Brace yourselves, Hawaii residents. The state economy is expected to slow to a near “standstill” for the next three years, according to a new University of Hawaii analysis.
The University of Hawaii Economic Research Organization projects that state economic growth will be less than 1% in each of the next three years, with inflation-
adjusted gross domestic product ranging from 0.9% next year to 0.4% in 2022.
UHERO issued the forecast in a report titled “Already Weak, Hawaii’s Prospects Look Increasingly Dicey.”
“The outlook is for Hawaii to tread water over the next few years, vulnerable to waves that could well pull us under,” UHERO said in the report released for publication today.
Underpinning the dour view is an expected shock to tourism from the city’s recent crackdown on illegal Oahu vacation home rentals, weakened consumer spending after two straight years of population declines and concerns about U.S. and global economies.
As a result, UHERO degraded its outlook from its prior forecast in May and now expects weaker results for key elements in the local economy including jobs, personal income and visitor arrivals.
The biggest change in the forecast is for visitor arrivals.
In May, UHERO expected that visitor arrivals would grow 1.2% next year and
1% in 2021. Now the organization expects declines of 1.2% next year and 0.1% in 2021.
UHERO’s new report said tourism on Oahu likely will be dinged by an ordinance that the City and County of Honolulu enacted Aug. 1 with fines up to $10,000 a day for homeowners and marketing platforms that advertise homes as short-term rentals (less than
30 days) if the property isn’t in an area zoned for resort use or lacks a special permit.
UHERO estimated that 6,000 of 10,000 such vacation home rental listings were unlawful, and that since the ordinance took effect, about 3,500 listings have been withdrawn. The withdrawal represents a 9% reduction in Oahu’s visitor accommodation inventory.
“Oahu tourism is set to take a significant hit from the recent crackdown on transient vacation rentals,” the report said.
UHERO forecasts that the average number of days visitors spend on Oahu will likely decline more than 4% next year because of the drop in vacation home listings. Statewide the impact on visitor days would be a 0.5% decrease, the report said.
These impacts, however, could be larger if more illegal vacation home operators pull their properties off the market.
“Considering that a substantial number of illegal units appear to still be advertising online, the ultimate effects of the ordinance could yet be larger,” the report said.
Another factor contributing to the weaker forecast for Hawaii tourism is international travelers, who are expected to reduce their travel and spending because of a weaker global economy and a stronger dollar, which makes a Hawaii vacation more expensive, the report said.
UHERO said international visitor spending in Hawaii, when adjusted for inflation, is down about 9% this year.
Hawaii residents also are having a negative impact on the local economy, according to UHERO’s report, by moving away.
The report said the local population fell in each of the last two years, which cuts into consumer spending. UHERO said the last time there were two consecutive years of population loss in Hawaii was during the 1950s.
Roughly 4,000 people moved out of state in each of the last two years, according to the report, and UHERO projects that Hawaii’s population will fall this year by 2,200 people followed by no change next year.
Population losses and associated declines in demand for goods and services can have a negative impact on jobs, and UHERO estimates that there are now 2,000 fewer jobs statewide than there were at the end of last year.
Government estimates of job numbers in Hawaii don’t show this loss, but UHERO said it expects revisions to government benchmark data are coming and will show fewer jobs in Hawaii.
UHERO forecasts that Hawaii’s unemployment rate will rise to 3.2% next year from 2.8% this year. In May, UHERO had projected a 2.9% unemployment rate next year.
Unemployment around 3% is still considered roughly full employment, so employers will still be pressed to find good workers and generally be more competitive with pay.
UHERO projects that personal income in Hawaii adjusted for inflation will edge up 0.6% in each of the next two years. However, that forecast is lower than gains of 1.1% next year and 1% in 2021 that the organization expected in May.
One bright spot in Hawaii’s economy cited by UHERO is the construction industry, where the organization expects “modest” growth over the next several years.
Another positive element in UHERO’s report is lower than previously forecast inflation. The organization expects the broad cost of goods and services will rise 1.6% in each of the next two years instead of 1.9% and 2%, respectively, as forecast in May.