Reckoning with a rising cost of living in the most expensive U.S. state

Reckoning with a rising cost of living in the most expensive U.S. state

James Slentz, 38, and his three kids at their home on a Saturday morning. His wife Ayla works on weekends and is a full-time mom during the week. he month that Slentz tracked his income and expenses for Maui Times, he spent $6,813.28—substantially more than his monthly income that month. Photo by Viola Gaskell.

We’ve all heard it a thousand times: Hawaiʻi is an extremely expensive place to live, where the burden of cost makes it nearly impossible for many to get ahead. Multi-generational Maui families leave for cheaper states (see Maui Times’ September housing story), middle-class adults spend a lifetime renting, gas is regularly more than $4 a gallon, and the list goes on. We are regularly ranked the most expensive state to live in, with grocery bills and mortgages in the islands marking new ceilings for the nation quarter after quarter. But what does it mean for the people who call this place home? And what can be done about it?

For 11 years, James Slentz has been a Maui-based radio technician and solar installer. He regularly spends four days a week on neighbor islands while his wife Ayla spends the weekdays with their three kids and works part-time on the weekends. With a mortgage in Haliʻimaile and three kids in school, Slentz breaks even some months and others he does not. Thanks to modest savings and family support, he and his family enjoy a relatively high standard of living: their two eldest attend quaint private schools that their grandparents pay for, Slentz takes the kids fishing on weekends, and they live in a three-bedroom home. His daughters’ shared bedroom is an endearing pink, and his son’s a bright, sky blue.

A toy kitchenette in Slentz’s children’s closet. Photo by Viola Gaskell.

For a month in late 2021, Slentz tracked his income and expenses for Maui Times. That month, he spent $6,813.28—substantially more than his monthly income. His mortgage cost him $2,970, electricity: $151.41, water and sewer: $100, groceries: $700, cell phone bill: $186.67, auto insurance: $86.34, life insurance: $98.84, and the list goes on (see pg. 13). Because his income is part commission, he makes more some months than others. Though he can generally afford his family’s lifestyle on his annual income, Slentz says that any disruptions (injury, loss of employment, divorce, etc.) would hinder his ability to pay off his 30-year mortgage. “I wouldn’t be able to manage anything out of the status quo,” he said. “I wouldn’t really be able to float that financially.”

If Slentz lived in another state, chances are he would be more financially resilient. Almost anywhere else, his income would likely be 80 percent of the area median income (AMI), but in Hawai‘i, his income is around 60 percent of AMI, landing him a few thousand dollars a year over the affordable housing limit. 

In Maui County, household incomes below $76,720 are considered low-income by the U.S. Department of Housing and Urban Development (HUD), despite being 12 percent (approximately $9,200) higher than the national median. The difference makes sense given that Hawaiʻi’s home prices significantly outpace the rest of the country.

Slentz often takes his kids fishing on weekends. Photo by Viola Gaskell.

Hawaiʻi’s median household income was 17 percent higher than the national average in 2020, but that’s not proportional to the high cost of living here. When economic analyses factor in the cost of living, the state’s poverty rate increases from nine to 14 percent, landing Hawai‘i in the top 10 most impoverished American states. In most states, factoring in cost of living lowers the poverty rate. Slentz nearly qualifies for affordable housing and is considered low-income, because he lives on an island where the vast majority of what he buys is shipped or flown in and more than a third of our homes are sold to Mainland residents. 

Partly thanks to the pandemic, we are spending more than ever before, with more purchases and higher price tags. In October the average prices of goods and services increased 6.2 percent from the year before, the largest annual increase in 30 years, according to the U.S. Consumer Price Index. The high level of consumption is widely masked by pandemic-induced disruptions in the supply chain (which was already headed towards dysfunction after Trump imposed tariffs on China during his presidency). Given the unavailability of some goods—especially new cars—it may not seem like imports to Hawaiʻi are rising sharply, but they are. 

As the most isolated population center in the world, and one that produces very little of its own food, energy, or goods—ships and aircraft come in filled with saleable goods and often go straight back to the West Coast only partly full of mostly refuse. Would things be less expensive here if we exported more? Or if our maritime rules were reformed?  

The loading docks at the Port of Kahului. Photo by Viola Gaskell.

Shipping: Would reforming the Jones Act matter?

Organizations like the Grassroots Institute of Hawaiʻi, a libertarian think tank that advocates for free market solutions, say that zoning reform and reshaping the Jones Act would most effectively lower Hawaiʻi’s cost of living. Officially the Maritime Act of 1920, the Jones Act mandates that all ships that go between U.S. ports be made, owned, crewed, and flagged by U.S. citizens, or otherwise pay steep fines. 

Critics of the act maintain that it puts an outsized economic burden on Hawaiʻi by disallowing foreign ships from first stopping in Honolulu, then heading to a major port like Long Beach and vice versa. Keliʻi Akina, president of Grassroots Institute of Hawaiʻi, says that he does not advocate revoking the Jones Act, but merely the restructuring, so that American companies can purchase ships from U.S. allies such as Japan and Germany. “There’s great economic benefit in modifying the Jones Act to allow our commercial shippers to do what the military does, which is use ships built by our allies—and that’s because ships built by our allies cost about one fifth the cost of an American-built ship,” he said. “Current shipping companies will be able to pay less for their ships, and other companies that have not been able to enter the market will be able to compete, driving down prices further.” 

Defenders of the act, conversely, claim that foreign ships rarely stop in Hawaiʻi because neither volume nor value is high enough and our ports are not prepared for the type of traffic typical of major hubs like the Port of Los Angeles, which moved 9.2 million containers in 2020. Though the Port of Honolulu’s total trade value increased by 90 percent in October year on year, the Port of Los Angeles’s total trade value was still 64 times that of Honolulu’s, according to data firm US Trade Numbers.

Captain Ben Ellison, a merchant marine officer who operates tugboats out of Kahului Harbor, said that since he entered the industry in 2005, ships’ carrying capacities have expanded while Hawaiʻi’s ports have not. When Ellison entered the industry 17 years ago, the largest ships carried 8,500 twenty foot shipping containers compared to 14,000 now. “The ships are getting bigger and bigger and bigger, and that’s because it doesn’t cost that much more fuel to move those bigger ships. It’s the whole economies of scale idea,” he said. The concept of economies of scale is that as output increases, the efficiency possible with high volume production allows for lower costs per unit. Basically, make more for less and profit from volume. Hawaiʻi does not, on a relative scale, have volume. Nor, does it have exports, the other half of the equation. “All we export on Maui is garbage. We bring in full containers and we ship out compacted cars and cardboard,” Ellison said. “We used to ship out pineapples and sugarcane. Now there’s nothing.” 

In October, 2021, Kahului Harbor’s largest imports by volume were liquid natural gas and other petroleum gases. Its largest exports by volume were rubber and aluminum waste. Photo by Viola Gaskell.

In October, the Port of Honolulu’s three main exports by value and tonnage were aluminum waste and scrap, “natural waters” (Hawaiʻi drinking water is popular in Japan), and paper and paperboard scrap. Via Honolulu, the State’s three largest imports by value were oil, gasoline and other fuels, and passenger vehicles. We ship in a car, then import the gas needed to run the vehicle throughout its lifespan (paying a shipping-induced premium on both), then pay to ship back the scraps, and begin the cycle again. 

As electric vehicles proliferate, transportation costs in Hawaiʻi will switch from gasoline to electricity. With the priciest electricity in the nation, Hawaiʻi households pay nearly $50 more per bill than the U.S. average despite using less energy per capita than 43 of the 50 states. In August, electricity cost 33.15 cents per kilowatt-hour in Hawaiʻi, compared to a national average of 13.99 cents per kilowatt-hour—a price difference largely attributable to heavy dependence on petroleum. Despite annual increases in wind and solar power, Hawaiʻi remains the most petroleum-dependent state, relying on imported fossil fuel for around 60 percent of its total power use.  

The state’s main provider, Hawaiʻi Electric, said it achieved 35 percent reliance on renewable energy in 2020. However, that percentage does not account for much of the state’s total energy use, including factors like jet fuel and gasoline, which account for the vast majority of the islands’ consumption. In late 2019, Hawaiʻi was still using 12 times more energy than it produced, according to the U.S. Energy Information Administration. So, though we are making strides with home electricity, solutions for the economic and environmental toll of transportation to, from, and within the islands are still a long way out. Driving, shipping and flying are the modus operandi of living in Hawaiʻi in the 21st century—when intercontinental travel is common and ordering on Amazon is the norm. 

Ellison said that cargo ships rarely carry Amazon goods; Prime shipping generally requires jet speed. An Amazon representative told Maui Times that the company does not keep track of the number of packages sent to any one state (or country for that matter), but the retail titan shipped 4.2 billion packages worldwide in 2020, more than double the previous year. Hawaiʻi’s direct-to-consumer air freight also went up substantially, adding to our disproportionate use of energy (especially jet fuel) per population. The import value of goods arriving at Honolulu International Airport that same month was $598 million, nearly triple the value from the previous October.

Denise Konan, professor of economics and social sciences at University of Hawaiʻi, Manoa, says that though improving access to affordable housing and fostering a more dynamic job market are imperative to economic prosperity in Hawaiʻi, the impact of a consumerist mindset should not be dismissed. “Another thing we can do is change the way we prioritize our own spending to be less focused on things and more on services and experiences,” Konan said. “Some of our big costs are things like transportation costs and costs on consumer goods and it is possible to have a high quality of life while consuming less.”

Konan says that pandemic lockdowns spurred “a shift towards wanting more things, because we weren’t spending on experiences or services,” which has had its own unintended consequences. “With Amazon Prime, we’ve gotten used to this idea that you can just order a lot of stuff and it arrives right at your door, with no shipping cost. But then we have a volume of stuff that actually will fill up our landfills and have other negative impacts that we don’t see immediately. The convenience doesn’t take away the cost to consumers, and environmentally it is very costly.”

Missouri Economic research and information center.

 

The cost of living in Hawaiʻi in late 2021 was nearly twice the national average, according to an analysis by the Missouri Economic Research and Information Center. Hawai‘i had a “cost of living index” of 186, whereby the national average was 100. We spent more on housing, groceries, utilities, and miscellaneous spending than residents of any other state, and we were in the top 10 for transportation spending.

Another solution for Hawaiʻi’s cost of living conundrum centers on attaining income equity rather than lowering expenses. Hawaiʻi Appleseed, an economic think tank based in Honolulu, advocates reforming Hawaiʻi’s tax system and raising the minimum wage in order to move towards economic justice by supporting Hawaiʻi’s low-income residents. Appleseed says that Hawaiʻi has an “upside-down tax system” because of the state’s reliance on the General Excise Tax (GET), which disproportionately affects low-income households because they spend a much higher percentage of their income each month on goods and services. According to Appleseed, Hawaiʻi’s lowest-income residents pay almost 10 times as much of their income on the GET as those at the top.

Technically, the GET is 4 percent statewide business tax, but most businesses pass it on to their customers. As people accrue wealth, daily spending tends to hit a ceiling while savings increase. On average, the top 10 percent of earners in the U.S. spend nearly 11 percent of their income on food, while the bottom 10 spend 15 percent, according to the Bureau of Labor Statistics. 

Think tanks like Appleseed that promote progressive taxing advocate raising wealth taxes (mostly on income and property) and lowering taxes that take a higher toll on low income residents. A number of bills aiming to address this died in the Hawaiʻi legislature in recent years. If passed in the Senate, President’s Joe Biden’s Build Back Better Act could improve tax equity in the state by lowering taxes for more than 70,000 low-wage Hawaiʻi workers by up to $1,500 via Earned Income Tax Credit expansions.

Though Hawaiʻi has the lowest property tax rate in the U.S. and some of the lowest healthcare costs, other measures like the state’s low minimum wage and exorbitant housing costs have impeded economic prosperity for low- and middle-income residents, who make up the majority of the population. 

Aside from the more long-term need to diversify the Hawaiʻi job market, a more immediate fix is the state’s $10.10 minimum wage. According to an analysis by Appleseed, a minimum wage worker in Hawaiʻi would need to “work 114 hours a week—the equivalent of almost three full time jobs—to afford rent on a modest two-bedroom apartment.”

Critics of raising the minimum wage often employ the argument that the majority of minimum wage workers are young employees who are new to the workforce, but in Hawaiʻi there are over 88,000 minimum wage workers, 90 percent of whom are over the age of 20, and one in five of whom are parents. 

Other solutions range from changing zoning to free up more land on the island for housing (a highly controversial idea), to moratoriums on new hotels and vacation rentals, to pumping money into diversifying the economy to create more high-paying jobs. Labor and land are so expensive here that producing goods locally would not necessarily lower their cost. Konan says that bulking up our data collection would be a good place to start. She said the state’s general lack of data is “ironic because we’re relatively small and island-based, getting comprehensive data could be much easier for us, and that would help us make more evidence based decisions on many, many things.” 

The problems of housing, shipping, and energy have been around for decades, but perhaps the more we invest in growing our own food and plants for material use (see Maui Times’ October story on local building materials), and generating our own power, the more we will be able to support one another—creating a more tightly looped economy based on self-sufficiency and our own ingenuity. 

 

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