The sunsets. The beaches. The laidback aloha spirit. Hawaii seems like paradise, but with price tags that elicit as much shock and awe as the islands’ natural wonders.
Why is Hawaii so expensive? In short, limited land supply, hefty shipping expenses, and high demand continuously drive up the cost of living.
Today, I’ll go over why living in this Pacific archipelago costs a pretty penny.
Top Reasons Why Hawaii Is Expensive
Did you know that a $100 bill is worth the least in the Aloha state? The real purchasing power here is more like $84.39.
Let’s see what drives up the prices this much.
High-Cost Shipping Affects Everyday Items
Being isolated in the middle of the Pacific means everything has to be shipped to Hawaii at great expense.
I once read about a business owner who said that it cost him $5,900 to ship cargo from Hawaii to Los Angeles. Yet, he had to spend under $2,000 to send the same goods from LA to Sydney!
Why is that? Well, the high shipping costs are partly due to the Jones Act, which requires all shipping between United States ports to be on American-built, owned, and operated vessels.
That means that foreign ships can’t offload cargo directly in Hawaii. They need to continue to the mainland ports, where distributors bulk and send stuff to Hawaii.
While the act aims to support the shipping industry in the United States, it also drives up costs for Hawaii enormously. Think 2–3 times the price.
Plus, the Hawaiian islands are separated from one another by stretches of ocean, making it costly to transport goods around the state itself. It would have been more affordable (and convenient) to truck products.
All the high shipping costs get passed on to consumers in the form of pricier food, clothing, energy, and so on. For instance, UHERO estimates that the average price for consumer goods in Hawaii is 11% higher than the national average.
No wonder sticker shock hits first-time visitors!
But it’s not just the tourists who are affected by this spike.
Shockingly, UHERO found the cost of living in Hawaii in 2017 was 18.5% above the national average, while income was only 2.5% higher! After adjusting for extra costs, Hawaii had one of the lowest purchasing power among all states.
Keep in mind that even energy costs depend on shipping costs. For reference, petroleum and coal imports accounted for a whopping 57% of all cargo imports to Hawaii ports in 2019.
Land Scarcity and Tourism Drive up Housing Costs
Think of how small Hawaii really is.
Now, consider that about 5% of Hawaii’s total land area is urban-zoned. Even within that sliver, not all the land can be used for housing. Some of it is set aside for open spaces, industrial zones, etc.
As a result, the limited supply of housing can’t keep up with the rising demand from locals, visitors, and snowbirding retirees
Note that Hawaii ranks second after California on the National Low Income Housing Coalition’s list of housing wages for two-bedroom fair market rates.
The average rent for a two-bedroom apartment here is $2,175 per month. To comfortably afford that, a household would need to earn $87,013 annually. That’s roughly $41.83 per hour!
I’ve experienced the housing prices crunch first-hand, and let me tell you that rents in Honolulu are quite steep! But it’s basic economics—when land is scarce, real estate skyrockets.
Locals Shoulder a Heavy Tax Burden
In addition to high living costs, Hawaiians shoulder a heavy tax burden. We face one of the steepest income tax rates in the United States. I believe only Oregon has higher rates.
Let me explain.
A Hawaiian family of four earning the median annual income of $88,005 per year needs to pay a whopping $5,086 in state income taxes annually.
Hawaii also has the nation’s highest estate tax rate, alongside Washington.
There’s a Labor Shortage
According to the Bureau of Labor Statistics, Hawaii’s unemployment rate for August 2023 was 2.8%, which wasn’t too bad. The state actually ranked in the 17th place alongside Missouri and Oklahoma.
However, the issue is that the high cost of living can also deter newcomers who can’t afford housing or everyday expenses.
Due to its isolated location, Hawaii lacks easy access to the nearby labor pools that mainland states get to enjoy. Plus, employers have to offer high salaries to attract qualified candidates, and these labor costs ultimately get passed on through higher prices.
Tips for Tourists Looking for a Budget-Friendly Vacation
Visiting Hawaii on a budget may seem daunting, but it’s possible with some planning. Here are my top tips for an affordable Hawaiian vacation:
- Steer clear of the peak seasons, like late December, to avoid steep hotel rates and flight prices.
- Book flights early and look for package deals.
- Pick accommodation with a kitchen to cut food costs. You’ll get to buy groceries and fresh produce at local stores and cook instead of going out for dinner every day.
- Pick up an affordable car from rental companies and explore back roads and scenic beaches.
- Avoid touristy activities. Instead, hit hiking trails.
What is the average cost of living in the Hawaii Islands?
Estimates show the living wage for the average family of four in Honolulu is around $5,400 monthly, without factoring in the cost of housing.
That said, GoBankingRates says that to live a comfortable life in Hawaii, you need between $111,600 and $195,300 annually.
How do locals afford to live in Hawaii?
To make ends meet, locals might take on multiple jobs or live in multi-generational households. Some choose to grow small backyard gardens to save money, too.
What job brings in the highest wage in Hawaii?
According to Zippia, finance services directors bring in the big bucks with an average pay of over $211,000. Even entry-level positions can pay around $164,000!
That’s well above the national average income, which some sources say is around $91,000.
While sticker shock is real, pretty much all the visitors I’ve talked to agree Hawaii’s unparalleled natural beauty and culture make it worthwhile.
After all, the islands embody paradise, and living in paradise was never going to be cheap!