Hawaii is an amazing place to be. Whether you’ve been there or only seen pictures, you can testify that the island state is a delight. But it’s also one of the most expensive places in the US. So, why is Hawaii so expensive?
Hawaii is an expensive place, with the cost of living 70% above the national average. There are several factors contributing to this. They include tax burden in the form of income tax and sales tax, unaffordable housing with the average home costing over $800,000, the Jones Act, and its remoteness.
In order to live comfortably here, you’ll have to earn around $47,000 as a single person, and a family of 4 needs a household income of over $120,000. Here, we discuss why Hawaii is so expensive.
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Cost of living in Hawaii
Hawaii is the most expensive state to live in the country. The cost of living here is 70% above the national average. Unsurprisingly, housing is the number one contributor to the high cost of living. Housing here is 168.9% higher than the US average. This leaves many people unable to afford the state.
The cost of living is so high that many families leave for other places. This is despite the relatively high wages in the state. Honolulu has one of the highest incomes among metropolitan areas in the country. But the income per capita is not enough to match the high cost of living. In 2017, Honolulu had an average salary of $74,553. But adjusted based on the cost of living, it dropped to $59,882. This means it had the lowest adjusted salary among metropolitan areas.
According to the National Tax Foundation, The worth of $100 in Hawaii was below $85 as far back as 2018. This makes it even more expensive than places such as New York and California, which have a reputation for being costly. In addition, the US Department of Housing and Urban Development sees the household income below $93,000 for a family of 4 living in Hawaii as low income.
What Makes Hawaii Expensive?
There are several reasons for the high cost of living in Hawaii. They include:
1. High Taxes
Hawaii has a very high tax rate. As a result, its residents bear the burden of the highest per capita tax revenue in the country. Its tax quotient per capita was $5,428 in the 2020 fiscal year, which is more than double the national state’s average of $2,664.
Its income tax rate is second-highest in the US, with California coming first. Regarding the estate tax rate, it also has the maximum alongside Washington. Although it has low property taxes, the cost of property in the state means that homeowners still pay as much as the national average.
The state also has sales tax which imposes a high burden on residents due to its regressive nature. According to a study by the Institute on Taxation and Economic Policy (ITEP), 10.5% of the lowest earners’ income in Hawaii go to General Excise Tax (GET) compared to the wealthiest, who pay 1.2%.
The high taxes are partly due to government spending. Hawaii’s budget per capita is very high. All these spending and liabilities fall on the resident.
2. Unaffordable Housing
Housing is what Americans spend most of their income on. The same applies to residents of Hawaii. But the cost of homes here is far higher than in any state. The typical value of homes here is $875,318, according to Zillow. The actual prices are much higher. A single-family home in the state would cost over a million. This is the reason many residents here live with families or roommates.
The high cost of homes in the city is due to many reasons. One of those is the zoning regulations. Several sources claim the state has very strict zoning regulations. Land zoned for residential and urban use is just 5%. So, developers have limited space for the construction. The limited land supply for housing has made the cost of construction to be very high.
3. Jones Act
Another factor responsible for the high cost of living in the state is the Jones Act which increases shipping costs. Hawaii is a non-contiguous state, meaning it doesn’t have any connection by land to the rest of the US. But, shipping to Hawaii can be very costly. Shipping to Hawaii from the West Coast can cost 300% higher than shipping to Australia.
This is due to the Merchant Marine Act of 1920 (Jones Act). Its section 20 states that any goods shipped between US ports must be on a ship built in the US and with a US flag, and most crew members must be Americans.
The result is that foreign ships going to another port in the US can’t stop in Hawaii to drop off some goods and can’t transport goods from a US port to Hawaii. Residents end up paying more to import goods. In addition, all the ships have to be US-built. US-built ships could be about 5 times more expensive to make than the foreign-built ships, and Hawaii residents have to bear the costs of their importation.
4. Remoteness
The remoteness of Hawaii also limits the options of residents. Shopping for food, groceries, and other necessities costs more here than in other states. There are no cheaper alternatives for residents to take advantage of. While you may find several convenience stores in one city in another state, you don’t have that choice in Hawaii. Oahu has only two Walmart stores, for example.
How Much Do You Need To Live Comfortably In Hawaii
The high cost of living in Hawaii means you need to earn significantly to live comfortably. According to some studies, you’ll have to be earning over $122,000 to live comfortably. This doesn’t necessarily apply to everyone. But it gives an idea of how costly the state can be. The MIT Living Wage Calculator says that an adult in Honolulu needs to earn $22.69 per hour to earn a living wage. If it’s a family of 4, the couple has to earn $29.19 per hour each.
In Conclusion
Hawaii is an expensive place to live due to several factors, some of which can be fixed. For example, amending the Jones Act will reduce the cost of products in the state, and easing zoning restrictions will make homes more affordable here.
