Kauai faces limited growth

Paul Brewbaker is not quite bullish on Kauai. Oh, he likes it here. Loves the scenic beauty, the beaches, the restaurants and speaks well of the aloha spirit.

But when chatting dollars and cents, when talking investment, growth, spending, population and visitors, his words aren’t quite as glowing. A little bit of a downer, even. He sees flat or declining numbers ahead. He sees less, not more. While some foresee cheery, bright economic days ahead, Brewbaker is skeptical.

“Down is the new up? What’s going on?” he said, laughing.

“People can talk all they want about how much new homebuilding’s going to happen on the island of Kauai. The fact is that the numbers of units authorized by building permits have never been lower, in the four decades since the mid-1970s,” he wrote. 

Brewbaker, the man behind TZ Economics on Kailua, recently visited Kauai and spoke to about 100 Realtors. His presentation was lively, engaging and enterprising, featuring an array of colorful charts and graphs, with Brewbaker tossing in jokes throughout. But it wasn’t exactly what you would call upbeat when it came time to get serious.

He pointed out, for instance, that while Kauai’s jobless rate has declined to around 5 percent, the labor force has declined by 1,500.

“In here lies one of the conundrums,” he said. “Things are statistically getting better, but they’re getting better because guys are bailing out.”

“Kauai has this uncomfortable deceleration in payroll employment over the past few years,” he said.

He noted that the number of Kauai’s visitors is flat, actually down since 2012, and the net room count on Kauai is the same as it was 10 years ago, as are the number of flights arriving on the island. Without growth in tourism, he said Kauai’s economy is stuck in neutral.

“You had a recovery and you stopped like 20 percent short of the previous volume,” he said.

And a rise in construction is unlikely.

“Building more lodging inventory seems improbable in a county that amended its charter to prohibit lodging inventory growth in excess of the physical depreciation rate (specifically, growth in excess of 1.5 percent),” he wrote.

A year ago, economists were predicting 8 percent growth for the state, Brewbaker said. Then 4 percent. In September, it was down to 3 percent growth.

“It looks like a zero to me,” Brewbaker said.

He doesn’t see many reasons for optimism, either. Kauai’s economic expansion opportunities are limited, he said, because the local economy — like all modern economies — does not primarily make things. 

According to his report:

1. The economy is dominated by services — and information-producing activity 

2. Kauai’s principle export is a cluster of activities around travel and tourism 

3. It has two secondary sources of external receipts: missile range, seed corn 

4. Both are dominated by professional, scientific and technical services — R&D

“Remember that Kauai is not an economy that is mostly engaged in the production of things, it is an economy that is mostly engaged in economic activity. In terms of exportables, once you get past tourism, what we’re talking about primarily is research and development activity,” he wrote.

Some who heard Brewbaker saw more positive signs in the local economy.

“I’m more optimistic than what I heard — in fact, I was somewhat surprised to hear his plateau report,” Oceanfront Realty International, Inc. President and Principal

Broker Donna Apisa said. “I don’t see it plateauing — I see there being continuous growth.”

“I think our market has definitely turned around,” Kauai Board of Realtors President Elect Chad Deal said. 

“The economy has generally turned around and I think is returning to a healthier state — we’re seeing first time homebuyers coming in. As far as projections go, I think we’re looking at being fairly OK for the next couple of years, at least, until we have another downturn, but everything is cyclical. I think we’re going to be OK for a while as long as the economy in general holds up.”

He believes construction will grow.

“I’ve seen statistics stating that we’ve had a lot of land sales in the past year,” Deal said. “That to me says that we’re going to see more construction because I don’t think people aren’t just buying for land banking (the practice of accruing parcels of land for future sale or development). I’ve seen a lot of people buying recently even near where I am — up in the North Shore — where they’re buying vacant land and building a home rather than buying an existing home.”