Saturday, January 31, 2009

HAWAII’S ADVANTAGE IN THE GLOBAL FINANCIAL CRISIS

We think the economic downturn in Hawaii will not be as deep or as last as long as it will in California and other parts of the American mainland. The outcome in Hawaii will be different because of its location, culture and history. Here is our reasoning.


Hawaii has dealt with severe economic downturns in recent times. Hawaii used to have some of the highest priced real estate in the world but housing prices crashed during Japan’s downturn in the 1990’s. The experience is still fresh in the minds of Hawaii’s leaders and it has changed Hawaii’s policies. The State modified the laws to allow foreclosures to take place faster and protect buyers of foreclosed properties. Allowing the prices to be reevaluated swiftly (“Mark to Market”) and attracting buyers at the new price is a key part of a quick recovery.

The banks in Hawaii are healthy. They didn’t consolidate or take part in high risk bank instruments over the past years. They were fierce about real value appraisals and buyer qualification. We experienced this while attempting to buy a condo on the Big Island in 2005 and having the deal fall through over the appraisal. As a result, the majority of the foreclosures we have seen taking place on the Big Island are from lenders in California and Europe.

Hawaii promotes its key industries and monitors their progress. Metrics on Hawaii’s key industries such as tourism and food production are collected quarterly and published. Downturns are often known in advance by metrics such as advanced reservations and orders and measures are taken to support the industries and workers where possible. Hawaii’s location between the American and Asian continents gives it the advantage of looking both places for business and opportunity. And its culture, lifestyle and climate make it attractive to tourists and businesses from both sides of the world. Often when one continent is having a slowdown, the other is not.

Hawaii monitors its business and property tax income so that they can begin budget cuts as soon as a deficit is seen. The process of cutting back is not perfect and it is painful, but it protects Hawaii from creating out of sight debt. During good times, Hawaii is generous in its spending, so there is a lot of margin in the budget. The excess spending can be cut back without resulting in a loss of critical services like fire, police and prisons. This is in contrast to States on the mainland that have created bone crushing debt oblivious of their local economic downturn and are now forced to cut basic services to communities without a clue of how to get back on track.

Hawaii has delayed infrastructure spending on their harbors, airports, bridges, roads and sewer. A great deal of planning and design has taken place, but the projects have not been started. As a result, Hawaii is positioned to take advantage immediately of Obama’s stimulus package. Infrastructure projects can begin quickly employing workers laid off from the tourist industry.

Hawaii has a lot of Federal support; the largest employer in Hawaii is the military. The military has plans to upgrade and build new facilities in Hawaii, another bright spot for the economy.

The slowdown in tourism is impacting the rise in unemployment in Hawaii the most right now. Though tourism may continue to shrink in the near future, ultimately it will do better than most tourist destinations in the world due to demographics. Wealth is highly correlated with age and most wealthy people are over 60. Hawaii has always been an expensive vacation and retirement destination. As the baby boomers age, the percentage of them that can afford to come to Hawaii will grow quickly over next 10 years. Wealthy boomers visiting and retiring to Hawaii will bring in significant income to the Hawaiian economy.

Much of Hawaii’s economy is cash based and people are used to trading and bartering for services and food. So the economy will be less affected by the global credit shortage.


Though Hilo is showing the signs of the downturn with less tourists from America and more shuttered businesses, we feel confident that Hawaii is better positioned to deal with the economic situation than most other places.

11 comments:

mdd said...

Excellent commentary on Hawaii's position in this recession.

Anonymous said...

Don't believe the hype. Stay home and make things work there. Hawaii is not the place to move now. To much stress for those who have not lived on the island. No jobs and prices are high. Think before you make the mistake of moving here. This place is not for everyone. You must be an island person to like it here. Why move so far away from family and friends.....stay home.

Anonymous said...

I want to believe that Hawai'i is better positioned than the rest of the US/World, but I can't.

Hawai'i does not produce anything of exportable value anymore. Sugar and pineapple are no longer Hawaiian staples; they're imported from Chile and Argentina. We have tourism, and are almost entirely reliant upon its income.

Local life is expensive and jobs are unavailable. The pay structure does not encourage higher learning, advanced sciences and long-term investment opportunities. Living here is not living in a meritocracy. There is a hierarchy of sorts, and the older you are, the better pay, regardless of skill and qualifications.

Banks are strong, partly because they've snubbed the locals for so long. Locals pay cash for most everything, and live well within their means. However, the housing situation in Hilo is such that many homes are long expired, and should be condemned for health and safety violations/concerns.

Japan's economy has been in a hole for a decade, and the US is headed the same way. China may be Hawaii's only hope. Their cheap parts and rising middle class will help the local economy better than any US or Japanese tourists any time soon.

Keahi Pelayo said...

Thanks for the insight.
Aloha,
Keahi

Anonymous said...

The economy will get better in the lower 48 before it gets better in Hawaii. Hawaii is dependent on tourist money and this will happen only after the economy gets better. If you want to catch the economy on the upswing then you must stay in the lower 48. Hawaii is better off only because you can find food growing and fish for it. But that is only good news for those who are established here already. You can always find a cheap place to live in the lower 48. Don't make the mistake people are making by using up all your savings to continue living above your means. Cut off all your expenses and put your ego in check and move to a cheap place. Michigan has a terrible economy but if you have money saved up, you can move there and find a place to live for cheap. If you have enough it might last you for a year or two. Times have changed but if you plan carefully you won't have your family out on the street. Where there is a will, there is a way. God bless America.

mdd said...

Move to Detroit? There are ZERO jobs there and the weather is COLD. Every forum or blog on Hawaii has some anonymous posters that try to persuade anyone and everyone from moving to Hawaii.

Anonymous said...

OK mdd, you got me. But would you like Hawaii if everyone moved there? It would change things to much and it would not be the great place it is today. You make it out to be a great paradise but you don't post reasons why some will not like it. We need to weed people out and just recruit people who are community based....don't you think? I think I am doing you and Hawaii a service. The truth is some move here and hate it because they expect an ongoing vacation. It takes hard work to get to know people and be involved in the community. Most don't have that energy. You do but most American's don't.

mdd said...

Yes, reality needs to be discussed but trying to discourage everyone from moving to Hawaii does not help Hawaii either. Hawaii needs a proper balance of industry and other service-related jobs that go along with it. What if you dissuaded a great doctor, engineer, architect, etc. from moving to Hawaii? There are few jobs because the average Hawaiian does not tend to start any new businesses. Hawaii needs entreprenaurs.

Anonymous said...

I don't think you are thinking out of the box. Most people move to Hilo to escape that. That is the point you are missing. There is nothing wrong with a simple society based mainly on community. If we invite all these people it won't be the same. I understand you want progress but you are missing the point. You are not in Oahu for a reason. You moved to Hilo for a reason. Now you want to change the very thing you cherish. It is like a man moving to the forest because he loves the trees and then he cuts it down so he can get a better view of the mountains. What you say sounds good, but the truth is, if things change too much you will be looking for the next Hilo. I don't agree with you on this point. Sit down and search your heart and see if you are truly doing the locals a favor. I understand you may have good intentions but you must consider why you are here and why locals don't want to open many businesses. It is because we don't want a consumer based society. Competition for who has the biggest house is not a local desire. What is wrong with wanting good land, clean oceans and time to play with our children.

Victoria Hokulani said...

Aloha Friends! As usual we are on the same thought train. I agree that Hilo will weather this Depression. Hilo is not as tourist dependent as the rest of the state and have a much more diverse economy. FHB and BOH are very healthy and are making loans. Hilo has always had a high rate of personal savings, in fact the highest rate of savings in the STATE! Of course a town of Savers tend to bolt the wallets even harder when times are tough, though, which is not that great for merchants.
Lots of mainland folks do think of the Big Island as a safe haven. In fact a vast percentage of Puna lots are owned by them. In my little subdivision, no less that 14% of the lots are owned by folks from one state; Illinois! 1/2 the lots are owned by Hawaii residents, the rest are spread all over the US. Some of those out of state owners are GOING to relocate to those lots sooner or later. In fact the more TSHTF, the sooner is more likely.
With Architect husband in da hale, my finger is one at least one pulse about the future of this place. Although, the phone is not ringing off the hook like in days past, he is still plenty busy with more commercial than residential. We were planning for the worst, instead, have been somewhat perplexed on why he would still be so busy. And.....another fact; FHB is swamped, and I mean swamped with refi's . There will be a minor flood of money coming into this local economy pretty darn soon.
For the entrepeneurial go getters, this is a great time for creativity,innovation, marketing, and customer service chops. It is more important than ever to keep the eyes on the light at the end of this doom and gloom tunnel.
Not everyone is flat busted broke and in foreclosure. A lot of those wallet clampers can be pried off with the right temptation....and eventually, people get fed up with all the bad economic news and just say "WTF, Life is short, I'm going to spend some of that pent up cash and remodel my kitchen and refurb the living room."
When the doom and gloom does lift and the wallets begin to breathe a sigh of relief, then being in a town of Big Savers will be THE BEST PLACE TO BE!

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