Stability Without Joy: Jamaica’s Housing Market Two Years Into the IMF Programme

Jamaica Homes Housing Affordability & Cost of Living Review — October 2015

• Jamaica’s IMF Extended Fund Facility continues its grinding progress: ten consecutive quarterly reviews passed, debt falling, deficit contracting
• But the real economy has barely moved: unemployment remains high, growth is weak and household incomes in real terms have not recovered from the adjustment shock
• Commercial mortgage rates remain elevated, placing formal homeownership beyond the reach of most working Jamaicans outside the NHT framework
• NHT disbursements continue at a steady pace, providing the most accessible formal housing finance pathway that the market offers
• Construction sector activity is subdued by the combined effect of tight credit conditions and low developer confidence in housing demand durability
• The housing deficit continues to widen even as macroeconomic aggregates improve, revealing a crucial disconnect between stability and housing affordability

Two and a half years into the IMF Extended Fund Facility, the view from inside Jamaica’s housing market is a study in the limits of macroeconomic success. The programme is working, by the measures that multilateral economists use to assess programmes. Debt is falling. The primary fiscal surplus is being maintained. The exchange rate is broadly stable. Inflation is within the target band. The quarterly reviews are being passed. By these metrics, Jamaica is, to use the official language, “on track.”

But the housing market is not an IMF quarterly review. It is the lived experience of Jamaican households — the family in a rented room in a shared yard in Kingston waiting to accumulate the deposit for an NHT application; the young teacher in St. Catherine who is formally employed, NHT-contributing, but unable to find an eligible unit within her loan limit in a location she can reach by public transport; the diaspora remittance sender in South London whose contributions are helping an elderly parent stay in a home they cannot afford to maintain. For these households, the stability that the programme has produced is not felt as achievement. It is felt as the continued absence of improvement.

The Employment Stagnation

The single most consequential variable for Jamaica’s housing market affordability is employment. Without stable formal employment, no household can reliably service a mortgage. Without employment growth, the pool of potential mortgage applicants does not expand and the housing market cannot deepen. Jamaica’s employment picture through 2015 is improving from the worst of the adjustment period — unemployment peaked at above fifteen percent in 2013 — but is still running at levels that suppress both NHT contribution volumes and the private sector demand that drives commercial mortgage lending.

The sectors that have historically provided the formal employment income that the mortgage market depends on — manufacturing, public service, finance and professional services — have not expanded materially through the adjustment period. Tourism has been the brightest spot, with arrivals growth providing the income multipliers that the resort parishes depend on, but tourism employment is often informal, seasonal or both — categories of worker that the formal mortgage system is poorly designed to serve. The broad employment recovery that Jamaica needs for a genuine housing market improvement has not yet arrived.

The Greek Moment: External Contagion and Its Limits

In July 2015, the world’s attention was briefly fixed on Greece, where the government of Alexis Tsipras confronted the eurozone’s creditors with a referendum rejection of austerity conditions before ultimately accepting a third bailout programme under even tighter terms. The Greek drama — which briefly raised the spectre of eurozone disintegration and sent global financial markets into a period of risk aversion — was watched closely in Kingston and in the offices of Jamaica’s economic managers. The immediate concern was contagion: whether the uncertainty in Greek sovereign debt would spread through emerging market bond markets to Jamaica’s own sovereign debt position.

In practice, the contagion was limited. Jamaica’s institutional anchor — the IMF programme, which distinguishes Jamaica’s situation from the kind of political brinkmanship that characterised Greece’s negotiations — provided the market with reassurance that Jamaica’s adjustment was proceeding on schedule. The spread on Jamaica’s sovereign bonds widened modestly during the peak of the Greek crisis but did not reach levels that would have triggered the kind of market disruption that a less anchored economy might have experienced. Jamaica’s painful but diligent compliance with programme conditions earned exactly the institutional credibility it was supposed to earn when an external shock tested market confidence.

Where Demand Is Holding

Jamaica’s housing market is not entirely without activity in October 2015. The segments that are moving are predictable: the NHT scheme market, where the combination of subsidised rates and the institutional certainty of the Trust’s commitment continues to attract qualified contributors; the resort-adjacent market in St. James, St. Ann and Hanover, where tourism’s relative strength provides the income that supports purchase; and the diaspora market, where remittance senders from the United States, United Kingdom and Canada continue to use their hard currency income to accumulate property for eventual return or as family assets.

The segments that are not moving are the mass market of mid-range affordable housing in urban Jamaica, where the economics of formal construction and the affordability of the eligible buyer pool are most severely mismatched. It is this segment — the segment that the largest number of Jamaicans need — that most urgently needs the policy and financial innovation that the current government and the post-programme government will need to provide.

What This Means

For buyers, October 2015 is a moment of constrained patience. The rate environment is not improving quickly. Employment is not growing fast enough. But the stability that the programme has produced is a genuine improvement over the anxiety of 2012 and 2013. Buyers who are close to NHT eligibility should focus on closing the remaining gap rather than waiting for conditions to improve dramatically; the programme’s conclusion, expected in 2019, is the more likely inflection point.

For the PNP government, the housing file is a political liability that will only deepen as the election approaches. The combination of fiscal discipline and housing deficit is a difficult political story to tell, and the government’s best answer — that stability is the essential foundation for the improvement that will eventually come — is true but cold comfort for families who have been waiting for that improvement for three years.

The Outlook: The Programme’s End Is the Beginning

Jamaica’s housing market will not meaningfully improve while the programme’s fiscal constraints suppress the public investment and private confidence that affordable housing supply requires. The programme’s conclusion — or its transition to a less restrictive successor arrangement — is the structural turning point that housing policy needs. Between now and then, the task is to maintain the stability that the programme is producing, to preserve the NHT’s function, and to begin preparing the supply-side policy architecture — the land regularisation systems, the developer incentive frameworks, the titling acceleration programmes — that will need to be operational when the post-programme investment environment arrives.

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

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