"Been down so long, it looks like up to me," could have been the theme of Hawaii’s economy in 2010. Now the expectations are running high for 2011. Whether the reality keeps up with the promise is something we will all be watching. Tourism has to continue its double-digit growth, and those dollars need to multiply their way through the rest of the state’s economy.

If jobs start coming back and wages pick up, you can expect the real estate market to build on last year’s gain, when the median price rose after two years of declines. Alternative energy should also have a big 2011 as it continues to be a focus of Hawaii’s effort to diversify its economy. Meanwhile the ever-growing health industry is going to be concerned this year with blending the mandates of a new national health reform law with Hawaii’s own 36-year-old Prepaid Health Care Act.

HOUSING

Tight inventory and consumer confidence are expected to nudge prices and sales higher

Oahu’s housing market appears to have hit bottom last year, and in 2011 we will learn whether the rebound can be sustained.

The number of homes sold last year on Oahu rose after falling five straight years, while the median price rose after two years of declines.

Median prices and sales volume this year should continue the positive momentum begun last year, though there is still some risk that the trend could be affected by what happens to interest rates, foreclosures and the broader economy, said Carl Bonham, executive director of the University of Hawaii Economic Research Organization.

"There’s still a fair amount of uncertainty," Bonham said.

Instances of instability have cropped up in recent months, as the number of sales of previously owned homes on Oahu fell in three of the last four months after consistently strong increases for most of last year.

Positive factors that give economists confidence that recovery will continue in the housing market this year include relatively tight inventory, expected personal income growth and better consumer confidence.

"What we’re expecting homebuyers to grasp is the bottom has passed," Bonham said.

In a report last month, UHERO said 2011 should be the year homes on Oahu get to be their most affordable in many years, though interest rates that began to move higher recently could make homes bought in 2010 more affordable given median income and home prices.

UHERO forecasts that Oahu’s median home price will rise 4.3 percent to $629,000 this year, then rise 5.7 percent next year to $665,000 and 8 percent to $718,000 in 2013.

If the projection proves accurate, it will not be until next year that the median price eclipses the previous high of roughly $640,000 in 2007.

For condos, UHERO projects the median price will rise 3.6 percent this year to $320,000, then rise 3.7 percent to $331,000 next year and 5.9 percent to $351,000 in 2013. The previous peak was $325,000 in 2007.

Local economist Paul Brewbaker of TZ Economics contributes to the UHERO reports but is a little more reserved about projected median price increases.

Brewbaker said that Oahu’s housing market recovery to date has been modest, representing a reverse-J curve shape when adjusting for seasonal variety. There remains some risk that the recovery could fade, he said, though it is more likely the upward trajectory will continue.

"The downtrend is over," he said.

Chason Ishii, president of Coldwell Banker Pacific Properties, expects inventory and buyer demand will be two keys helping keep the market stable this year.

On the demand side, tight lending requirements will continue to limit some buyers, but a weak dollar will continue to attract more foreign buyers.

On the supply side, more foreclosures should be released into the for-sale inventory, which would tend to weaken median prices, while upward pressure on prices is expected because homebuilders are not positioned to add a lot of new homes to a relatively low inventory.

"Hawaii has been very fortunate with an extremely stable housing market (in 2010)," Ishii said. "I see a lot of stability in 2011 as well." – Andrew Gomes, agomes@staradvertiser.com

HEALTH

A government task force will address how federal reforms will mesh with state law

Lawmakers, health insurers and medical providers will spend significant time this year dissecting the federal health reform legislation that is expected to bring sweeping changes in medical coverage nationwide.

Hawaii’s unique Prepaid Health Care Act, which already requires that employers provide health insurance to full-time workers, brings an added dimension of complexity in implementing the federal law that is described as the "most significant change in the U.S. health care system since the establishment of Medicare in 1965."

How the federal Patient Protection and Affordable Care Act, which took effect last March, will blend with Hawaii’s law is the question a government task force will take on this year.

Hawaii’s Prepaid Health Care Act, implemented in 1974, was the first in the nation to set minimum standards of health care benefits for workers and has led to Hawaii having lower uninsured rates than most states and a healthier population.

"We want to make sure we don’t dismantle what we have that works, and get what is good in the federal law," said Jennifer Diesman, Hawaii Medical Service Association vice president of government relations.

Included in the new federal law is a provision saying it should not be construed to modify or limit Hawaii’s Prepaid Health Care Act. Legislation to protect the Hawaii health care act will likely be introduced in the upcoming state Legislative session, according to Diesman.

"The task force needs to figure out the intersection between Prepaid and federal reform," Diesman said. "That will be a really big deal for Hawaii because we actually have to figure out the direction we want health care to go in for the future."

For example, Diesman said, Hawaii should take advantage of the federal law’s provision for subsidies for individuals to pay for health care coverage and tax breaks for businesses to provide it.

Parts of the new federal health reform law have already been implemented in Hawaii, such as the extension of dependent health care coverage to age 26 and the end of pre-existing condition exclusions for children under 19.

More will take effect in 2011, including a mandate that senior citizens who fall into a coverage gap and need multiple medicines will be able to purchase brand name drugs at half price. Medicare recipients also receive free preventive services.

One of the major provisions in the new federal law is that all individuals must purchase minimum health insurance coverage by 2014 or pay a penalty.

To help individuals and business buy health care coverage, the federal law requires each state to set up or join a health insurance exchange by 2014. The exchanges will be a place where individuals or small businesses can compare the costs of various health plans and different types of health coverage benefits, then purchase coverage. The exchange will pool together health insurance customers so they can get discounts from the insurance companies.

One issue the Hawaii task force will grapple with this year, according to Hawaii Insurance Commissioner Gordon Ito, is whether Hawaii should implement a state health exchange, join a multistate health exchange or continue with the status quo.

"We’re also looking at the cost of operating a health exchange, the funding mechanism for the exchange and the impact or its relationship to the Prepaid Health Care Act," Ito said.

The task force, which includes 20 representatives of health plans, medical providers and legislators, received $1 million from the federal government to study whether Hawaii should create its own health exchange.

"Maybe Hawaii doesn’t need an exchange for individuals; maybe we don’t need one for employers because we already have Prepaid — that’s all to be figured out. It’s a lot of work," said Dies-man, a task force member.

Task force meetings are open to the public, with agenda notices posted under the state calendar at www.hawaii.gov. Contact the Hawaii Insurance Division at 586-2790. – Kristen Consillio, kconsillio@staradvertiser.com

ENERGY

Renewable resources power up to provide local customers new earth-friendly options

Several major developments are in store in 2011 for the state’s renewable energy sector, including the first utility-scale wind farm on Oahu, the roll-out of the long-awaited Nissan Leaf electric car and the launch of a feed-in-tariff system that will allow residents and businesses to sell their excess clean energy back to the power company.

First Wind is running tests on the dozen turbines it recently erected at its 30-megawatt wind farm in the foothills above Kahuku and hopes to begin supplying power to the Hawaiian Electric Co. grid by March, said Paul Gaynor, the company’s president and CEO.

The Newton, Mass.-based company also recently began work on an expansion of its 4-year-old Maui wind farm and hopes to break ground later this year on the state’s largest wind farm, a 70-megawatt project planned for the Kawailoa area above Waimea Bay on Oahu’s North Shore.

The Kahuku project has the capacity to power about 7,700 homes, while the 43-turbine Kawailoa farm would light an estimated 15,000 homes.

"Hawaii has a phenomenal set of resources with wind, sun, wave and geothermal," Gaynor said. "The (Gov. Linda) Lingle administration got things rolling, and now Gov. (Neil) Abercrombie is focused on keeping the renewable train going, so to speak."

The Kahuku project is equipped with a battery backup system to help smooth out fluctuations in the supply of electricity to the grid.

Similar systems will be included in the Maui expansion and the Kawailoa project.

The supply of electric vehicles to Oahu is expected to shift into high gear in 2011.

The first of 300 Nissan Leafs that have been reserved by local residents is expected to hit the streets this month. Hawaii was one of several test markets chosen by Nissan to roll out the car. States that have already received their first shipment of Leafs include California, Washington, Oregon and Arizona.

Hawaii also has been chosen as a test market by General Motors for its hydrogen-powered Chevrolet Equinox. GM and the Gas Co. announced last month an initiative joined by 10 companies, agencies and universities that aims to have 10,000 hydrogen-powered vehicles on Oahu’s roads by 2015. The Gas Co. would provide the hydrogen and the distribution system.

The Navy took delivery of the first Equinox last month.

At Hawaiian Electric Co. engineers have been working to adapt the utility’s systems to the increasing amount of power being fed into the grid by nontraditional sources, such as wind and solar.

Toward that end, HECO hopes to soon sign up the first customer under its recently approved feed-in-tariff program that makes it easier for residents, businesses and energy companies to sell electricity back to the utility.

Renewable energy project developers traditionally have had to enter into lengthy negotiations with HECO to sell electricity to the utility. That effectively excluded companies with smaller projects and budgets from entering the market. – Alan Yonan Jr., ayonan@staradvertiser.com