No Room to Breathe: Jamaica’s Housing Affordability Crisis Deepens in the PNP’s First Season

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

• Six months into the new People’s National Party administration, the fiscal constraints inherited from the JLP era continue to limit any meaningful housing policy response
• Public debt remains near 140 percent of GDP; the government is running a primary surplus but interest payments continue to consume the majority of revenue
• The 2010 Jamaica Debt Exchange reduced domestic interest costs, but commercial mortgage rates remain stubbornly high, pricing most Jamaican families out of the formal ownership market
• NHT mortgage activity represents the predominant channel of formal housing finance; the Trust is disbursing but its reach is limited by contribution thresholds and property price ceilings
• Informal housing construction — self-built, incrementally financed, often on unregistered land — accounts for a substantial share of actual housing delivery across the island
• The rental market in Kingston and its environs continues to tighten as household demand for affordable accommodation significantly outstrips quality supply

The formation of a new government in January 2012 brought with it an expectation, among some of Jamaica’s more hopeful housing market participants, that something might change. The People’s National Party — returned to office after seven years under the leadership of Portia Simpson Miller — had spoken during the campaign about affordable housing, about NHT reform, about the need to address the housing deficit that had continued to widen through the difficult years of the JLP’s tenure. Those words carried the weight of aspiration. They ran, in the first months of government, directly into the wall of arithmetic.

Six months into the new administration, the wall remains solid. Jamaica’s debt position has not changed. The government’s fiscal framework requires maintaining a primary surplus — generating more revenue than non-interest expenditure — to stabilise the debt-to-GDP ratio. This means that the budget space available for capital investment, social programmes and housing support is minimal to the point of irrelevance. The meaningful housing policy levers that the government might pull — expanded infrastructure investment to open new development corridors, subsidised construction finance for affordable developers, land acquisition for NHT schemes — are all constrained by the fiscal reality that defines this administration’s early months as surely as it defined its predecessor’s final ones.

Two Years After the JDX: The Mortgage Rate Question

The Jamaica Debt Exchange of 2010 was expected by some analysts to produce a gradual decline in commercial lending rates as the yield environment for government securities — which anchors the risk-free rate on which bank lending costs are based — compressed. Two years later, the transmission has been partial and slow. Commercial mortgage rates from the major banking institutions remain in a range that puts home purchase out of reach for the majority of Jamaican families. A three-bedroom house in a formal residential scheme in Kingston or St Catherine is priced, typically, at a level that requires a monthly mortgage service that only a very small fraction of Jamaican households can comfortably afford at commercial rates.

The Bank of Jamaica’s monetary policy environment has not provided the relief that might have been hoped for. Maintaining exchange rate stability in an environment of fiscal uncertainty has required the Bank to keep monetary policy conditions relatively tight. The result is a credit market that is expensive for borrowers across the economy, with housing mortgage borrowers bearing more than their share of the cost in a sector where the social case for affordable credit is about as strong as it gets.

The Self-Build Economy: Jamaica’s Hidden Housing Sector

What the formal housing data fails to capture is the extraordinary resourcefulness of Jamaican households in building their own shelter outside the systems that planners, lenders and developers design. Drive through any parish and the evidence is visible: half-built concrete block structures with rebar extending skyward, waiting for the next remittance payment to finance the next course of blocks; extended family compounds where two or three generations share a property that was built over twenty years; rear yards of older houses in established communities where children build their first homes on family land whose title may be uncertain but whose occupancy is not contested.

This self-build economy delivers housing at volumes that no formal developer could match at equivalent affordability levels. Its products are not always safe, durable or legally compliant. They often lack the services — proper drainage, reliable water pressure, legal electricity connections — that transform a structure into a home. But they provide the fundamental asset of shelter, and they do so through a financing mechanism — incremental accumulation, family support, diaspora remittances — that is not dependent on the dysfunctional commercial mortgage market. Any honest assessment of Jamaica’s housing situation in July 2012 must acknowledge this sector’s centrality, even if its informality makes it invisible to the formal data that housing policy discussions typically reference.

The Rental Squeeze in the Capital

Kingston’s rental market is operating under significant strain. The combination of continued household formation — driven by demographic forces that do not pause for fiscal crises — and essentially flat formal housing supply is producing a steady tightening of available accommodation at every price point. The affordable end of the rental market — the single-room and one-bedroom apartments in inner Kingston, in Portmore and in the residential areas of Half Way Tree and Mountain View — is operating at near-full occupancy. Rents in these segments have risen modestly in nominal terms but have risen more significantly in real terms given the inflation environment of recent years.

For working Jamaican families, the rental squeeze interacts with wage stagnation to produce genuine hardship. A household spending forty or fifty percent of its income on rent in Kingston or Portmore has very little left for the deposit accumulation that would enable a future transition to homeownership. The rent trap — where rental costs are high enough to prevent savings but not so high that the family moves — is a real phenomenon in Jamaica’s urban housing market, and the conditions of 2012 are making it more rather than less common.

What This Means

For formal sector employees with NHT contribution histories, the single most valuable housing asset available is the NHT mortgage benefit. The NHT’s rates — as low as two percent per annum for the lowest income brackets — represent a subsidy of enormous value in the current commercial rate environment. Every quarter of contribution builds toward an increasingly valuable benefit. Workers who are enrolled and contributing should understand clearly that they are accumulating an asset — the NHT credit — that may ultimately prove to be one of the most valuable financial benefits their employment provides.

For developers, the viable market in mid-2012 is either the NHT-approved scheme segment — where unit prices and specifications align with NHT’s lending limits — or the upper market segment where cash buyers and diaspora purchasers are transacting without commercial mortgage dependence. The middle market, which requires commercial mortgage financing, is effectively closed. Developers targeting this segment without a clear view of when commercial rates will normalise are taking on significant risk.

The Outlook: Patience Measured in Years

The honest message for Jamaica’s housing market in July 2012 is that the path to improvement is long. The government’s priority is fiscal stabilisation, not housing expansion. The IMF negotiations underway will, if they conclude successfully, provide a framework within which Jamaica’s debt trajectory becomes more manageable. But even the most optimistic reading of that framework produces a housing market recovery that begins to feel real only in the 2014 to 2016 period, after years of continued fiscal adjustment have created the rate environment and the investor confidence that residential development requires. For the families who need homes now, that timeline is cold comfort. For the investors and developers considering their next move, it is the realistic planning horizon. Jamaica’s housing market patience, already tested by years of crisis, must be measured in years more. The fundamentals — population growth, urbanisation, the diaspora’s sustained interest in the island — will ultimately support a recovery. The question is always when.

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

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