Change of Guard: What the New JLP Government’s First Nine Months Mean for the Housing Market

Jamaica Homes Housing Affordability & Cost of Living Review — January 2017

• The JLP government, ten months into its term following the February 2016 election, has introduced a growth-first agenda distinct from the austerity-heavy PNP programme
• GDP growth in 2016 is tracking positive for the first time in several consecutive years, reflecting both policy confidence and improving global conditions
• Jamaica’s policy rate remains elevated but the BOJ has signalled a preparedness to ease once inflation targets are durably met
• NHT disbursements remain steady as the employment base grows and more contributors reach mortgage eligibility thresholds
• The Caribbean is experiencing a building boom in the luxury resort segment that is beginning to be felt in Jamaica’s northern shore resort parishes
• Housing affordability remains the JLP’s most difficult inherited challenge: the deficit is real, structural and not amenable to quick political solutions

On the evening of February 25, 2016, as the election results confirmed what the polls had increasingly suggested — that the Jamaica Labour Party had won a narrow but decisive victory over the People’s National Party — Andrew Holness made a promise to the crowd in Half Way Tree Square that housing advocates noted with particular attention. He spoke of homes. He spoke of opportunity. He spoke of a government that would put growth back into the economy and give Jamaicans the chance to build lives, not just to survive them. It was the language of aspiration, and it resonated with an electorate exhausted by years of structural adjustment whose sacrifices had not yet produced the quality-of-life improvements they had been promised.

Ten months later, the JLP government is still in the foundational phase of its housing agenda. It has inherited the IMF programme, with its attendant fiscal constraints, and has wisely maintained the discipline that the programme requires rather than making the politically tempting but economically destructive choice to relax it. GDP growth in 2016 is tracking positive — a genuine achievement that reflects both the confidence effect of a new government with a growth mandate and the underlying improvement that the adjustment programme produced. But the structural housing challenges that Holness inherited on February 26 are the same ones he faces in January 2017. They have not resolved themselves in ten months, and they will not resolve themselves without sustained, ambitious policy action over the full term of the mandate.

The Inherited Deficit: Numbers That Demand Attention

The housing deficit that the JLP government inherited is, by any reasonable measure, one of the most significant social policy challenges facing any Jamaican government in the post-independence era. Estimates from the NHT and the Ministry of Economic Growth and Job Creation suggest a backlog of between 80,000 and 150,000 units, depending on the definition of “adequate housing” used. Squatter communities continue to grow in and around the major urban centres. Informal tenure — family land, unregistered lots, community land arrangements that have no legal basis but enormous social reality — houses a very large share of the Jamaican population in circumstances that preclude formal mortgage access and, with it, the wealth accumulation that homeownership represents.

These numbers have not moved materially under any recent Jamaican government. The policy interventions that would move them — large-scale land regularisation, developer incentives for affordable construction, NHT scheme expansion at scale — require sustained political commitment and capital allocation over timelines that exceed the average election cycle. Jamaica’s housing deficit is the product of decades of under-investment; it will not be resolved in one mandate. What a government can do is change the trajectory: to accelerate the rate of formal supply delivery so that the deficit begins to narrow rather than continuing to widen.

The Rate and the Market

The Bank of Jamaica maintained its policy rate through most of 2016 at levels that were high by the standards of the current global environment but were calibrated to Jamaica’s specific inflation dynamics and currency management objectives. The direction of travel — toward lower rates as inflation is durably contained — is clear, and commercial lenders are already beginning to price in the expectation of further easing. For Jamaica’s mortgage market, the trajectory is positive: rates are coming down, though they have not yet reached the level that the improving macroeconomic environment eventually should support.

The NHT’s rate, set by the Trust’s board and the government, has been maintained at subsidised levels throughout the adjustment period. The Trust’s financial strength, built on mandatory contributions from a growing employed base, has preserved its capacity to lend even as the commercial environment was tighter. For the formally employed contributor — the school teacher, the civil servant, the bank teller, the manufacturing worker with five years of contribution — the NHT mortgage remains the most accessible route to formal homeownership available in Jamaica, and it remains available, with limits, in January 2017.

Resort Property: The Halo Effect Strengthens

While the affordable segment of Jamaica’s housing market struggles with structural constraints, the resort-adjacent property market in the north shore parishes is performing with a confidence that reflects the tourism sector’s continuing strength. The Caribbean luxury resort market has been experiencing strong growth, and Jamaica has been a beneficiary. Developments in the Montego Bay hills, along the Ocho Rios shoreline and in the increasingly fashionable communities of Portland are attracting investment from diaspora buyers, regional investors and international purchasers looking for Caribbean exposure with Jamaica’s unique combination of accessibility, culture and scenery.

Short-term rental yields in the established resort communities are providing investors with returns that compare favourably with other Caribbean and international alternatives. Platforms that have democratised access to the tourist accommodation market have brought previously inaccessible rental income streams within reach of smaller-scale property investors. The resort property market in January 2017 is, in short, performing very differently from the affordable residential market, and the gap between them reflects the structural two-speed character that has defined Jamaica’s property market throughout the recovery period.

What This Means

For buyers, January 2017 marks the beginning of what should be a more favourable cycle. The rate direction is down. Employment is growing. The economy is recovering. Buyers who have been deferring should reassess their position with fresh eyes at the beginning of this year. NHT eligibility thresholds — the minimum contribution periods and amounts — should be checked; contributors who have been in the workforce through the recovery years may find they have accumulated more eligibility than they realise.

For the government, the housing file enters 2017 as the JLP’s largest unresolved social challenge. The mandate is eleven months old. The tools to address the deficit are known. The political will to use them at the required scale is what the coming year needs to demonstrate. Housing is where rhetoric becomes reality, and Jamaica’s communities will be watching.

The Outlook: A Year That Will Define the Housing Agenda

2017 is the JLP government’s make-or-break year on housing. The mandate’s first year — 2016 — was legitimately consumed by IMF programme management, macroeconomic stabilisation and the establishment of a growth-friendly policy framework. 2017 is when the housing agenda needs to move from framework to delivery. The supply pipeline, the regularisation programme, the NHT expansion, the developer incentive structure: these are the elements that need to take concrete shape in the months ahead. The economy is providing the foundation. The question is whether the government will build on it with the urgency that Jamaica’s housing deficit demands.

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

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