Beverly Paracuelles wakes up each morning to a view of palm trees, golden sands, and azure tropical seas. She spends her days wandering along the world-famous beaches of Oahu's northern shore. But don't go telling her that life must be a dream.

Home for the 54-year-old former nursing assistant is neither one of the ocean-view mansions, nor the $600-a-night hotel rooms which dot Hawaii's most populated island. Instead, it's a battered Toyota van. Inside, in an area that measures six by eight feet, she must eat, sleep, and store all of her worldly goods.

"I've lived here for three years now, since I lost my job, and the depressing thing is that I can't see how things are going to get much better," she says, patting one of her three chihuahua dogs. "I wouldn't say that it's much of a life. I guess, like the old saying goes, I'd call it more of an existence."

Paracuelles is one of more than 4,000 homeless people, from a population of around 950,000, who contribute to Oahu's unwanted status as one of the street-sleeping capitals of America. Disabled by chronic back problems, and unable to find employment, she must instead get by with $314 a month in food stamps, plus petty cash earned selling necklaces that she makes from seashells.

Despite its "aloha" reputation, Hawaii currently has the third-highest ratio of homelessness of any state in the nation, behind Oregon and Nevada. Since the number of Americans living below the poverty line rose above 15 per cent last week, the problem here, like elsewhere, seems likely to get worse before it gets better. In addition to the likes of Paracuelles, a recent study by the research firm SMS found that 96,648 Hawaiians are now members of the "hidden homeless" community, a demographic which contains people squatting, living in temporary accommodation, or staying with friends or family members. Another 262,000 people – a staggering one in five residents of the seven islands – are classed as being "at risk" of homelessness.

You don't have to go far from the high-rise glamour of Waikiki Beach, Hawaii's most famous tourist centre, to appreciate the human effects of this statistical burden. Beggars throng the traffic lights of central Honolulu. They while away days in parks, and sleep in wasteland tent cities. In many ways, their sheer ubiquity makes the city of Barack Obama's birth resemble a Third World metropolis.

Venture into the countryside of Oahu, and you'll catch glimpses of tarpaulin, often in deep undergrowth a short distance from the road. Each one is a casual dwelling. There are several hundred of them, on a relatively small island which measures roughly 20 miles by 30 across.

The problem has not escaped Hawaii's ruling class, who are acutely aware of its potential to damage the "tropical paradise" reputation on which the state's lucrative tourist industry relies. Last year, local politicians narrowly failed to back a highly controversial plan to offer homeless people from other parts of the US a free one-way air ticket home.

Debate over alternative solutions is now gaining increased urgency in the run-up to November's Asia-Pacific Economic Co-operation (Apec) summit, which will draw 21 heads of state and hundreds of business leaders to Honolulu. In April, Hawaii's Governor, Neil Abercrombie, unveiled a "90-day plan" to reduce homelessness before the big event. But the 90 days brought little in the way of visible change.

Homeless advocates are now concerned that officials are planning to conduct intense "sweeps" of Hawaii's homeless encampments in the run-up to the Apec summit, clearing them from the streets in order to hide the scale of their problem from the prying eyes of the international media due to attend.

Governor Abercrombie has repeatedly denied the existence of such "sweeps", saying that it is not a crime to be homeless in Hawaii. Last week, the Honolulu Star reported that state officials had also testified before the legislature that none was being organised.

But try telling that to Paracuelles. This month, local sheriffs arrived at the beachside park in the town of Hale'iwa where her car is stationed and served an eviction notice. She and 40 other residents were told that if they are not gone by 4 October, they'll be forcibly removed.

"I've no idea where I'll go," she says. "Probably the next place with space. We've decided, as a group, to stay close to the beaches and stay together. There's power in numbers, and safety. Our vehicles aren't exactly road-legal. But if the cops want to give one of us a ticket when we drive off, they have to give us all one. And they usually can't be bothered with all that paperwork."

Hawaii's Affordable Housing and Homeless Alliance, a charity that works with the homeless community on Oahu, confirmed Paracuelles's story. Its executive director, Doran Porter, added that despite official assurances to the contrary, a "sweep" also took place earlier this month, at a large encampment underneath the Nimitz Highway in Honolulu.

Porter blames Hawaii's spiralling homelessness problem on a straightforward imbalance of supply and demand. There are far too many people who want to live on the islands, and too few housing units to hold them, especially when many buildings are also used as holiday homes. As a result, rented accommodation is some of the most costly in the nation.

"We have the highest cost of living in the US. Everything is more, from milk in the supermarket to gas to fill your car. And that's particularly the case with rent," he says. "The average cost of a basic one-bedroom apartment is between $850 and $900 a month. That's about the same as San Francisco. A lot of people in Hawaii, particularly in the tourist industry, are on minimum wage, $7.25 an hour. Even with a job they can't afford a home."

As a result, many small rental apartments contain several families, who sleep in shifts. Other residents work two jobs to get by. And those at the bottom end of the employment ladder aren't the only ones faced with a daily struggle.

"Because this is seen as an attractive place to live, wages in professional jobs are often lower here, too," Porter adds. "I've seen graduate legal positions, which on the mainland would pay $60,000 or $70,000, advertised at nearer to $40k. Even with that income, it can be difficult to make your rent."

All of which has led to a curious phenomenon: white-collar homelessness. A recent episode of the television series Hawaii Five-O focused on middle-class office workers who choose to live in illegal beachside encampments. Powered by electricity generators, their tents contained flatscreen televisions and working kitchens.

Aside from economics, experts blame Hawaii's climate and famously welcoming image for turning it into a magnet for people at risk of homelessness. Some travel despite already having no income or accommodation. Others come for work and then lose their jobs. Once you are stuck on the islands with no cash, it's almost impossible to leave.

"Right now, for every one person we manage to get off the street, I'd say there are two ending up there because of the recession," says Glenn Fuentes, an outreach worker. "If you are going to be homeless, where would you rather live? New York State, or Hawaii? We've even had phone calls from people in states such as Florida saying, 'We are homeless and are coming to live in Hawaii; could you direct us to a shelter?' We tell them that it ain't any better here. But they don't seem to listen."

As if things couldn't deteriorate further, last week brought news that a $6m annual grant that helps homeless people to find rented accommodation would be axed. Introduced as part of the 2008 federal stimulus, it has so far helped almost 1,800 people. Without the cash, Fuentes's job of getting clients off the streets will become even harder.

Among those whom money could have helped is Clifford Mendoza, 53, who has been homeless for more than 20 years. A former landscape gardener who supplements food stamps with whatever cash he can make spear-fishing, Mendoza says he has no prospect of ever being able to afford a roof over his head.