Four More Years and a Long Road Back: Jamaica Homes Monthly Housing & Development Review — December 2004

Publication Date: December 3, 2004 | Coverage Period: November 3–December 2, 2004 | Category: Monthly Review

Month in Brief

• George W. Bush defeats John Kerry in the US presidential election on November 2; diaspora communities in the United States assess implications for immigration and remittance policy
• Ivan rebuild activity accelerates across eastern parishes as dry-season conditions improve construction site access
• NHT emergency housing scheme processes hundreds of applications from affected households in St. Andrew, St. Catherine, Portland
• Bank of Jamaica holds benchmark rate; commercial mortgage lending remains above 17%
• Pre-Christmas construction projects gain pace; holiday season typically sees increased informal residential work
• Jamaica government begins formal year-end review of Ivan damage assessment and rebuilding expenditure

The US Election and Jamaica: Four More Years of What?

George W. Bush’s re-election to the American presidency on November 2, 2004 was watched with close attention in Jamaica. The island’s relationship with the United States is among the most consequential of any bilateral engagement — the US is Jamaica’s largest trading partner, the principal destination for emigrating Jamaicans, and the source of a substantial share of the remittance flows that sustain the island’s economy. When the United States chooses its president, Jamaica, whether it wishes to or not, is affected.

For the Jamaican diaspora community in the United States — estimated at well over half a million people, concentrated in New York, Florida, Connecticut, and New Jersey — the election result prompts an assessment of what four more years of Republican administration means for immigration policy, social services access, and the broader environment in which they live and work. Bush’s first term saw the passage of legislation and regulatory changes that tightened immigration enforcement and complicated the status of undocumented workers, a category in which a number of Jamaican migrants fall. Whether a second term continues or intensifies this trajectory is a question with direct material implications for Jamaican households on both sides of the Atlantic.

For the property market specifically, the US political environment matters through the remittance channel. Jamaican diaspora members in the United States sent an estimated US$700–800 million home in 2004, representing the largest single source of foreign exchange inflows to the island. This flow depends on the employment security, income levels, and legal status of Jamaican-Americans. Any policy changes that constrain informal employment, limit work permits for service sector workers, or increase deportation rates would have measurable effects on household incomes in Jamaica and, by extension, on the housing market’s demand base.

Community leaders in New York and Florida report that Bush’s re-election has generated anxiety in some quarters of the diaspora community, particularly among those with uncertain immigration status. The mood among more established, professionally employed Jamaican-Americans is more sanguine — they anticipate continuity in economic policy and, given the strength of the US economy in the early 2004 period, expect their financial capacity to support Jamaica-oriented investments to remain intact.

Housing Market

The housing market through November showed signs of stabilisation after the acute disruption of the Ivan period. Transaction volumes remained below pre-hurricane levels, but the panic-driven uncertainty that characterised the immediate post-Ivan weeks has given way to a more measured reassessment among buyers and sellers alike. Agents in Kingston and Montego Bay report that the pipeline of enquiries is recovering, though conversion to completed transactions remains slow.

The rental market continues to be the most active segment in Ivan-affected parishes. Households displaced from damaged properties are seeking temporary and semi-permanent rental accommodation, creating demand in areas where supply of intact units is limited. Landlords with properties in good condition in St. Andrew, St. Catherine, and Portland have been able to achieve rent levels above those prevailing before the hurricane, reflecting the tightness of available stock.

New listings in the formal market are increasing gradually as vendors who had held back in the immediate aftermath of Ivan begin to test market conditions. Some of these listings represent properties that sustained damage and are being offered at prices that reflect repair obligations — a category of opportunity that is attracting interest from buyers with the capital and risk appetite to take on renovation projects. Whether the asking prices in these cases adequately reflect the true cost of repair is a question that professional surveyors and structural engineers are being called upon to assess with increasing frequency.

Government Policy

The Patterson administration’s housing policy agenda in November was dominated by the ongoing management of the Ivan recovery programme. Parliamentary sessions returned to the topic of reconstruction pace and resource adequacy, with opposition members citing cases of households still in emergency shelter more than two months after the hurricane. Government spokespeople pointed to the scale of the logistical challenge — 17,500 homes to be assessed, prioritised, and addressed — and to the constraints imposed by the fiscal environment and the global construction materials market.

The NHT’s emergency disbursement programme continued to process applications through November. The Trust’s administrative capacity has been substantially stretched by the volume of Ivan-related cases, and officials acknowledge that processing times have extended beyond normal service standards. Priority is being given to households with the most severe damage and the most vulnerable occupants — elderly heads of household, families with young children, those whose primary shelter was completely destroyed.

Year-end budget discussions in November also touched on the housing sector’s capital allocation for the 2005–06 financial year. The competing demands of debt servicing, social services, and Ivan reconstruction leave relatively limited room for new housing programme commitments. The Ministry of Finance’s fiscal framework, presented to Cabinet in November, indicated that housing-related capital expenditure would be constrained to existing programme commitments and Ivan recovery, with limited scope for new initiatives until the fiscal position improves.

Construction Sector

November brought improved construction conditions across the island as the peak of the hurricane season passed and dry-season patterns began to establish. This seasonal shift has a material effect on construction productivity — concrete pours, roofing, and external works are all constrained by rain, and the drier months typically see a corresponding acceleration in activity.

The Ivan rebuild is now the dominant driver of construction activity in the affected parishes. Contractors who specialise in residential repair report full order books extending into the first quarter of 2005. The challenge, repeatedly flagged by industry bodies, is the combination of elevated material costs and stretched skilled labour availability that is constraining output below what demand would otherwise support. The bottleneck is not willingness to invest in rebuilding — it is the physical capacity of the construction industry to execute at the required pace.

Commercial construction in Kingston and Montego Bay has been less affected by these constraints, reflecting the different material and labour profiles of commercial projects and the greater financial resources available to commercial developers. The Urban Development Corporation’s Kingston waterfront initiative and several private commercial developments in New Kingston are progressing, providing employment and investment activity that partially offsets the weakness in residential development.

Investment Climate

The year-end investment picture for Jamaican property is a complex composite. On one reading, 2004 has been a terrible year: Ivan’s destruction set back years of careful building by thousands of households; the fiscal environment remains severely constrained; mortgage rates are too high for the vast majority of would-be buyers; and the construction cost escalation of the post-hurricane period threatens to extend the period before affordability recovers. On another reading, the same year has demonstrated the remarkable resilience of Jamaica’s property-owning and homebuilding community, the durability of diaspora engagement with the market, and the capacity of the NHT’s concessionary model to provide meaningful shelter access in extraordinarily difficult conditions.

For institutional and long-horizon investors, the post-Ivan period is presenting selective opportunities. Land values in some Ivan-affected areas have softened relative to pre-hurricane levels. Properties requiring substantial repair are trading at discounts that, in some cases, exceed the cost of the required work. And the structural undersupply of formal housing that pre-dated Ivan has been deepened by the hurricane’s destruction, suggesting that medium-term demand fundamentals remain sound.

Diaspora

November and early December are the period when diaspora remittance flows typically begin to build toward the Christmas peak, as overseas Jamaicans increase transfers to enable family members at home to participate in the holiday season. This year, the Ivan dimension has amplified the November-December pattern. Community organisations in New York, London, Toronto, and Miami report that fund-raising for Jamaica hurricane relief has been sustained well beyond the immediate post-Ivan period, with some communities still collecting and transmitting dedicated rebuild funds into November.

Estate agents who work with diaspora clients are preparing for the Christmas surge of returning visitors — typically the period when the largest number of diaspora property enquiries convert to serious intent. This year’s returning visitors will find an island in recovery, and the agents’ expectation is that many will be moved by what they see to make property commitments. The practical challenge is whether the supply of suitable properties — at realistic prices, with clear title, and in a condition commensurate with asking prices — is adequate to meet the anticipated demand.

Affordability

The affordability landscape has deteriorated over the course of 2004. Ivan’s destruction added tens of thousands of households to the pool of those in inadequate shelter. Construction cost escalation has pushed the floor price of new formal housing higher. And the monetary environment — with commercial mortgage rates consistently above 17% — has not improved materially despite the Bank of Jamaica’s stated intention to reduce inflation and create conditions for lower rates.

The NHT remains the essential bridge for formal sector workers, providing rates that make homeownership achievable for households that would otherwise be entirely priced out. But the Trust’s resources are finite, its administrative capacity is stretched by Ivan-related claims, and its eligibility criteria necessarily exclude the large informal sector workforce. The scale of the affordability gap is such that NHT alone, however well managed, cannot close it; the structural fiscal and monetary conditions that drive commercial mortgage rates must change before broader affordability improvements become possible.

Looking Ahead

The final month of 2004 carries the weight of a year that tested the Jamaican housing sector in ways not experienced since Hurricane Gilbert in 1988. The question for December and the turn of the year is whether the conditions for recovery — material, financial, psychological — are in place. The signs are mixed but not without cause for cautious optimism. The Ivan rebuild is progressing; the NHT response has been substantial; the diaspora has demonstrated its commitment; and the construction sector, despite its cost pressures, has not collapsed under the weight of demand.

The new US administration’s second term, beginning in January, will set a tone for economic and immigration policy that will be watched carefully in Jamaica. The direction of travel on immigration enforcement, trade policy, and the broader macro environment will all affect the remittance flows and investment capacity of the diaspora on which Jamaica’s housing sector so substantially depends.

The Bank of Jamaica’s path into 2005 on interest rates is the single largest variable for the domestic housing market. A credible trajectory toward lower rates would transform developer confidence, buyer sentiment, and lender appetite simultaneously. That trajectory requires sustained inflation control and exchange rate stability — objectives that the institution has been pursuing, with partial success, throughout 2004. Whether 2005 finally delivers the monetary conditions that Jamaica’s housing sector needs is the question the industry will be tracking most closely as the new year begins.