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Too much of a good thing?

Tourism growth puts a strain on island’s room inventory, labor, housing

Carl Bonham

WAIKAPU — Economics professor Carl Bonham asked, rhetorically, Thursday whether Maui has reached its capacity to accommodate growing numbers of tourists. His short answer was “not quite,” but supply-and-demand figures

foretell shortages of available hotel rooms and labor, but not, at least in the short term, airline seats destined for the Valley Isle.

“Clearly, the airlines don’t think that we have any capacity constraints,” he told about 150 people attending the Small Business Administration awards luncheon at the King Kamehameha Golf Club.

Bonham displayed a graph titled “Maui direct flights surge” that showed through nearly the first half of this year the number of scheduled airline seats to Kahului Airport. This year’s fever bar raised well above levels in 2015 through 2017, when visitor arrivals set records for the island.

A Hawai’i Tourism Authority spreadsheet for scheduled nonstop airline seats for April through June this year forecasts a 16.7 percent increase to 675,628 for Kahului, a 45.6 percent spike to 337,599 for Kona, a 38.8 percent jump to 249,895 for Lihue and a 28.2 percent rise to 15,106 for Hilo.

Coincidentally, Bonham’s remarks about more airline lift to Hawaii came on the same day Southwest Airlines announced that Kahului Airport would be one of its four Hawaii destinations when it begins flying to the islands this year, although it did not specify dates or routes.

The entry of the nation’s largest domestic airline into the Hawaii market has fueled speculation that increased competition could lead to lower ticket prices.

Maui County’s hotel occupancy rate in the year’s first quarter was 80.2 percent, up 0.9 percent from the same period last year.

Bonham noted that “that’s getting up very near record territory” for visitor hotel occupancy.

“So the question is: Where the heck are they going to stay?”

The occupancy surveys are of traditional hotels and timeshare complexes, not vacation rentals, he pointed out.

Sustained hotel occupancy rates of more than 80 percent have not happened on Maui.

“We’ve done it in Waikiki,” he said. “But you don’t want to be Waikiki.”

He predicted a slowdown.

“When occupancy rates start to get up here and stay up here in the above 80 percent range, we get slower and slower (visitor) arrivals,” said Bonham, executive director of the University of Hawaii Economic Research Organization.

Maui visitor arrivals for the first quarter of the year are up 7.2 percent, the tourism authority reported, and he said UH economists predicted 6 to 7 percent growth.

“Our forecast for the following year is about half that,” he said. “There has to be some slowing down the road.

“Once you’re at 750,000 visitors per quarter, . . . it’s harder to see growth,” he said.

In March, Maui’s average daily visitor census increased 7.5 percent to 67,878. Adding that figure to Maui’s resident population figure of 166,348, according to the U.S Census Bureau, the island’s de facto population was 234,226 for the month. That means that, on a daily basis, 29 percent, or nearly three in 10 people on Maui, are tourists.

Bonham said the resident-visitor ratio is “another form of capacity constraint.”

“People start to feel . . . over-tourism,” he said.

Capacity constraints are not just about having enough hotel rooms, he said.

“It’s also, where are we going to put all the cars? What are the traffic jams going to look like?” he asked.

There are implications for the environment, the economy and residents; and whether they’re “all still happy to have a thriving tourism economy,” he said.

Increased visitor spending has outpaced growth in the daily census of Maui tourists, he said.

“That’s not true everywhere else,” he said. “Maui is the standout in terms of getting the visitors to leave their money here.”

First-quarter tourism authority statistics show Maui is the only island in the state where per person, per trip spending topped $2,000 ($2,059.30, a 5.1 percent increase over the first three months of 2017, to be exact). By comparison, per person, per trip spending was $1,409.10 (up 0.7 percent) on Oahu, $1,557.80 (up 0.6 percent) on Hawaii island and $1,554.90 (down 7.4 percent) on Kauai. The average difference in spending between Maui and each of the state’s three other major islands was $552.

A shortage of labor is another constraint of tourism growth, he said.

In March, Maui County’s not seasonally adjusted unemployment rate fell to 1.9 percent, the same rate as the state overall. Nationally, the jobless rate was 4.1 percent.

The county’s unemployment rate is close to what it was in the pre-Great Recession years of 2006 and 2007, Bonham said.

Last year, Maui’s job growth was about 2.5 percent, he said. This year’s forecast is for around 1.7 percent.

Combining that with only a half of a percent of population growth, Bonham asked: “Where are you going to find the workers?”

Setting aside private sector health care job growth in Maui County (tied to the privatization of former public hospitals last year), the greatest increases in employment in 2017 were in the food services; professional and business services; and accommodations sectors, he said.

The professional and business sector serves primarily the visitor industry indirectly, he said.

Although there’s low unemployment, that hasn’t led to stronger worker earnings growth in Maui County. Bonham attributed that to a mix of job growth and a generational changing of the guard in the workplace.

There are “people a little older than me who are retiring in the prime of their earnings, and they’re being replaced — or at least try to be replaced — with millennials who are at a lower earning wage,” he said.

Another constraint on the economy is the lack of housing, he said.

Last year, Maui County issued 800 residential building permits, which was double the 400 the year before, he said.

However, “we’re still not building anywhere near enough housing,” he said.

Resident income can “just barely” keep up with rising mortgage rates and costs of construction, Bonham said.

Family income has remained stagnant, he said. “It’s stable, not growing as fast as you’d like.”

Of the hundreds of units that are built on Maui, many of those are purchased by nonresidents, he said.

Putting Maui’s economy in context with the nation’s, Bonham said the U.S. economy has been “going gangbusters, but economists are paid to worry . . . and we’re worried about how much longer will it last,” he said.

If the U.S. expansion continues to July, and Bonham said he’s “fairly certain” it will, then the current nine-year expansion will become 10 years — the second longest in history. The record was set from 1991 to 2001 when the growth of computers and the internet fueled increases in productivity and economic growth.

To demonstrate how the U.S. and world economies affect the islands, Bonham pointed to the nearly yearlong U.S. tariff on Canadian framing lumber, which has led to a 15 to 20 percent increase in prices for the home-building material, he said.

“So, these things are impacting the economies,” he said. “Obviously, we’ve got the North Korea talks on the horizon, and all we’ve got to do is look east if you wanted to think about what the effects of climate change or at least really, really bad weather can have on our economies.”

Bonham said he worries about when the next recession comes.

“Will we have the ammunition to fight off the zombies?” he asked. “The answer is probably not, because of the growth in U.S. debt we won’t have a fiscal response, and we may not have the interest rate response that we need.”

Hawaii economists are forecasting a 2.7 percent growth in the U.S. economy, partially because of Republican tax cuts.

“They’re having an impact on the short run,” he said. “They are boosting confidence and investment.”

And, worldwide, “every developed economy in the world is growing, and that hasn’t happened in close to a decade,” he said.

* Brian Perry can be reached at bperry@mauinews.com.

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