The Vote Has Spoken, the Mortgage Has Not: Jamaica’s Housing Market on the Eve of a New Era

Jamaica Homes Housing Affordability & Cost of Living Review — January 2012

• Jamaica held a general election on January 5, 2012; the People’s National Party under Portia Simpson Miller has won; the incoming government is being formed as this review is written
• The outgoing JLP government, which managed Jamaica through the 2008 global financial crisis and the 2010 Jamaica Debt Exchange, leaves office with the debt trajectory still a major unresolved challenge
• Under Prime Minister Andrew Holness — who led the JLP after Bruce Golding’s resignation in September 2011 — the government called an early election it ultimately lost
• Commercial mortgage rates remain elevated; the housing market has been operating in conditions of suppressed demand throughout the election period as buyers deferred decisions pending the outcome
• NHT activity has been the one consistent element of the formal housing market through 2011 and into the election period, maintaining disbursements independent of the political cycle
• The incoming PNP administration faces the same fiscal arithmetic as its predecessor: debt near 140 percent of GDP, IMF discussions ongoing, and very limited space for new housing expenditure

Two days after the polls closed on Jamaica’s January 5 general election, the housing market wakes into a country that has decided to change direction. The People’s National Party, under the leadership of Portia Simpson Miller, has won a decisive parliamentary majority after seven years in opposition. Andrew Holness, who assumed the office of Prime Minister in October 2011 after Bruce Golding’s sudden resignation, led the JLP into an election that the party ultimately lost by a significant margin. A new government is being assembled. A new chapter of Jamaican politics begins. And Jamaica’s housing market, which has been suspended in the particular kind of pre-election waiting that characterises every cycle in this island’s political economy, now has its answer on the political question — even if the economic questions that actually determine housing affordability remain very much unresolved.

This review is written in the immediate wake of the election result. It does not pretend to know what the new PNP government will do in its first weeks and months. What it can assess is the housing market environment that the new administration inherits: the conditions that have shaped the market through the final months of the JLP’s tenure, the structural constraints that no change of government can immediately dissolve, and the specific dynamics — in mortgage rates, in NHT performance, in construction activity, in rental markets — that will determine the housing experience of ordinary Jamaican families in 2012 regardless of which party holds office.

The Holness Interlude and the Housing Market It Leaves Behind

Andrew Holness served as Prime Minister from October 23, 2011 — the date of Bruce Golding’s resignation — until the election result of January 5. His brief tenure, conducted under the shadow of an impending election and the knowledge that the JLP’s political position was difficult, was not a period in which bold housing policy initiatives were likely or forthcoming. The government’s priority was managing the fiscal position that the JLP had inherited from the PNP in 2007 and had worked, through the difficult years of the global financial crisis and the 2010 Jamaica Debt Exchange, to stabilise. The Jamaica Debt Exchange of 2010 — negotiated under Golding’s premiership — had reduced domestic interest payments and provided some fiscal relief, but the debt ratio remained near 140 percent of GDP and the ongoing IMF discussions pointed to the need for further adjustment.

For the housing market, the Holness period was characterised by continuation: of the tight credit conditions that the JDX era had established, of the NHT’s steady but constrained operation, of the construction sector’s suppressed activity, and of the election-period deferral that causes buyers and developers to pause major financial decisions until the political outcome is known. The pre-election period of late 2011 into early 2012 saw transaction volumes fall as buyers waited for clarity. That clarity has now arrived. The question is whether the new government can provide the economic clarity that would restart the decision-making that the political uncertainty had frozen.

The JDX Two Years On: A Lesson in Patience

The Jamaica Debt Exchange was completed in February 2010. It was presented as a significant step toward fiscal sustainability, and it delivered real savings on domestic interest payments. Two years later, the lesson that the JDX offers for Jamaica’s housing market is a lesson in patience: the benefits of debt restructuring flow slowly, through the financial system and the credit market, in ways that take years to be felt by the mortgage borrower at the end of the transmission chain. Commercial mortgage rates have declined somewhat from their pre-JDX peaks, but they remain at levels that make homeownership unaffordable for the majority of Jamaican families without NHT support. The JDX created the conditions for a future improvement. It did not deliver that improvement immediately. The same logic will apply to whatever further debt management measures the incoming PNP government pursues.

The NHT: Jamaica’s Only Affordable Mortgage in an Unaffordable Market

In the environment of January 2012, the National Housing Trust occupies a position that is almost impossible to overstate in importance. Commercial mortgage rates from the major banks remain in the high double digits. For the typical working Jamaican family — a household with a combined formal sector income that qualifies it for neither luxury nor extreme poverty — the arithmetic of commercial mortgage servicing simply does not work. The NHT’s subsidised rates, by contrast, are accessible. For a contributing employee at the lower income bands, the NHT can offer rates as low as two percent per annum. Even at higher income levels, NHT rates are a fraction of what the commercial market offers.

The NHT’s limitation is not its rates but its reach. The Trust’s lending is constrained by property price ceilings that reflect the affordability targets of the programme. In Kingston’s property market, where even modest homes in acceptable locations have appreciated beyond the NHT’s maximum loan amounts, many contributors find themselves eligible for an NHT loan but unable to identify a property that meets both NHT’s criteria and their own living requirements. This gap — between the mortgage the NHT will provide and the property the buyer actually needs — is one of the defining constraints of Jamaica’s housing market, and it will require sustained policy attention from the new government if the NHT’s benefit is to reach its full potential audience.

What This Means

For buyers who have been waiting on the election outcome, the political answer is now clear. The case for proceeding with an NHT-eligible transaction that makes financial sense does not depend on which party holds office; it depends on the contribution record, the property’s eligibility and the buyer’s capacity to service the mortgage. Both of those factors are determined by individual circumstances, not electoral politics. Buyers who deferred decisions through the election period should now return to the transaction analysis that the election temporarily interrupted.

For the new government, the housing market’s needs are clear even if the fiscal space for addressing them is constrained. The priorities are: maintaining the NHT’s financial health; pursuing the IMF discussions that will create the macro stability the credit market needs to improve; and beginning the slow, multi-year work of planning reform and land titling that will lower the cost and risk of affordable housing development. None of these actions requires significant new budget expenditure. All of them require sustained institutional attention and political will.

The Outlook: The Same Mountain, a Different Climber

Jamaica’s housing affordability challenge is a mountain that does not change shape when a new government takes the trail. The summit — a housing market in which working Jamaicans can access affordable formal homes, where NHT benefits reach the full range of contributors, where construction activity is sufficient to close the deficit, where commercial mortgage rates reflect Jamaica’s improving fiscal position rather than its debt crisis — is still the same summit. The path to it runs through the same terrain: debt reduction, interest rate normalisation, infrastructure investment, planning reform, land titling, and the painstaking institutional work that improves the enabling environment for affordable housing delivery. The PNP now leads the climb. The mountain is waiting. And Jamaica’s housing market, patient as ever, is watching to see what pace the new climbers set.

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

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