Major Decrease In Hawaii’s Cost Of Living Unlikely, But A Little May Be Enough

Jan 27, 2020

Although a large drop in Hawaii's price of goods and services isn’t likely even as the governor and lawmakers deem it a priority, a small decline may be enough to reverse the trend of population decline.

Hawaii's high cost of living has been getting a lot of attention in recent weeks. State leaders like Gov. David Ige, House Speaker Scott Saiki and Senate President Ron Kochi have made lowering the cost of living a major focus of the 2020 legislative session.

Republican and Democratic lawmakers from both chambers have assembled a package of measures aimed at lowering the cost of housing and childcare and raisng the minimum wage to keep Hawaii residents from moving away.

But how much lower would prices need to go to produce the desired result?

According to Peter Fulekey, an economist with the University of Hawaii Economic Research Organization, the price of goods and services in Hawaii are 18.5 percent higher than the national average.

That number comes from a method of analysis called Regional Price Parity. Just like $100 doesn’t purchase the same amount of goods and services in 2020 as it did in 1920, the value of $100 does not remain static across locations.

While that’s more obvious when comparing prices in different countries, economists also compare the value of a dollar in various regions of the U.S.

Regional Price Parity figures from the federal Bureau of Economic Analysis show that $100  gets you less in Hawaii than any other state.

In a UHERO analysis of the data, Fulekey says that bottom ranking is unlikely to change much. Hawaii’s geographic isolation drives up the price of everything from building materials to food. That same isolation also decreases competition from other businesses, leading to higher prices.

Higher wages could offset high prices, but per capita personal income in Hawaii is currently only 2.5 percent above the national average, far below the price differential.

Those two factors give Hawaii residents the 4th lowest purchasing power in the country, when compared to other states. For Honolulu residents, the picture is no better when looking at metrics for the metropolitan area.

All that makes lowering the cost of living a heavy lift for public officials. But Fulekey says human factors like proximity to family and nice weather can make higher costs worth it to a point.

“Hawaii is a desirable location, so people are willing to give up some purchasing power in exchange for living in paradiseSo once these incentives to move away decreases, the outmigration will stop,” Fulekey told HPR.

He cautioned that Hawaii will very likely still have higher prices than the U.S. mainland. States popular with Hawaii ex-pats like Oregon, Texas, and Nevada have price parities just below the national average.

But Hawaii may not need to match them to tip the scales on population decline.