Construction in Hawaii has hit a plateau, economists say

One big driver of Hawaii’s economy — construction — has been on a fairly consistent seven-year growth run. But that run is likely done this year, and some coasting near the current high level is expected for the next three years.

That’s the assessment of the University of Hawaii Economic Research Organization, which released its annual construction industry forecast today for publication.

“After several years of rapid expansion, the pace of building has eased,” the UHERO report says. “But statewide there remain enough new projects in the pipeline to maintain construction activity near its current level through the end of the decade.”

Carl Bonham, UHERO’s executive director, who authored the report with fellow university economists Byron Gangnes and Peter Fuleky, put it in lay terms this way: “There’s still stuff going on, but it’s not quite as strong as it has been.”

The industry that builds homes, hotels, shopping centers, roads, sewer lines, rail and more will take in about $8.8 billion this year, the report estimated.

That’s up about 6 percent, or $500 million, from $8.3 billion last year.

In each of the next two years, UHERO forecasts that construction spending will slip around 0.5 percent before edging back up 1 percent and matching this year’s $8.8 billion spending level.

UHERO construction spending figures are adjusted for inflation by calculating them in 2016 dollars, and are derived from reported general excise taxes that capture most, but not all, projects.

Hawaii’s peak for construction spending was $10.5 billion in 2007, adjusted for inflation.

Spending is largely for materials and labor. The report said construction costs in Hawaii remain very high but now are rising only about as much as general inflation, or around 2 percent.

As for construction jobs, UHERO said the number likely stopped rising last year at 38,000. This year, the number is expected to be down 3.8 percent, or 1,400 jobs, at 36,600.

UHERO forecasts that the job count will slip by another 200 jobs next year then rebound by 300 in 2019 and another 100 in 2020.

In last year’s construction forecast report, UHERO had expected the job count to push up this year to 39,500. But that didn’t happen.

For workers, a drop in jobs isn’t good. More broadly, though, some easing in the local construction industry isn’t all bad. The industry had been grappling with higher-than-anticipated construction cost increases and labor shortages partially driven by a flurry of condominium tower projects in Kakaako and the city’s rail project. Those factors contributed to at least two major high-rise projects in Honolulu being postponed.

UHERO’s report notes that the Kakaako condo development boom has eased, with several high-rise and mid-rise projects completed recently or soon to be finished while a few major Waikiki hotel renovation or conversion projects also were finished. Next year, a second Ritz-Carlton Residences condominium and hotel tower in Waikiki is expected to open.

Helping sustain the industry in the near future are major ongoing projects that include the 14-story Hale Mahana Collegiate Apartments in Moiliili, a couple of Ward Village condo towers in Kakaako, the Kapiolani Residence tower, single-family homes and townhomes at the Ho‘opili community in Ewa, and partial conversion of the Sheraton Kauai hotel into a timeshare.

Major new upcoming projects in the next year or so are expected to include several condo and hotel towers in the Ala Moana area near the city’s last planned rail station, at least a couple more Kakaako condo towers, a retail village at Hoakalei Resort in Ewa Beach, renovations at the Hapuna Beach Prince Hotel on Hawaii island, a timeshare conversion at the Hilton Waikoloa hotel, also on Hawaii island, and renovations to the Waikiki Parc hotel.

Rail, which is expected to deliver about $8 billion in construction spending, is about 38 percent finished and should chug along until at least 2025. Other big government projects include improvements at several harbors, highway construction, a Windward Oahu sewer tunnel, upgrades at several airports and a couple of military projects.

UHERO also noted that home construction permits on Maui have picked up sharply and that construction should ramp up on the Koa Ridge master-planned community near Mililani in 2019.