Signs of deceleration have been surfacing for a few years now. A September 2017 report issued by the University of Hawaii Economic Research Organization — based on analysis of economic, demographic and business trends — projected a slowing of rate of job growth.
Then, by late 2018, the state’s overall economy was on weaker footing than the preceding year. A UHERO update, titled “Already Weak, Hawaii’s Prospects Look Increasingly Dicey,” forecasts that in the next three years Hawaii will be treading water, with annual statewide economic growth of less than 1%. That’s unsettling.
Among the expectations is that the tourism industry, which has cranked out record-breaking visitor arrival counts in recent years, will see marked slowdowns. UHERO pointed to Oahu’s recent crackdown on illegal vacation rentals as well as a sharp pullback in international visitor markets as contributing to the forecast, which appears to be spot on.
On Thursday, one week after the report’s release, DFS Hawaii, which caters to international shoppers with duty-free merchandise, announced the layoffs of about 165 employees, one-quarter of its workforce. Also, the Hawaii Tourism Authority is now reporting year-to-date drops through August in international visitor arrivals and spending.
In an effort to reverse the trend, HTA is increasing its marketing budgets targeting Japan, Southeast Asia and China by a total of upwards of $1 million. Given that UHERO’s report noted that inflation-adjusted international visitor spending is down more than 9% this year, stepped-up marketing seems in order to help stem further slides.
A sizable slip in visitor spending is concerning, in part, because it means fewer dollars collected as general excise and hotel room taxes, which are tapped for county services as well as ongoing construction of Oahu’s $9.2 billion rail project. For now, Honolulu Hale maintains, city coffers can absorb costs without additional funding streams, such as increases in homeowner property taxes.
In recent years, decreasing visitor spending has been tied to increasing popularity of short-term vacation rentals, which are often less expensive than hotel stays. The trouble, of course, has been the proliferation of illegal rentals, most of which don’t pay taxes and threaten to turn neighborhoods zoned as residential into de facto commercial resort areas.
After decades of weak regulation and enforcement, the City Council rightly supported a toughened up vacation rentals ordinance. Since it took effect last month, about 3,500 online advertising listings have been withdrawn. UHERO estimated that the hit represents a 9% reduction in Oahu’s visitor accommodation inventory.
In recent years, the illegal count had been gauged at 6,000 to 10,000.
Despite the forecast for economic standstill, city leaders have some solid reasons for resisting calls to loosen the new law. One is a provision, taking effect in October 2020, to allow about 1,700 more permitted bed &breakfasts by on-site property owners.
Another is the hope that reduction in illegal inventory prompts a rise in inventory of much-needed affordable long-term rentals for residents.
On the demographics front, the UHERO update noted that the state’s population fell in 2017 and 2018. Roughly 4,000 people moved away in each year, marking the first back-to-back declines since the 1950s. In many cases, the reasons were likely linked to Hawaii’s high cost of living issues, with housing costs ranking as the most daunting challenge.
Economic health in tourism-dependent Hawaii is a delicate balance, dependent on fluctuating local, national and international factors. The state’s pulse is a bit weak now, but there’s plenty of potential to regain strength.
