Jamaica Homes Housing Affordability & Cost of Living Review — April 2017
- The JLP government approaches its fourteenth month in office with GDP growth confirmed for 2016 and projections for 2017 showing continued expansion
- Bank of Jamaica begins a gradual monetary easing cycle, cutting the policy rate as inflation remains comfortably within the target band
- Housing supply pipeline shows early signs of recovery as developer confidence improves alongside the macroeconomic outlook
- NHT continues to expand its contributor base as formal employment grows, strengthening the Trust’s financial position and lending capacity
- The informal housing sector remains Jamaica’s largest single housing provider, sheltering communities that the formal market has never reached
- Diaspora remittances in 2016 reached record levels, providing a stable income floor for hundreds of thousands of Jamaican households
The conversation about Jamaica’s housing market in the spring of 2017 is different from the one that preceded it, and the difference is meaningful. For several years running through the deepest period of the IMF adjustment programme and its immediate aftermath, the dominant note in any housing discussion was constraint: constrained income, constrained lending, constrained developer confidence, constrained supply. The housing market was not so much a market as a collection of deferred aspirations — hundreds of thousands of Jamaican households who wanted to own a home, had some prospect of eventually being able to afford one, but were not willing to commit to the most significant financial obligation of their lives in an economy that felt deeply fragile.
That note of constraint has not entirely disappeared. The structural challenges of Jamaica’s housing market — the supply deficit, the land titling backlog, the affordability gap for the lower half of the income distribution, the inadequacy of formal housing finance options for the informally employed — are as present in April 2017 as they were in April 2015. But they exist against a different macroeconomic backdrop: one in which Jamaica is actually growing, employment is actually rising, rates are actually falling, and the institutional credibility that the IMF programme imposed through pain is now yielding the stability dividends that make long-duration commitments rational again.
Growth Returning: What It Means for Housing
Jamaica’s GDP growth in 2016 — modest but positive, and the most sustained expansion in almost a decade — has housing market implications that are both direct and indirect. Directly, growth creates employment and income, and income is the foundation of housing affordability. Indirectly, growth improves the sovereign fiscal position, which improves Jamaica’s credit rating, which lowers the cost at which the financial system funds itself, which reduces mortgage rates. The chain is long and each link takes time, but the current rate improvement that mortgage borrowers are beginning to benefit from is traceable, through multiple intermediary steps, back to the fiscal consolidation that Jamaica’s growth-with-stability agenda has achieved.
The sectors driving Jamaica’s growth have particular relevance to the housing market. Tourism, which continues to set arrival records, generates the employment income that flows into resort-community housing markets. Business process outsourcing, which has grown rapidly in the Kingston metropolitan area over the past five years, generates formal employment among younger Jamaicans that feeds directly into NHT contribution bases and mortgage applications. Manufacturing and agriculture, though recovering more slowly, contribute to the rural and semi-rural housing markets where the majority of Jamaica’s land mass sits.
The BOJ Begins to Ease
The Bank of Jamaica’s decision to begin a gradual monetary easing cycle in early 2017 is the most direct gift to Jamaica’s housing market in the new government’s first year. With inflation comfortably within the target range and growth beginning to consolidate, the BOJ has the monetary space to lower rates without triggering inflationary pressure — and it is using it. The initial rate cut in early 2017 is modest; the signal it sends is substantial. Commercial lenders, anticipating further cuts, are already adjusting their mortgage rate pricing in ways that improve affordability at the margin. The NHT, whose rates are set by the Trust’s board within parameters set by the government, is likely to reflect the easing environment in due course.
For buyers who have been watching the rate environment and waiting for improvement, the direction of travel is now clear. Rates are going down, not up. The precise bottom of the rate cycle cannot be predicted, but the trajectory is established. Buyers who are otherwise ready — with qualifying income, NHT eligibility and available deposit — should not wait for the perfect rate; the current rate environment is already meaningfully better than it was, and the improvement is ongoing.
Developer Confidence: Returning, Cautiously
Private sector residential developer activity in Jamaica is cautiously increasing. Projects that were placed in abeyance during the most acute phase of the adjustment period are advancing. New developments are being marketed in Kingston, Montego Bay and the suburban parishes. The NHT’s development pipeline is active and expanding. This is meaningful progress, though it is concentrated in the mid-to-upper segments where developer economics work without subsidy. The affordable segment — the one Jamaica most needs — remains the hardest to activate through private sector initiative alone.
The government’s ongoing engagement with the construction sector, and its signals about potential incentives for affordable housing development, have not yet translated into the scale of activity that the housing deficit demands. The JLP’s rhetoric on housing has been strong; the policy architecture to deliver on that rhetoric is still taking shape. There is time — the mandate runs until early 2021 at the outer limit — but housing timelines are long, and the decisions made in 2017 will determine what the pipeline looks like in 2019 and 2020.
What This Means
For buyers, April 2017 is a better moment than the preceding three years. The rate environment is improving. Employment is more stable. Lenders are more willing. The market for buyers with NHT eligibility and formal employment is the most accessible it has been since before the 2008 crisis. Buyers who have been waiting for confidence to return should note that it has, and that continued deferral has an opportunity cost.
For renters, the cost of renting in urban Jamaica continues to rise. The long-run case for moving from rent to mortgage payment — where the mortgage payment builds equity while the rent payment does not — is as strong as it has ever been, and the rate environment makes the monthly comparison more favourable than it was. Households that have been renting while building savings toward a deposit should assess their position actively.
The Outlook: Building Momentum
Jamaica’s housing market in April 2017 has the wind at its back in ways that it has not had since before the global financial crisis. The macro foundations are better. The rate environment is improving. Employment is growing. The policy direction is right, even if the scale of delivery has not yet matched the ambition of the rhetoric. The housing market story for the next two to three years will be written by whether the supply side — the new developments, the land regularisation, the NHT scheme expansion — can match the pace at which improving conditions are generating demand. The demand is there. The supply challenge remains Jamaica’s defining housing policy task.
This review is produced for informational and journalistic purposes only and does not constitute financial, legal or investment advice.
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