intended to stimulate discussion because there is no one right or wrong answer. The other important point is that solutions to our economic dilemma don’t come out of a textbook or from the wizards who proclaim themselves to be economists.

The observations and answers are imbedded in the community. For example, recently it was reported that a number of police departments from the Pacific Northwest were in town to recruit officers from the local police ranks. Higher pay and a lower cost of living are the incentives that these mainland police departments have to offer.

While the local police union seized this moment as an opportunity to call for higher compensation levels for local police officers, the problems go much deeper than just coming up with more pay for police officers. In fact, if one were to look across the board it is not only police officers or teachers who getting paid less than their mainland counterparts, but workers in general tend to earn less than their mainland counterparts whether they are public or private employees.

While it is disturbing that police officers are being recruited after local departments have invested in their training, that issue could be addressed by inserting a clause into their contracts that the officer repay the local department if he or she leaves within a short period after receiving that training. But more importantly is the fact that by comparison workers on the mainland are doing much better in compensation that workers in Hawaii, an indicator of the economic condition of the state.

The other enticement that mainland officials hold out to prospective recruits is the substantially lower cost of living. The fact that the cost of living is substantially higher in Hawaii has long been known and acknowledged. While there are certain factors beyond the control of business or political leaders, such as distance and transportation costs, it would seem that there are other elements which contribute to the high cost of living that are within the control of political and business leaders.

Although observers could at one time argue that it was the high cost of housing, falling values of real estate indicate that the pent up demand is finally being satisfied or else people just cannot afford to finance a new home. Looking back, there is no doubt that one of the major factors contributing to Hawaii’s high cost of housing in the 1970’s and 1980’s was the fact that so very little of Hawaii’s lands were designated for urban use. With a limited supply and an overwhelming demand, home prices soared. This situation was exacerbated by outside investors who saw the limited supply as a great opportunity to make a handsome profit.

But when agricultural lands were opened up by the land use commission, a flood of housing came onto the market at the affordable level. However, there was irony in the fact that many of the affordable units were mandated by state rules which dictated that 60% of the units built by developers had to be in the affordable category and the other 40% could be built for market price. However, because developers had to find a subsidy to be able to sell the 60% at affordable prices, the cost shifted to the market units. Thus those prospective home buyers who could not qualify for the affordable units found that they also could not afford the market units because the prices were substantially higher in order to offset the subsidy to the affordable units.

Among the other items cited in the higher cost of living in Hawaii is the cost of food and gasoline. In both cases government has implied that customers are being ripped off by the businesses selling these products. However, every investigation of these higher costs has pointed to costs that are indirectly affected by government directives. Next week we will look at how government affects the cost of these and other products which contribute to the high cost living in Hawaii.

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