We Can Change Our Future

The University of Hawaii Economic Research Organization (UHERO) published a report this week that concluded something every adult in Hawaii already knows: Very few local residents, less than 25%, can afford to own a home in Hawaii.  While it’s nice to get scholarly assurance of what’s commonly known, this report paints a picture of a far worse future than many realize.

 

Don’t waste your time reading the report.  While the data is spot on, the report blames many government actions that failed to materialize this year as contributing factors.  In reality, those government programs would have either made things worse or pushed housing and our state’s future in a direction we should not be aiming for.

 

 

Solving our housing crisis requires a two-pronged approach.  Our government is doing neither.

 

Focus on building homes people can afford:

That doesn’t mean we penalize and demean people or developers that wish to build expensive homes or condos.  To solve this issue, we first need to remove the class warfare the government is trying to instill.  You are not going to drive rich people away and create more housing by upping the tax rate on homes they own.  Having rich people come to Hawaii and invest here is a good thing.  Want to know of an island nation that has no rich people interested in it?  It’s called Haiti.  Letting rich people do their thing doesn’t prohibit getting homes built for the residents of our state.

 

Focus on building homes that people can own.  Right now, the focus of our local government is to build a bunch of affordable rentals.  This is asinine.  Throughout time, real estate has created more wealth for more people than anything else.  Putting our citizens into rentals keeps them poor.

 

Building affordable homes can be done, and it can be done at prices much lower than what our government considers affordable.  Our state government wastes hundreds of millions of dollars on special interests and bloated projects we don’t need.  Why not focus those resources on offsetting the cost to build quality affordable homes.  This doesn’t need to be a handout either.  The state could recoup a portion when an owner sells.

 

As much as I hate government getting involved, they will have to partner with developers to free up land to reduce the price of the home.  They will also need to negotiate with the developer to cap the profits that developer will make.  We need the private sector to build and sell the units.  Let the state take the financial risk through bonds to finance the project.  Removing the developers’ big profits will also keep prices down.

 

Making homes affordable can be achieved and is easier to accomplish than the second prong to solve this problem.

 

 

Create better paying jobs:

Too many people in Hawaii have jobs that don’t pay very much.  Our government focuses a lot of its energy on tourism.  While tourism is our major industry, the wages paid to those working in it are insufficient to have a quality life.  I see too many applications for a mortgage coming from multi-generational families pooling their incomes to buy a house with insufficient space for everyone to live comfortably.  That’s a tragedy.

 

The film industry had some of the highest wages paid for work here in the state.  Instead of our government fighting to keep the industry here, they gave up and let the tax credits expire.  We now have no productions filming here.  Those jobs and the taxes they infuse into our economy are gone.

 

We need to face the fact that Hawaii has a huge geographical disadvantage.  Being an island state, we don’t have industry or the ability to make things.  All the raw materials would need to be shipped in, and all the products would need to be shipped out.  We need to be smart as to where we invest our dollars to generate great paying jobs.

 

Despite all the cheers this week when the state Land Board rejected the environmental impact statement submitted by the military for the continued use of Pohakuloa, we need to think deep if we’re willing to turn our noses to the financial contribution the military makes to our fragile economy.  Without delving into the issues of the EIS, we can hold the military accountable to be good stewards of our lands and still be thankful for the dollars they contribute here.

 

We also need to investigate what high-tech fields would benefit from being here.  While remote, we are a great bridge time zone wise between Asia and the continental US.  We also sit on top of huge internet cables that run along the Pacific’s sea floor between California and Asia.  High-tech pays great.  We should see what businesses we could attract here with the few benefits we can offer.  Maybe it would take some tax credits like the film industry to court those businesses here.  It would be worth it.

 

Our place in the pacific does give us supremacy over any other place in the world for one industry, and that’s space.  Being so close to the equator makes rocket launches easier and cheaper to do from Hawaii than any other US location.  The starting pay for an aerospace engineer is $120,000.  But no different than the 30-meter telescope or Pohakuloa, at some point the cries of “every location in the islands is sacred” will need to be met with lost economic opportunity.

 

We also need to urge our kids to get their hands dirty again and think about agriculture.  That industry has changed from large scale production where the cheaper the better, to one of specialized crops that sell for high prices.  We have land, we have climate.  What we don’t have is innovative farmers looking to grow things that can sell for big money.  Kona coffee is a good example, but it takes too long for the trees to mature.  Artichokes, kiwis, and other expensive crops would do well here.  So would sheep.  These are just a few examples.

 

Our problems can be overcome.  Our future doesn’t need to be bleak.  But to meet the challenges we all now face, we need our political leaders to stop doing the same things they’ve done for decades.  We need bold leadership and not more of the same old.  If homes were cheaper and the wages of our residents were higher, we truly could be living in paradise.

 

 

 

 

And now the week’s economic news…….

 

Tariffs and Inflation Data

Although the final results left mortgage rates nearly unchanged, it was a volatile week filled with significant news.  An easing of trade tensions with China caused bond yields to rise early in the week.  The latest inflation data was lower than expected, however, which was good for mortgage markets, and it offset the tariff news almost completely.

 

Last month, the U.S. imposed massive new tariffs on imports from China, prompting similar retaliatory measures by the Chinese.  On Monday, government officials announced that the U.S. and China agreed to temporarily pause for ninety days most tariffs on each other.  This news caused investors to increase their expectations for global economic growth, which was positive for the stock market.  Since it also raised the outlook for future inflation, however, it was negative for mortgage rates.

 

The Consumer Price Index (CPI) is one of the most closely watched inflation indicators released each month.  To reduce short-term volatility and get a better sense of the underlying inflation trend, investors look at core CPI, which excludes food and energy.  In April, Core CPI was 2.8% higher than a year ago, slightly below the consensus forecast, remaining at the lowest annual rate since March 2021.

 

Although this annual rate has dropped sharply from a peak of 6.6% in September 2022, and from 3.9% in January of last year, it is still far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed.  Shelter (housing) costs continue to be a primary reason why progress on bringing down inflation remains challenging.  Used vehicle prices saw their second straight monthly decline, while new vehicle prices were flat.

 

Another significant inflation indicator released this week, which measures costs for producers, also came in below the expected levels.  The April core Producer Price Index (PPI) fell 0.4% from March, far below the consensus forecast for an increase of 0.3%.  It was 3.1% higher than a year ago, down from an annual rate of 3.3% last month.  Of the two major inflation reports, investors tend to place less weight on PPI, since it reflects a smaller slice of the economy than CPI.  Going forward, investors will be watching closely to see if higher tariffs exert upward pressure on inflation levels.

 

With many consumers rushing to beat possible price hikes due to new tariffs, retail sales in March surged a giant 1.7% from February, the largest monthly increase since January 2023.  It was back to more normal levels in April, however, with an increase of just 0.1% from March, matching expectations.  Significant strength was seen in home improvement stores and electronics retailers, while sporting goods/hobbies and department stores posted notable declines.

 

 

 

 

Next Week

Investors will continue to look for additional information about tariff policies.  It will be a very light week for economic reports, highlighted by the housing sector data.  Existing Home Sales will be released on Thursday and New Home Sales on Friday.  The Global Services PMI also will come out on Thursday.

 

 

 

Until next week….

 

*** Please note that Freddie Mac publishes their weekly rate report on Wednesday mornings from data received Monday and Tuesday. 

The graph above is intended to shown rate trends, and not “today’s current rate”. ***

 

 

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