The 2008 Crisis Hits Jamaica’s Housing Pipeline

Kingston, Jamaica, 7 October 2008 — The joint venture housing model, which has been the engine of Jamaica’s most productive period of residential construction in the 2000s, is facing the first serious test of its resilience as the international financial crisis tightens credit markets globally and raises borrowing costs for the private developers who form the other side of these government-private sector partnerships.

The model, through which the Government provides land, the NHT provides mortgage financing for completed units, and private developers bring construction capital, management expertise, and speed, has delivered homes at a pace Jamaica had not seen since the 1970s and 1980s. Communities from Greater Portmore in St Catherine to new schemes in Manchester and St James have been built under joint venture arrangements that, at their best, combine the state’s land assets and financing capacity with the efficiency of private construction.

What the Crisis Changes

The international financial crisis of 2008 changes the economics of these partnerships in several ways simultaneously. Private credit becomes more expensive and harder to access. Investors who were backing joint venture developers become more cautious. Construction costs, partly driven by global commodity prices, remain elevated. And the Bank of Jamaica, responding to macroeconomic pressures, is likely to maintain or increase interest rates, making both construction finance and consumer mortgages more costly.

For the NHT, the crisis presents both a challenge and an opportunity. The Trust’s relative insulation from the volatility of commercial capital markets, backed as it is by mandatory contributor deductions rather than market deposits, gives it a stability that private lenders lack. That stability, if deployed wisely, means the NHT can continue to offer affordable mortgages at a time when commercial banks may be tightening their lending. The Trust stepped into this role during previous economic crises in the 1970s and 1980s, and its institutional history suggests the capacity to do so again.

Protecting the Pipeline

The immediate concern is protecting the housing construction pipeline from the credit squeeze. Developers who have already commenced projects will need access to bridge financing to continue through a period when private lending is contracting. The NHT has the mandate and, in principle, the liquidity to support that function. Whether it does so in a manner that maintains the affordability of the homes ultimately produced, rather than allowing cost escalations to price out the intended beneficiaries, will be the test of the joint venture model’s resilience under pressure.

Jamaica’s housing deficit existed before 2008 and will persist beyond it. The crisis does not change the underlying need. What it does is raise the cost of meeting it and reduce the appetite of private capital for the risk involved. The response to that challenge will shape Jamaica’s housing landscape for the decade to come.