Housing is Maui’s
wild card

A bank consultant says a real estate
slowdown could hurt future growth

Leading economic indicators in Maui County from job growth to increases in the tourism and construction industries indicate the Valley Isle’s robust economy will continue if its hot housing market doesn’t overheat and cause a slowdown. Leroy Laney, a Hawaii Pacific University economics professor and consultant to First Hawaiian Bank, made the forecast today at the 31st annual Maui County Business Outlook Forum.

Maui’s strong growth could result in negative side effects if the corresponding increases in housing prices continue past the point of sustainability, Laney said. “Hawaii is not the only place in the nation with rising anxiety about a housing bubble, but it’s certainly one of them,” he said.

More and more national forecasters are pointing to an overpriced housing market, Laney said.

“Almost no one is forecasting a national recession, but a drop in spending on homes almost always plays a role in a national downturn,” he said.

Hawaii residents saw this phenomenon play out on a statewide basis in the 1990s, Laney said. Those that bought at the top of the previous real estate boom in Hawaii were punished, contributing to the worst decade of the state’s modern economy, Laney said.

Current home prices on Maui have risen 190 percent since that trough, he said.

“The median price of a single-family home on Maui averaged $672,100 over the first six months of this year, up 25 percent from the same period in 2004,” Laney said. “One wonders about the future of an economy in which those who make it run can’t afford to relocate or stay here.”

He said the situation is painful for new entrants to Maui’s market and those who are considering relocating to the Valley Isle. Even more, it extends beyond working-class families into the professional ranks, he said.

“An economy cannot continue to function without many of these positions,” Laney said.

Eventually, the limits of affordability will bring Maui’s current real estate cycle to an end — hopefully with a soft landing, Laney said.

Laney also made several points about the major sectors of Maui’s economy.

The county’s unemployment rate, which averaged 2.6 percent in the first half of 2005, reversed the usual trend to fall below the statewide rate of 2.8 percent.

But the local labor supply can’t meet the demand and increased costs of living, especially housing, will keep a lid on in-migration, Laney said.

“Maui’s labor market is tighter than the state’s,” he said.

The Maui tourism industry has continued to be very healthy in 2005, on all fronts — hotels, time-share, rentals, activities, restaurants and retail, Laney said.

Total visitor arrivals on Maui were up 2.7 percent through June of this year. That’s less than Oahu or the Big Island, but the Valley Isle has been closer to capacity for a long time, he said.

“Hotel occupancies have been running well into the 80 percent range recently,” Laney said.

While Maui’s Japan market remained weak, it was offset by gains from its major U.S. markets. Westbound tourist arrivals on Maui were up 2.7 percent for the first half of 2005. The higher-spending U.S. East market, which has become increasingly important to Maui in recent years, also grew 3.6 percent.

The construction industry on Maui remains hot thanks to strong demand, continued low interest rates and a strong economy, Laney said. And, the future looks strong as well, thanks to growth in building permits.

Last year, 1,177 residential permits were issued for 1,521 single and multifamily housing units in Maui County, he said.

“Big residential growth is expected in Central Maui, Kihei-Wailea, and West Maui,” he said. “Demand remains high and there is no such thing as excess inventory.”

Longer-term state forecasts for Maui over the next 10 years now project annual population growth of about 1.5 percent, job growth of 1 percent and real personal income growth of just under 3 percent.