The Weight of the Crisis: Jamaica’s Housing Market Under FINSAC’s Deepest Pressure in July 1999

Jamaica Homes Housing Affordability & Cost of Living Review — July 1999

• FINSAC’s restructuring of Jamaica’s domestic financial sector is deepening; the fiscal cost of the bailout programme is placing enormous pressure on government finances
• The Asian financial crisis reverberations of 1997-1998 have compounded Jamaica’s domestic difficulties; export competitiveness and tourism revenues have been affected
• Commercial mortgage rates are at their most extreme in Jamaica’s history; the working-class homeownership aspiration through formal channels is essentially frozen
• NHT remains the indispensable housing finance institution; its contributor-funded model is insulated from the commercial deposit market dynamics that destroyed the rest of the sector
• The informal self-build sector has absorbed many families who cannot access formal housing; family land in rural parishes is seeing increased occupation as urban economic conditions deteriorate
• Patterson’s government is under intense political and economic pressure; the FINSAC programme is deeply unpopular but is considered necessary to prevent total financial system collapse

The summer of 1999 is among the most difficult periods in Jamaica’s economic history, and the housing market is living that difficulty in full. The FINSAC financial sector rescue programme — underway for two full years — has now consumed an estimated twenty to thirty percent of GDP in direct and contingent costs, making it one of the most expensive financial crisis resolutions per unit of GDP that any Caribbean country has experienced. The fiscal consequences of this extraordinary expenditure are everywhere visible: in government borrowing costs, in the interest rates that commercial institutions must charge to sustain their own funding, and in the mortgage market that emerges from these financial system conditions.

Jamaica’s housing market in July 1999 is not a market in any meaningful sense of the word for the majority of the island’s families. It is a set of waiting rooms. Families wait on NHT contribution lists. Families wait in family land and informal settlements. Families in rental accommodation wait for conditions to improve before resuming homeownership ambitions. The market that transacts — upper-income properties, some NHT scheme units, commercial properties — is visible but is not accessible to the broad working population.

The Asian Crisis Amplifier

Jamaica entered this period of domestic financial crisis simultaneously with the Asian financial crisis that erupted in Thailand in July 1997 and spread through Indonesia, South Korea, Malaysia and beyond. The Asian crisis has not directly caused Jamaica’s FINSAC situation — that has domestic roots in poor supervision, connected lending and aggressive expansion by domestic institutions. But the Asian crisis has compounded Jamaica’s difficulties. Global capital markets became more risk-averse through 1997-1998; Jamaica’s ability to borrow internationally at affordable rates was impaired precisely when the fiscal demands of FINSAC were most acute. Tourism, which is Jamaica’s primary foreign exchange earner, was affected as global economic uncertainty dampened travel demand.

The combined effect of the domestic financial crisis and the global uncertainty of the Asian crisis period has produced a Jamaican economy in July 1999 that is under structural stress. GDP has contracted in real terms through this period; unemployment is elevated; remittance flows from the diaspora, while important, are insufficient to compensate for the economic disruption. The housing market sits at the intersection of all these pressures.

What This Means

For Jamaican families in the formal sector, July 1999’s primary housing message is about survival — preserving what has been accumulated, protecting NHT contribution records, maintaining employment to sustain mortgage obligations for those who have them, and avoiding the impulse to take on additional debt at the extreme rates currently prevailing in the commercial market.

For families in the informal sector, the FINSAC period has paradoxically created some opportunities in the regularisation space. Government focus on fiscal recovery and property asset management has, in some instances, opened channels for community land regularisation that might not have been available in a more stable economic period. Families in informal settlements should monitor government programmes actively.

The Outlook: The Bottom Must Be Near

Jamaica’s housing market in July 1999 is being tested at the limit of its resilience. The informal sector, family land traditions, community networks and NHT’s institutional robustness have prevented the housing situation from deteriorating into the kind of displacement crisis that might have occurred in a market more completely dependent on commercial finance. But the patience of Jamaican families is being severely tested. The recovery — which requires the FINSAC resolution to complete, fiscal consolidation to deliver lower rates, and the construction sector to begin recovering — cannot come too soon.

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

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