What can we do about it?

In 2016, Auckland, in Aotearoa New Zealand, upzoned ~75% of the city. As a result, permits went up ~80%, and after six years, rents were 22% lower than they otherwise would have been. Auckland’s a useful case study for Honolulu: similar geography, population mix, initial zoning, and affordability. So, a UHERO economist asked: what if Honolulu did the same, and got the same results? Renters would save ~$500/month by 2032 (more for families in 3-bedrooms, $700+) — that’s equal to a ~$8,500/year pay raise per renting household. And most existing homeowners don’t lose out: many gain value from the new right to redevelop. New townhomes are more affordable and replenish the aging housing stock. A rent cut of this size is like a massive pay rise that housing policy can deliver, even when wage growth doesn’t.

Hawaiʻi is one of the most desirable—and most expensive—places to live in the world. But for 23 of the past 25 years, more residents have moved to other states than new arrivals have come to the islands. Rhetoric about being “priced out” is usually tied to expensive places where otherwise thriving economies drive gentrification, rising prices, and inequality, pushing middle- and lower-income residents to leave. Hawaiʻi, however, has neither the high incomes nor the extreme inequality of those places. Instead, Hawaiʻi’s experience may more closely resemble economically distressed or “left-behind” regions—marked by stagnant productivity and limited opportunity, though typically with much lower costs of living. In Hawaiʻi’s case, a persistently high relative cost of living may even mask these structural weaknesses and the extent of its economic decline.

So, is Hawaiʻi’s economic distress really about its high cost of living? Or is Hawaiʻi more like left-behind regions with stagnant local economies? Motivated by this puzzle, we re-examine Hawaiʻi’s economic performance by adjusting GDP per capita, per capita personal income, per capita growth, and GDP per hour worked for its high cost of living, revealing a deeper perspective that casts the “price of paradise” in a new light.

The analysis places Hawaiʻi’s economy alongside economically distressed places rather than priced-out metros and shows that its economic distress reflects more than 30 years of lagging per capita growth and productivity, not a rising cost of living, which has remained high but relatively stable compared to other states.

Geographic price differences confound comparisons of economic performance across cities by conflating nominal urban advantages with real differences in well-being. Existing tools only partially address this problem: the Bureau of Economic Analysis publishes a Regional Price Parity (RPP) Index that represents relative price levels in US cities and states, but it is available only annually since 2008 and with a publication lag, limiting its usefulness for historical or high- frequency analysis. To address this measurement gap, we use the Consumer Price Index (CPI) for 29 US cities to construct a CPI-based RPP, enabling consistent comparisons of urban economic performance over time at constant and comparable prices. We exploit standard price-parity properties using publicly available CPI data to estimate CPI-based RPPs at a higher frequency and over longer historical horizons. This results in a CPI-based RPP for any period with published CPI data, as far back as 1913 in some cities to the most recent observations. By separating nominal urban advantages from cost-of-living differences, the index allows researchers to reassess claims about urban well-being, affordability, and the real returns to agglomeration. We demonstrate the index by examining long-run regional price dynamics and comparing real per capita GDP and real per capita personal income across cities at constant and comparable prices.

Hawaiʻi's dependence on tourism has made its economy vulnerable to shocks and long-run stagnation. In response, there is growing interest in diversifying the economy to build resilience and foster new growth. This paper draws on a study using the principle of relatedness to identify diversification opportunities aligned with existing capabilities. However, identifying opportunities is not enough. If an industry has not emerged, some capability it requires is likely missing. The key policy task is to remove barriers to new industries by uncovering and addressing those gaps. While data access may be more limited for other island economies, the same policy design lessons apply, supporting locally tailored initiatives to identify and overcome barriers to growth.

Many regions of the United States promote diversifying their industrial base as a primary goal in regional economic development strategies but rarely use objective tools to identify diversification opportunities and priorities. In this article, we summarize a case study using a novel approach to identify opportunities to diversify Hawaiʻi’s economy and discuss the wider policy implications of this approach for other regions. To explore diversification in Hawaiʻi, we apply the Principle of Relatedness, which predicts regional diversification patterns. We specifically focus on industries that are related because these have a higher probability of thriving. But to diversify, we look for new industries that are currently underperforming. The case study highlights the difficulty of diversifying and the challenges that are likely to face new industries, often requiring a significant policy response to be overcome.

The economy of Hawai‘i is extraordinarily concentrated in the tourism industry. As a result of tourism’s dominance, Hawai‘i’s economy faces short-term risks from shocks that impact visitor numbers and long-term stagnation from flat and volatile tourism spending over the last three decades. In response to these issues—which became especially salient during the COVID-19 pandemic—policymakers in Hawai‘i increasingly emphasize the need to diversify. Still, it is not clear which industries Hawai‘i could diversify into.

Specialization in tourism exposes the economy of Hawai‘i to external shocks that trigger collapses in tourist numbers. Furthermore, Hawai‘i's economic growth has diminished for decades as the dominance of tourism has not generated productivity growth. In response, policy makers in Hawai‘i increasingly emphasize diversification. This article examines a spatial economics perspective to explain why Hawai‘i is so specialized, and to sketch policy for diversification and growth. Isolated, small, and open economies tend to be more specialized in one or a few industries because increasing returns to scale generates a coordination problem for new industries. By targeting industries that use related know-how, or a Hawai‘i-specific resource, Hawai‘i can access productivity gains from the scale of related and location -bound industries.

Hawaii was vulnerable to the COVID-19 pandemic due to its reliance on tourism. This article analyzes the pandemic’s economic impact in Hawaii by comparing outcomes with the pre-pandemic forecast. We explain why Hawaii’s experience differed from other states, suggest reasons for a slow recovery, and discuss the pandemic’s lasting effects.

Hawai‘i’s vulnerability to economic shocks has become a paramount concern during the pandemic. Extreme specialization in the visitor industry exposes Hawaiʻi to risk and volatility when events such as a pandemic, recession or terrorist attack trigger collapses in visitor numbers. In response, policy-makers in Hawaiʻi are placing an increasing emphasis on diversification. Those with an interest in alternative industries are asking for support. Others are justifiably concerned that diversification policy is futile and will support special interests rather than genuine policies to achieve diversification. Tourism is Hawaiʻi’s comparative advantage after all. Policy-makers need to consider, is there a way to balance concentration and risk while promoting diversification, growth and prosperity?