To get us rolling, here’s one sent earlier from Steve:

Will the slowing economy and high fuel prices (i.e. airfares) have a significant impact on tourism from the Mainland? If so, what is the likelihood that foreign travelers, particularly visitors from Canada, Japan, and Europe will offset this downturn given the weak US dollar.

Howzit everybody let me get into the first question from Steve. Some discussion of these issues can be found in my last posting at https://www.boh.com/econ/reports/econ013008.pdf and the prior quarters' reports at https://www.boh.com/econ/512_539.asp, and I know that my colleagues at the University of Hawaii have in their latest posting at http://www.uhero.hawaii.edu/. Here's the situation: a slowing national economy is predicated on the expectation of a decline in consumption--it hasn't happened yet--and long-haul leisure travel is exactly the kind of discretionary consumable that is at risk. So, expect some loss of travel demand from the mainland for all the reasons people are talking about weaker consumption--falling stock and housing prices, the credit crunch, etc. Meanwhile, international travel demand should be rising (and is, for some US destinations, e.g. the East Coast) because of the weak dollar. In Hawaii, however, where foreign travel demand has been falling for more than ten years, the problem is lift. Foreign carriers are reducing the capacity of inbound seats to Hawaii. So even if foreign tourists and investors want to come to Hawaii, it's harder for them to do so. Hawaii isn't getting as much of the benefit of increased potential foreign travel demand, and is now at risk of weaker US travel demand. Higher aviation fuel costs and air fares, of course, don't help either.

Here’s one sent via e-mail from Marc:

I saw you late last year at the Hawaii Transportation Convention, and you nailed it when you said that (I'm paraphrasing):

1) A tourism industry that grows less than 1%, IS NOT A GROWING INDUSTRY.
2) The newspaper headline would be "New Visitor High" - in that 1 more person arriving than last year is a "new high", or 4 visitors from Botswana is 100% more than the 2 that came last year, but it's not really an impact, and
3) You also said that the Hawaii Leg has gotten very good at taxing the upstream BUSINESS (containers, fuel, etc.), not the end user, to hide tax increases as a cost of doing business in Hawaii. As you would expect, this causes the "Mom & Pop" business to fail, as only the Big Box retailers have the economies of scale to afford these hidden taxes. Yet the headline we see is: "Evil big box retailer drives Mom & Pop out of business"

Now, 6 months later, the economy & tourism are in a decline. Despite this obvious trend, there are bills moving through the Leg to increase - wait for it - "user fees"! There's currently one increasing Tour Vehicles and Rental Cars to an unspecified amount.

My question:
1) Can you comment on how these upstream user fees negatively effect everyone?
2) Can you also comment on how taxes act overall like "sand in the gears" of the economy, and that we are already being buried in a beach load of it?
3) Can you send a copy of your comments to the State legislature?

You were a great speaker, it was the best part of the convention. I think the Advertiser's readers would benefit from your insight.

Paul, what's your take on the tax rebate the government is sending out? Do you think it will be beneficial to the economy? I think a lot of people will be paying bills or buying gas rather than splurging on something unnecessary. What do you think?

Thanks for your question Marc. Let me first answer the general question and turn to the specifics. Generally, economic measures like export revenues are adjusted for inflation. Ideally, you would deflate export revenues by an export price index of some sort. Tourism is Hawaii's primary export. Its gross contribution to the economy is the REAL value of total visitor expenditures. Its net contribution to the economy is the amount of value-added (gross product) in the Hawaii economy--this nets out the import component of tourism receipts, among other things (re-exports). If you adjust total visitor expenditure for Honolulu CPI-U inflation, it turns out that real visitor expenditure--Hawaii's principal export receipt--has been declining since 2005. Indeed, the 2007 total is approximately equal to the 1987 total, in constant (inflation-adjusted) dollars. That's nineteen-EIGHTY-seven, twenty years ago, not exactly a growth story. To your specific questions about fees, user fees are an important way for people to "pay to play." For example, the rental car fee should be applied to costs imposed by rental car drivers. Some of that might be physical depreciation of the roadways--Wailea and Kaanapali were not built near Kahului airport. Some of that might be congestion externality. How the funds raised are spent is a related question; both application and administration of use fees are up to our legislative bodies so there you go. I would worry about the macroeconomic consequences of such fees, but I think it's appropriate to contemplate whether they are calibrated correctly from a microeconomic standpoint.

And here’s one sent earlier from James in Makiki:

Thanks for taking my question. Isn’t Hawaii’s housing market artificially high? Have we felt the sub-prime fallout yet and to what degree can we expect to? Can anything be done, economically speaking, to get prices back to reality so regular folks can afford even the most basic housing without going so deep into debt?

Mr. Brewbaker: with the dollar value falling, resulting in higher prices, especially on gasoline, do you think we will to see an increase in homelessness? Are there any solutions?

What is the outlook on the housing market here on Oahu? Are mortgage rates expected to drop significantly?

Hello, Mr. Brewbaker. Thanks for taking time out of your schedule to answer our questions.

Can you explain the whole subprime mortagage problem/fiasco -- why was was something so attractive end up burning people in the end? Were consumers of these subprimes overzealous/jumped the gun? Seems like Hawai'i people didn't manage to fall into this "trap"; speaking of which -- were there signs that subprime mortages weren't going to end up working anyway?

Lisa asks, "what's your take on the tax rebate the government is sending out? Do you think it will be beneficial to the economy? I think a lot of people will be paying bills or buying gas rather than splurging on something unnecessary. What do you think?"
----

Well it seems certain that the breadth and anticipated duration of a US economic slowdown following the extended housing recession (since 2005) and the more recent credit crunch, arising from the sub-prime mortgage meldown and its financial fallout, warrant both monetary and fiscal countercyclical policy interventions. The tax cut is the federal government's (fiscal) response. We saw similar responses, under different circumstances with difference design and for different political reasons, in 2003 and 2001 under the current Bush Administration. In this instance the Congress acted quickly to mobilize the response--I say "quickly" recognizing that the execution lag is substantial for fiscal policy. In this case the checks come out late in the second quarter, were decided upon early in the first quarter, in response to a macroeconomic risk that began to emerge in the third quarter of last year. So much for Quick Draw McGraw (that's for all the Boomer cartoon nerds). The monetary policy response is, of course, ongoing and is executed by the Federal Reserve, the nation's monetary authority, which is nominally independent of the government. Congress acted quickly for another reason: it really had one shot at this issue. By summertime and the convention season, Presidential electoral politics would have made reaching a decisive consensus much more problematic. Will it work? Well, more than nothing, yeah. Remember that even paying down your debt with a tax rebate means you aren't sacrificing current consumption that you would have had to otherwise, even if it isn't increasing your consumption per se. However, there is a good literatuer to suggest that temporary tax cuts don't provide a beneficial impulse to consumption as large as permanent tax cuts (owing to the fact that consumption is really a function of so-called "permanent" income). So this impulse may end up a little weaker than hoped, plus it widens the federal budget deficit dollar for dollar.

Hello Paul,
We are hearing all of these doomsday predictions from leading economists regarding the economy and particularly the financial sector and the credit tightening. What would your advice be to investors? Is there significant risk in equities?

If you have, say, $50,000-$100,000 in your 401K, wouldn't it be prudent right now (I mean, the news keeps telling us how rudely the stock market is acting to we who have been faithful to it) to take out, say, 1/2 of our earnings (for those of us fully 100% vested in such plans) and buy more dependable investments, such as gold?

I know someone ready to pull the trigger, take all their money out, and invest it in something foreign (some markets are doing great overseas).

Hi Paul, Do you think that the response from the Federal level is an effective countermeasure to this economic downturn or should more be done? Ideally, what needs to be done in order to turn the corner and get the economy moving up again?

B.P. Prescott asks "with the dollar value falling, resulting in higher prices, especially on gasoline, do you think we will to see an increase in homelessness? Are there any solutions?"

----
This is a microeconomic problem, mostly, not a macroeconomic one (although it has transitory macroeconomic implications). The thing is this: global petroleum really is more expensive now than it was before. Period. Now way around it. For one thing, we're running out of it. For another, everybody else on the planet wants their share of what's left. So, much of the recent increase in petroleum prices isn't going away. This means that the RELATIVE price of petroleum-fired energy, whether it's liquid fuels or household fuels or the pass-through impact to transport costs of items on the grocery store shelf, that relative price is now higher and people just have to make the substitution responses that will mitigate the impact on their budget. Substitute AWAY from the more expensive, petroleum-fired behaviors and TOWARDS the alternates. That substitution is not easy (it's nearly impossible in the short-run), but it must and will occur over time. It means giving up that SUV eventually. It means changing all the lamps in your household. Maybe it means installing photovoltaics on your rooftop, I don't know, people tend to work this out on their own, people and businesses. But there's nowhere to hide from it. I wouldn't co-mingle the homeless problem with the energy problem, analytically or from a policy standpoint, but I would recognize the latter (homelessness) as worthy of both (analysis and policy intervention).

Paul; As the Chief Economist of the BoH do you support the view that the decline in the value of the dollar is caused by its loss as a Reserve Currency or are the Ieaq War spending and our adverse B/P also to balme?
Please also explain why auction rate securities a risky investment? Thanks Meheroo

Over the years, you seem to have been a consistent apologist for high housing prices, and have made dozens of disingenuous comments about how there is nothing fundamentally out of line where it comes to housing prices, blaming the high prices on the high cost of living, a strong economy in Hawaii, etc etc. As recently as 2006, you made the following (typical) statement about Hawaii RE: "It's better to get on the train now, because it isn't coming back," you said. No mention of the role of banks, regulators, brokers, appraisers, ratings agencies and the Fed in creating the largest nationwide housing bubble in American history, creating a lot of problems for Hawaii. Even now, you seem sanguine on the risk this bubble poses to Hawaii. So, since everything we have seen for the last six or seven years is, according to you, based on fundamentals, and the Hawaii real estate market is doing so great, and the economy is strong, can you explain why I am seeing condos on Maui that sold in the 300-325K range in late 2006/early 2007 being sold (short sale) for 200k? A follow up: Do you feel any shame whatsoever for essentially being the mouthpiece for the speculative interests who either 1) put home ownership out of reach for a generation of Hawaii residents, or 2) created a generation of mortgage slaves?

Although in many neighborhoods prices will move sideways in 2006, Brewbaker said that barring any catastrophic event, owners won't see a drop in their investment.

James in Makiki asks: Isn’t Hawaii’s housing market artificially high? Have we felt the sub-prime fallout yet and to what degree can we expect to? Can anything be done, economically speaking, to get prices back to reality so regular folks can afford even the most basic housing without going so deep into debt?

----
Well...hmmm...define articicial. The price of a home is what the seller is willing to receive and the buyer, simultaneously, is willing to pay. If you observe a price it means both were true. It is what it is, is what I mean, it isn't artificial. If you look at home prices on Oahu since the 1950s, for example, they rose at about a 7-8 percent rate of appreciation annually through the early-1980s, and they rose at about a 4-5 percent annual rate of appreciation since then. It's not fake, it's not artificial. Housing is an asset, and housing on a small island is an unusually scarce asset, so its total rate of return (capital gain--the price appreciation--plus dividend--the housing services consumed or rented) should arbitrage to the return on other risky asset classes, like stocks and bonds. It turns out that on Oahu at least, for which I have the most data, this is approximately true. So, I wouldn't be waiting around for the "articifial" prices to get real. With respect to sub-prime, etc., sure there are problems, but they didn't fundamental depart Hawaii home prices from their expected trajectories. A deeper issue is whether the AMPLITUDE of the Hawaii housing valuation cycle could be diminished by appropriate housing policy. Of that I'm sure it is the case, but my answer is politically-incorrect. To smooth out the rate of home price appreciation in Hawaii policy-makers would have to allow more of it to be built each cycle, and the Politics of NIMBY says that will never happen.

Thomas asks: "What is the outlook on the housing market here on Oahu? Are mortgage rates expected to drop significantly?"

---

With apologies, I'm going to try to go for shorter answers henceforth. I expect home prices on Oahu (at the median) to drift downward slightly, from $625k to just over $600k, during the next several years. See the March 2008 construction forecast at www.uhero.hawaii.edu for details. Mortgage rates went higher this quarter because the risk premium from the recent financial turbulence widened relative to yields on the benchmark 10-year US Treasury Note. I expect that risk premium to narrow, but ultimately I expect the 10-year T-Note yield to increase from today's 3.50 percent to something (in 2009) closer to 4.50-5.00 percent. Which comes faster is an open question. The risk premium, I bet, narrows faster than the 10-year T-Note yield rises, but that guess and $4.50 buys you a mini-plate lunch so that's what that's worth.

Chicken Grease asks: "Can you explain the whole subprime mortagage problem/fiasco -- why was was something so attractive end up burning people in the end? Were consumers of these subprimes overzealous/jumped the gun? Seems like Hawai'i people didn't manage to fall into this "trap"; speaking of which -- were there signs that subprime mortages weren't going to end up working anyway?"

-----
Mr. Grease. Where'd you get that name dude? I knew a guy named Sandy Beach once, and his sister was named Coral. No lie. Something like that anyway. Look, I can't explain the whole subprime problem in this space. Here's what I suggest, read any speech at http://www.federalreserve.gov/newsevents/speech/2008speech.htm or from last year's list. This one, by Fed governor Frederic Mishkin is really good: http://www.federalreserve.gov/newsevents/speech/mishkin20080229a.htm. Sorry that's the best I can do on the fly. I might add that many local banks didn't go to the excessses of their mainland counterparts, and Hawaii has the LOWEST mortgage delinquency rates (and the second lowest sub-prime mortgage delinquency rates) in the country. So, it's not nearly as bad in Hawaii as nationwide. But read those speaches. Go to the source. Mahalo, and love that Chicken Long Rice bruddah.

Aloha Mr. Brewbaker, Central Pacific Bank has been advertising a "High or Low Interest" account with serveral conditions which must be met where the odds seem to be on the side of the bank. Has the Bank of Hawwaii thought of offering an account like that?

Mel asks: "We are hearing all of these doomsday predictions from leading economists regarding the economy and particularly the financial sector and the credit tightening. What would your advice be to investors? Is there significant risk in equities?:

-----

Mel anybody who knows me would tell you that I am not a Doomsday-type economist, so you have to take everything I say with a grain of eternally-optimistic salt. My advice to investors is to consider whether, in the long-run, the values you see in the stock market today are compelling to you, and whether their prospective returns--based on todays prices, which are low and the idea that prices might hook back up to something like the prior trends--will SUFFICIENTLY REWARD you for the risk that you are going to bear in the short-term by investing at these prices. If you can't take the heat, stay in cash for the moment until the dust settles, but there are certainly some bargains out their. Not to toot our own horn, but just in banks compare Bank of Hawaii to Bank of America to Citicorp, think about what's in each institution's balance sheet, and reckon whether their price changes in the last six to nine months accurately reflect what's happened and what might unfold in the future. Do that with any set of companies or industries. All you can do right now is your homework and gauge whether the return-versus-risk calculation for YOU PERSONALLY makes it worth getting back in. Then ask yourself: would I rather go to Las Vegas with this money or buy the S&P 500 Index? Me, personally, I'm feeling more confident about equities this week, but as I disclosed at the outset I'm eternally optimistic. I know that's a stock answer (no pun intended) but you just have to do your homework and reckon whether prospective returns offset the potential risks and your tolerance for risk.

Heh. Mr. Brewbaker, Chicken Grease is a keen funk number on D'Angelo's Voodoo album, track # 6. Exquisite R&B, nothing like I ever heard before. Plus . . . the name has a nice balance of consonants and vowels, no?

I have another question: are entities, such as the bank, and other movers and shakers of Hawai'i, ready to see that a full-court press needs to be made regarding Hawaii revenue-generating opportunities outside of tourism. Take Hoku Scientific, for instance (and, I apologize that I don't know if they're working with your bank or not) -- that is just a wonderful ongoing American Dream right here in Hawaii regarding the technical side of existence.

We can offer the world ways to, at the very least, research not only solar, but, wave power.

This can make money for EVERYBODY involved, and those who don't gain directly this way, will gain in other ways; you can just feel it.

Is it just me, or is Hawaii industry/business/what-have-you, simply not embracing things technological? I mean, this should be happening fast, it should be happening NOW?

Your thoughts, please.

Comment from: Paul Brewbaker [Member] I might add that many local banks didn't go to the excessses of their mainland counterparts, and Hawaii has the LOWEST mortgage delinquency rates (and the second lowest sub-prime mortgage delinquency rates) in the country. So, it's not nearly as bad in Hawaii as nationwide.

I will read these speeches. Thanks.

I'm glad you said, "Hawaii has the LOWEST mortgage delinquency rates" -- Hawai'i people are very responsible when it comes to these kinds of things, as they've been historically.

Jon asks: "Hi Paul, Do you think that the response from the Federal level is an effective countermeasure to this economic downturn or should more be done? Ideally, what needs to be done in order to turn the corner and get the economy moving up again?"

----
I think all parties--the Fed, Congress and the Administration--are playing it based on how it is unfolding. I'm convinced all the interventions to date are appropriate to the circumstances. I think it is notably extraordinary that the Fed has stepped outside the commercial banking sandbox and directly into the primary dealer space the the investment banking space, where it has no supervisory responsibility and, traditionally, no channel for the execution of monetary policy. This is a new and innovative approach to a new problem borne of financial innovation, and seems appropriate and decisive to me. Congress and the Administration are focusing on the medium-term, regulatory reform, for example, or certification of mortgage brokers a la stock brokers, and I think that is an appropriate response at the moment. We all hope the federal government will not have to interevene directly as in the S&L crisis (forming the Resolution Trust Corporation at taxpayers' expense). I think global capital markets are sufficiently sophisticated that the measures extant will restore investor confidence and, with that, normal sources of liquidity. Time will tell.

My homegirl Meheroo Jussawalla asks,"do you support the view that the decline in the value of the dollar is caused by its loss as a Reserve Currency or are the Ieaq War spending and our adverse B/P also to balme? Please also explain why auction rate securities a risky investment?"

----
No, Meheroo, I think the dollar's decline is a reflection of central banks' and national governments' preference that currency markets determine the relative values of currencies rather than national authorities of some sort. Obviously the exceptions are important--I would conjecture that the Chinese yuan would be worth more in US dollars than the revaluation that the People's Bank of China has allowed to occur since the summer of 2005. As a result, the "free variables," like the Euro have had to take on more of the weight of adjustment. The dollar's value in Japanese yen had been supported by the so-called "carry trade" (borrowing low-interest yen and investing in dollars), but recent events have taken away that support. Moreover, I think an interesting way to view the recent commodity inflation is to say that the dollar is depreciating in Euro, yen, yuan, petroleum, gold, minerals, metals and agricultural commodities. So it's just the market at work. I'll have to leave it at that and get back to you on the other questions but the weakening dollar is the mechanism by which US external imbalances with respect to the rest of the world, and excess foreign savings, are going to equilibrate. It's just the market at work and it will continue for a while, I'm guessing.

Among other things, Matt asks: "Do you feel any shame whatsoever for essentially being the mouthpiece for the speculative interests who either 1) put home ownership out of reach for a generation of Hawaii residents, or 2) created a generation of mortgage slaves?"

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Matt, my answer is: (1)no; and (2)never happened.

Public (as in John Q.?) asks: "Central Pacific Bank has been advertising a "High or Low Interest" account with serveral conditions which must be met where the odds seem to be on the side of the bank. Has the Bank of Hawwaii thought of offering an account like that?"

----
Please walk into any Bank of Hawaii branch and ask a customer service representative to help you find a deal tailored to your needs. Aloha!

Here’s another sent earlier via e-mail from Neal:

Paul,

What might be the perception of a buyer coming into the Honolulu (Manoa Makiki) single-family home market ($1million+)? Would a seller better
wait a year or so?

So when you say there isn't a generation of mortgage slaves, how would you define the generation of people in Hawaii who make a median income of mid-50K and now are coping with 650K median housing prices?

Neal asks a really great question, which relates to Meheroo's earlier question about exchange rates. Neal asks: "What might be the perception of a buyer coming into the Honolulu (Manoa Makiki) single-family home market ($1million+)? Would a seller better wait a year or so?"

------
So here's the thing Neal, you have to think in "Dog Years." If you are a prospective investor from Alberta, Canada and it turns out that ranch you've been scraping a living off of for the last three decades is sitting on top of a huge reserve of oil shale or oil sands, and you reach Waikiki on your annual "snowbird" vacation and the value of your Canadian dollar is up SUBSTANTIALLY against the U.S. dollar, so that everything in Hawaii looks cheap for a change, well...that means REAL ESTATE looks cheap from your perspective (in Dog Years), even though it looks expensive to us kamaaina (in People Years). Right now, what I'm hearing in the real estate market is that that combination of natural resource-based wealth plus the currency effect (the depreciating U.S. dollar that Meheroo asked about earlier) is turbo-supercharging the buying power of certain foreign investors. For Aussies and Canadians, the two forces are complementary--higher natural resource wealth (from higher commodity prices) and strong currencies. For Europeans it's just a strong, strong, ultra-strong Euro, but that's if they can get a seat to Hawaii. Right now it's easire for them to get to New York City than Honolulu, so they're spending their Euro there. In Hawaii, however, Koreans are a new, re-emerging class of investors. Korea's economy is rock-solid and their currency has regained most of the loss since the 1990s financial crisis. Your mileage may vary, but in Manoa your new neighbor may soon be a foreigner.

Sorry, folks! We’re out of time. Thanks to all of you who participated in today’s Hot Seat. Great questions today, folks. And a special thanks to Bank of Hawaii’s Paul Brewbaker, for making time to chat with our readers.

Be sure to watch for excerpts of this community conversation in Sunday’s Focus Section.

Stay tuned to this spot to find out who next week’s Hot Seat guest will be.

Mahalo everybody and please check our econ web site at www.boh.com/econ/ any time. New posting at the end of April in conjunction with our quarterly corporate earnings release, just like every quarter.

Aloha!

In a follow-up, which I am answering after this session ended, Matt asks: "how would you define the generation of people in Hawaii who make a median income of mid-50K and now are coping with 650K median housing prices?"

-----
Let me suggest to Matt and many others who are concerned about housing affordability in Hawaii that there is long literature on this subject, some of which can be found in things I have written, the conclusion of which is that there is nothing really new in the current environment (defined as today's incomes, home prices and interest rates) relative to the way things in Hawaii have been for all of the decades for which I have data--which is about four or five decades, but not for all data. Matt thinks that makes me an "apologist" [his term], indeed, a "consistent apologist for high home prices." Whatever. It is what it is, Hawaii is like what it's like. I didn't invent it, I don't even claim to understand it more than anyone else. Don't blame the messenger if you don't like the message--I didn't ask you, you asked me. Having said that, I encourage Matt and anyone else who thinks that I should pound sand to go get the data for four-person family median incomes, get the data for median home prices, get the data for conforming fixed-rate mortgage interest rates, and calculate for themselves an index of affordability from the data extant. It's easy to do, "it's all on Internet" as people nowadays love to say. Knock yourselves out. Alternatively, cheat and download an index like this from www.uhero.hawaii.edu. You will find, because I've done it, and I've even published it from time to time, that on a cyclically-adjusted basis the current configuration of incomes, prices, and mortgage rates comprises no worse a situation in Hawaii from a housing affordability standpoint from any other extreme of the housing valuation cycle in Hawaii. If you do the homework, that will make three cycles for which the complete calculation is possible, to my knowledge of the data (which collectively get you back to the early-1970s). That's not a judgment call, that's not an apology: that's a fact, Jack. If you are really smart, you can calculate from the underlying income distributions, relative to the underlying home price distributions (in which case, of course, you need higher-order moments than the central tendencies such as means or their lame cousin, medians) how the relative welfare positions of various income quantiles have changed over the cycle as housing valuations change. I know a guy who likes doing this math BY OCCUPATION (better yet, a developer!). Note that home price movements are not monotonic by quantile, but you can discover that for yourself. You will doubtless find, although this is more of an hypothesis, as I haven't updated my own calculation for a year or so, that the situation from 2005-2007 is not disimilar from the situation in 1980-82 and in 1990-92. By implication, the situation at the other extreme of the valuation cycle (e.g. circa 1998 or 1986) would have a constellation of variables yielding the opposite result (relative affordability as opposed to relative inaffordability). So, in layperson's terms, it doesn't get much worse than this--it has, in fact, been worse than this historically, but not by much--and while it does get better than this in Hawaii, it's never as good in Hawaii as it is in many places on the U.S. mainland, although it is better than some, sometimes. I'm not sure why anybody would think that it should be as affordable in Hawaii as on the U.S. mainland. I will assert--although you are welcome to do the math yourself--that it was not much more inaffordable in Hawaii ON AVERAGE as of the end of 2007 (the most recent data I have) than it is or was at that time in San Francisco, Oakland, Fremont, San Jose, Sunnyvale, Santa Clara, Anaheim and the rest of Orange County and much of the greater Los Angeles area and much of San Diego County, California, although obviously these things do change over time. The same could not be said of the early-1990s, when Honolulu, in particular (but also somewhere like Maui), was unambiguously less affordable than all of those places. Just as a note in passing, it was way CHEAPER (relatively speaking, in affordability terms) in Hawaii than in California around the year 2000 plus or minus a year or two. That's when I think I was variously quoted (I paraphrase) that "you should buy real estate" (at the time), or "you should have bought real estate" (now that the window of opportunity has closed). These comparisons are, admittedly, between Hawaii or Honolulu and the most expensive places to live in the country. Papers and papers have been written about why this is so (why these places are more expensive than others). On the demand side the reasons are obvious: better places to live than everywhere else by most Americans' reckoning, and therefore places for which residency is in high demand. On the supply side, while debated, I and an emerging consensus in the literature think that a toxic combination of geographic scarcity and regulatory scarcity are to blame. NOT, I might quickly add, the economists who study these things, be they apologetic or not. Talk to your representative about regulatory reform, because the last time I checked you can't change geography. Or, talk to the hand. Take your pick. The regulatory environment IS something people in Hawaii actually asked for, so one can't possibly blame me for that. This is a democracy after all. It's the Politics of NIMBY. Yo, if you think I'm making THAT up, Google "The Politics of NIMBY." While you're at it, Google "Glaeser and Gyourko" and start reading, if you really want some answers, but hey, don't blame me because I actually did the math. Cut and paste this link and do your own homework if you don't like copying mine. Check out:
www.google.com/search?hl=en&q=Glaeser+and+Gyourko.