Like many who move to Hawaii, Daniel Hutchens, an ER doctor at a hospital in Honolulu — the state capital, located on Oahu — came for the outdoor life. He longed for the beach and the mountains after a job in a Chicago hospital left him burnt out. But by last autumn, after nearly five years in Hawaii — and 18 months into a frenetic property search — he still couldn’t find a home he could afford.

With a budget of $1.3mn, he and his wife had made 14 offers and been outbid every time. “My days off were essentially spent taking my two kids to house viewings,” he says. “Homes had between 10 and 40 other offers on. Many were going for $100,000 or $200,000 over the asking price, with cash offers.”

A year into their search, he says, houses in the Enchanted Lake and Kailua — two of their preferred suburbs — were no longer being listed at a price they could afford.

What is more, with their lease coming to an end, and local rents rising fast, Hutchens feared an increase their budget couldn’t cover, forcing a move to a cheaper area and the uprooting of their children to a new school.

Demoralised, frustrated and anxious, they discussed leaving Hawaii, and started scouring the internet for homes to buy in North Carolina.

Like many holiday-home destinations, from Cape Cod to Cornwall to the Côte d’Azur, Hawaii is facing a housing crisis that has deepened significantly since the start of the pandemic. With these markets already under pressure from high levels of holiday-rental investors, second-home owners and retirees, the rise in remote working has enabled wealthy buyers to expand their home searches, increasing demand.

Escalating prices have forced local workers to put off or abandon dreams of home ownership — or else move away entirely.

“High housing costs are becoming a significant push factor away from what have been some of the most desirable locations around the world, from cities and rural tourist hotspots to island locations such as Hawaii,” says Yolande Barnes, chair of UCL’s Bartlett Real Estate Institute.

What makes the situation in Hawaii especially acute is its geography — some 2,000 miles adrift in the Pacific Ocean, the search for cheaper suburbs can only go so far.

While Hawaii is the most expensive US state to live in, it is housing costs that are the most inflated — now three times the national average, according to data from the Missouri Economic Research and Information Center.

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In the first six months of 2022, spurred on by a pandemic-era property boom and a surge in buyers from the US mainland, the median price of a single-family home on Oahu hit a new record, jumping 17 per cent year-on-year to $1.11mn, according to property database Title Guaranty of Hawaii (TGH).

Now the housing crisis has started putting a strain on the local economy, forcing out many of the state’s key workers, the doctors, teachers and government employees, that it needs to function.

“There really isn’t a sector that doesn’t have a [staff] shortage,” says Ben Godsey, chief executive of ProService Hawaii, which provides HR services to 2,500 companies. “And the labour shortage has never been more acute . . . We just don’t have the housing supply to attract employees to get the economy back to full potential.”

In the past year, buyers from the US mainland have been more active in the local housing market than ever before. Between 2019 and 2021, their spending increased 129 per cent, from $3.1bn to $7.1bn, according to TGH data. Spending by Hawaiians increased by 46 per cent, from $9.9bn to $14.5bn.

With its pristine beaches, palm trees, and the promise of a more relaxed way of life, it’s easy to see Hawaii’s appeal to those wealthy enough to relocate there, especially during the Covid-19 lockdowns.

In March 2020, Vince and his wife, then living in Manhattan, extended a holiday in Hawaii to two months while he worked remotely in his job as head of tax for a large US company. Before returning to the mainland, the couple bought a detached home for $1.325mn in a suburb of Honolulu, where they returned to live permanently last June after Vince took a part-time consulting role which made remote working more feasible.

“I really haven’t missed Manhattan at all,” says Vince, who declined to give his full name. “My favourite thing to do in New York was to take a picnic blanket to Central Park on weekends. Here we are surrounded by nature all the time — the water, palm trees — and all the conveniences, stores and restaurants of [our previous] home.”

Californians accounted for nearly half of mainland buyers last year, flocking from major cities such as San Francisco. “Newfound mobility from homeworking, combined with the money the pandemic brought to many technology sectors, took things to a whole new level,” says Matthew Beall, chief executive of estate agents Hawaii Life. “And it wasn’t just tech executives, it was also finance — and those in entertainment, coming from LA.”

While many buyers from the mainland favour larger homes in remote locations across the state, plenty have bought in places where those serving Hawaii’s key sectors need to live. More than half of the 940 homes bought by Californians on Oahu last year — at an average price of $645,000 — were in Honolulu. The island’s high housing costs disproportionately affect native Hawaiians, who make up more than half of those facing homelessness on Oahu, despite accounting for only 10 per cent of the population.

Godsey says that since the start of the pandemic “between 25 and 30” of his 350 employees have left for new jobs on the mainland, where they can afford to buy a house. “These are people who are born and raised here and have kids. And they all moved for a lower cost of living.”

Employers are increasing salaries to stem the drain. “We get real-time data on wages from our clients: I’ve never seen wage inflation like this — it’s across the board including entry-level and speciality roles,” he says.

Staff shortages are particularly acute in Hawaii’s medical sector. Pressured for years by low health insurance reimbursement rates and high taxes relative to other US states, doctors’ salaries in Hawaii are among the lowest in the country. Rising housing costs are turning home ownership for many in the sector into a pipe dream.

Chris Lai Hipp, 44, a clinical pharmacist working in the ER department of a hospital in Honolulu, was born in Hawaii and, apart from periods training and working on the US mainland, has spent his life there. “My goal always was to come back, work and serve the community here, and buy a home,” he says.

Since the start of the pandemic, he has watched as one-bedroom flats in suitable neighbourhoods within his $400,000 budget have dwindled to zero. “Even if there is one I can afford, because competition is so stiff it sells immediately, for perhaps $50,000 or $60,000 over asking price,” he says.

Lai Hipp has enough for the deposit on the $400,000 he is budgeting for (a moot point, since he can’t find one that is suitable). But with rising living costs and a mortgage that would be more than a third of his earnings after tax, it wouldn’t be much of a life.

“I worked in the ER through the pandemic so I’m burnt out by that,” he says. “I want to have some quality of life and I’d be living so lean just to say I own a place. That famous line agents always tell you about affording your mortgage if you just cut out your daily Starbucks? I don’t know what math they’re doing but that’s not going to cut it.”

A year ago, he moved out of his one-bedroom flat in Honolulu and back in with his parents. They are pleased to have him there, but there are challenges. “Dad is sort of old school and gruff,” he says. “We have conflicting personalities.”

He estimates the flat he was renting for $1,700 would now cost $2,500, so his only option is to build a flat on top of his parents’ bungalow to live in. “I’m getting quotes from builders; it will cost between $250,000 and $300,000.”

While Lai Hipp is braving it out, many of Hawaii’s doctors are leaving — or avoiding Hawaii in the first place. The state has the second-oldest physician workforce in the US, according to the latest annual report provided to Hawaii’s legislature by the John A Burns School of Medicine. More than a fifth of the state’s 2,857 practising doctors are over 65. Roughly 700 more are needed to service the state. Shortages in certain disciplines are severe — staffing levels for some were as low as 30 per cent of what is required, the report found.

These are people who are born and raised here and have kids. They all moved for a lower cost of living

John Lauris Wade, 58, was a partner in a radiology practice that covered two hospitals on Hawaii Island and two on Oahu until he moved with his wife to Phoenix, Arizona, in May. He says he worried about the long-term feasibility of his practice, in part because high housing and living costs have made Hawaii so unattractive to young doctors.

“The universal obstacle to recruiting is cost of living, particularly housing. To have a viable practice long term you need to be able to bring in young physicians, [but] what I can afford to pay them won’t get them started in the life they deserve,” he says.

“They are coming out of [medical] schools with hundreds of thousands in debt and you have median house prices here in seven figures. Gas has jumped in price and you can leave a grocery store with three bags of groceries and have spent $240.”

Wade and his wife held back from buying a home when in Hawaii, wary that the uncertain prospects for his practice made borrowing the “funny money” required to buy a home too risky. Before he left, the home that he and his wife were renting would have cost around $1.7mn to buy, he estimates.

As the US Federal Reserve hikes interest rates to tackle inflation, rising mortgage rates are pushing up the costs of servicing the large mortgages needed for the state’s expensive homes. The average rate on a conventional 30-year fixed-rate mortgage has risen more than two percentage points since last summer, recently topping 5 per cent, according to the University of Hawaii. Beall says higher rates are starting to slow activity in the middle and lower end of the market, with some sellers forced to reduce their prices.

Despite the harsh economics, some still fulfil the dream of owning a home in the 50th state. In November, Hutchens and his wife finally found a property in Hawaii Kai, for sale for $1.05mn. The couple offered nearly 20 per cent over the asking price — even then, their offer was only accepted because a higher bidder pulled out.

For others, the dream has been abandoned. Now resigned to life above his parents’ home, Lai Hipp says he still considers leaving in weaker moments. “My parents are retired and are getting older now, so [the situation] would have to get really bad,” he says. “But, still, last night I found myself googling: how to transfer my [pharmacist] licence to the UK.”

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