Election Year Anxiety: Jamaica’s Housing Market on the Eve of the 1997 General Election

Jamaica Homes Housing Affordability & Cost of Living Review — January 1997

• Jamaica’s general election is expected within months of this review; the PNP under Patterson and the JLP are campaigning with housing as a significant political issue
• Domestic financial sector stress is building; several financial institutions are under pressure and the early signals of what will become the FINSAC crisis are visible to close observers
• Commercial mortgage rates are high relative to historical norms and relative to what the economic fundamentals would support; affordability for working-class buyers is strained
• NHT’s contributor-funded programme continues to deliver housing to eligible members; the Trust’s below-market rate loans are increasingly the primary accessible formal homeownership route
• The economy has experienced a decade of expansion but inequality in housing market access remains stark; the gap between NHT-accessible and commercially-accessible housing is wide
• Construction activity has been supported by the expansion of the 1990s; this support is beginning to weaken as financial sector conditions tighten and developer credit becomes more expensive

January 1997 opens an election year in Jamaica, with the general election expected to be called before the end of the first quarter. Prime Minister P.J. Patterson’s PNP government, in power since 1989 and strengthened by consecutive electoral wins in 1993, is seeking its third mandate. The JLP under Edward Seaga — the former prime minister whose own mandate spanned the difficult early 1980s — is competing. Housing is a significant electoral issue: the aspiration of Jamaican working families for homeownership, the adequacy of NHT supply, the condition of informal settlements across Kingston, Spanish Town and the outskirts of Montego Bay, all feature in the political discourse.

The housing market environment of January 1997 is one of mixed signals. On the positive side, the economic expansion of the early 1990s has created jobs, raised incomes, and generated housing demand across income segments. Construction activity has been relatively healthy; new housing developments have been coming to market in St. Catherine and other areas accessible to Kingston’s workforce. NHT has been active; contributor mortgage lending has continued; scheme units have been delivered.

The Warning Signs in the Financial Sector

Beneath this relatively optimistic surface, however, the warning signs are accumulating. Jamaica’s domestic financial sector — which expanded aggressively in the late 1980s and early 1990s through connected lending, aggressive deposit taking and ambitious corporate structures — is under stress. Several institutions are experiencing liquidity difficulties; the interconnected corporate structures of some financial groups mean that problems in one institution quickly transmit to others. The Bank of Jamaica and Ministry of Finance are monitoring the situation; the government is beginning to develop contingency plans for the possible rescue of distressed institutions.

For the housing market, these financial sector warning signs matter primarily through the mortgage lending channel. The building societies — the institutions that provide the primary formal housing finance route for working and middle-income Jamaicans at rates below those of the commercial banks — are among the most exposed institutions. The connected lending that characterised their expansion has created a loan book quality problem that is beginning to manifest in rising defaults and liquidity pressure. New mortgage originations from building societies are becoming more cautious; rates are rising to reflect the risk environment.

What This Means

For aspiring homeowners going into election year, the key message is to evaluate housing decisions on fundamentals rather than electoral promises. Both major parties have made housing commitments; the capacity to deliver on those commitments depends on the fiscal and financial environment that emerges after the election. Given the warning signs in the financial sector, the most resilient housing strategy is to maximise NHT contribution eligibility and engage with the Trust’s programmes rather than relying on commercial alternatives that may deteriorate in the period ahead. For existing homeowners with building society mortgages, monitoring the financial health of the lending institution is increasingly important; the sector stress that is emerging may eventually affect some institutions’ capacity to serve their mortgage customers normally.

The Outlook: An Election, Then the Crisis

Jamaica’s housing market in January 1997 is at the threshold of a period that will be defined by two events: the general election, likely in the first quarter, and the financial sector crisis that the warning signs of January 1997 suggest is coming whether or not anyone has formally announced it. The election will produce a government; the crisis will constrain what that government can do. For Jamaican families planning housing decisions across 1997, the prudent approach is to make those decisions on the basis of NHT eligibility and personal financial position rather than on electoral promises or assumptions about the commercial mortgage market’s continued accessibility.

This review is produced for informational and journalistic purposes only and does not constitute financial, legal or investment advice.

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