Maui growth constrained by tight labor pool
Leroy Laney gives an economic forecast for the Valley Isle
Maui faces a bright outlook in most economic sectors next year, but the tight labor market will be even more of a problem for its economy than the rest of the state's.
First Hawaiian Bank economics consultant Leroy Laney, who spoke yesterday at an economic outlook forum at the Maui Beach Hotel, said the Valley Isle will continue to benefit from healthy tourism, a construction boom and active development plans by kamaaina companies.
Laney said visitor arrivals on Maui through midyear were up 9.2 percent and visitor spending rose 20 percent over the same period a year earlier.
"This was far higher than any other island in the state," Laney said. "For some years now, Maui has been closer to capacity than other islands, and it has been targeting higher-spending visitors rather than just more bodies. That strategy seems to be paying off."
However, Laney said, Maui's labor market is tighter than the state's as a whole, and the problem of finding employees has been worsening.
"Traditionally, neighbor island jobless rates are higher than Oahu's," Laney said. "But that's no longer the case. This is one of the biggest constraints on growth -- for the state, but especially for Maui."
Maui's nonseasonally adjusted unemployment rate was 3 percent in July, lower than the 3.3 percent for the state, according to the latest figures available from the state Department of Labor and Industrial Relations. The state doesn't break out seasonally adjusted numbers for the separate islands.
Construction is still booming, even though the permit and entitlement process is getting longer and harder due to an increased anti-growth sentiment on Maui, Laney said. He said the Maui Lani is the biggest development in central Maui, with 759 homes built so far out of a potential 3,700 total units. Nearby, Kehalani has the potential for another 2,000 total units.
Alexander & Baldwin Inc. remains a big player on Maui, with development plans for the Kahului Shopping Center, Maui Business Park, housing for Haliimaile and Wailea, a possible business hotel next to Costco, and a $21 million, 400-bed student housing project for Maui Community College.
Laney also said Maui Land & Pineapple Co. has gotten Maui Planning Commission approval for its 882-unit project in West Maui, including 450 "affordable" houses and apartments.
Despite the boom in construction, Maui developers are closely watching the trends in the housing market, Laney said. He said some builders believe that second-home demand from a retiring baby-boom generation will be stronger on Maui than the other islands.
But Laney said "there is no doubt that we have a housing shortage here, and increasing supply is the only viable way to help control now-astronomical prices that are out of reach for Maui residents."
"Still," he warned, "it would be foolish to believe that we are totally insulated here. Nobody wants to buy a home at the peak of the market. Maui builders report that, in the future, homes will need to be priced responsibly -- and more marketing will be necessary."
Laney, said that single-family sales volume dropped 27 percent through the first six months of the year compared to the first half of 2005, while median prices continued to rise but gained "a much more realistic" 6 percent.
In 2005, Maui median single-family prices jumped 23 percent, Laney said.
"If this cycle follows past ones, an actual mild decline in median prices next year would not be surprising," he said. "Slumping prices on Maui last time lasted four years. From 1993 to 1997, there was over a 16 percent decline."
On Thursday, the Realtors Association of Maui reported that single-family sales in August fell 26.4 percent from a year earlier but rose 8 percent from the previous month. Median prices increased 11.8 percent to $749,000 from $670,000 a year earlier but fell 4 percent from $780,000 in July.
Maui commercial real estate brokers are reporting the tightest industrial market in 20 years, Laney said. "They see 800,000 square feet of space coming on line in the foreseeable future, in the face of an estimated 3 million square feet demanded by users."
Infrastructure presents another looming problem, Laney said. Kahului Harbor has more troubles than any harbor in the state because of lack of space. Those problems could be magnified next year when the Hawaii Superferry is expected to arrive.
"There's not much time to do all that has to be done, and unforeseen problems keep coming up," he said of the harbor.