A New Energy in the Market: Jamaica’s Housing Sector One Year Into the Holness Government

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

• Sixteen months after the JLP’s surprise election victory, Jamaica’s economy is posting its first sustained GDP growth since the pre-crisis years
• Bank of Jamaica continues gradual rate reduction, bringing mortgage finance costs to their most favourable in modern memory
• The JLP’s housing agenda, centred on supply expansion and land regularisation, is showing early movement but not yet sufficient scale
• Tourism sector records arrival growth for the fifth consecutive year, driving property market activity in the resort parishes
• NHT mortgage approvals expand as the formally employed contributor base grows with rising employment across the economy
• Construction cost inflation remains a significant challenge for affordable housing delivery, eroding the gains from lower interest rates

A year into the Jamaica Labour Party’s government, the question that every housing market participant is asking is whether the new administration’s energy and its different economic emphasis will translate, in practice, into different outcomes for Jamaican homebuyers and renters. The early evidence is cautiously encouraging. The economy is growing — modestly, but growing — in ways that it was not in the final years of the PNP’s tenure. Employment is up. The rate environment, steered by a Bank of Jamaica maintaining its accommodative stance, is the most favourable in a generation. Investor confidence, as measured by the spread on Jamaica’s sovereign bonds, has tightened meaningfully since the election.

These are real improvements, and they matter for housing. The housing market does not operate in isolation from the macroeconomy; the confidence that employment security and stable rates provide is the single most important precondition for the long-duration commitment that a mortgage represents. Jamaicans who were deferring homeownership decisions through the crisis and adjustment years because they were uncertain about their income trajectory are now, in meaningful numbers, beginning to feel sufficiently secure to commit. The market is responding: mortgage application volumes are rising, development activity is increasing, and the tone of the property conversation across the island has shifted from anxiety to something more closely resembling optimism.

The JLP’s Housing Agenda at Sixteen Months

The Holness government came to office with a housing agenda that was ambitious in its rhetoric and specific in some of its commitments. The core elements included accelerated land regularisation and titling, expansion of NHT scheme provision, incentives for private developers to build in the affordable segment, and a broader growth agenda expected to generate the employment and income gains that underpin housing demand. At sixteen months, the record is mixed. Land regularisation has received more attention and resource than it did under the previous government, though the scale of the backlog means that visible progress will take years to accumulate. NHT scheme activity has continued and expanded. Private sector developer confidence has improved with the macro environment, generating a pipeline of projects that should add meaningful supply over the next two years.

What has not yet appeared is the catalytic intervention — the policy innovation or the scale of resource deployment — that would materially change the deficit trajectory. The housing challenge Jamaica faces is large enough that it requires not incremental improvement but a step-change in the rate of affordable supply delivery. That step-change has not yet emerged from the first sixteen months of JLP policy. It may still come; the government is only a third of the way through its mandate.

The Rate Environment and Who Benefits

The Bank of Jamaica’s rate reductions have been the most consequential development for Jamaica’s housing finance market in the first year of the new government. The policy rate cuts that the BOJ has implemented since late 2016 have filtered through to commercial mortgage rates with a speed and completeness that reflects the competitive dynamics of Jamaica’s banking sector. Lenders are actively competing for mortgage business; the market for a creditworthy, formally employed borrower with an NHT contribution history is genuinely competitive in a way that did not exist five years ago.

The distributional question — who benefits from this rate improvement — is important. The NHT’s borrowers benefit directly; the Trust’s rates, already subsidised, have reflected the wider monetary easing. Commercial mortgage borrowers benefit substantially. The self-employed, the informally employed, the unbanked and those on untitled land benefit not at all; their exclusion from the formal mortgage market is structural and rate-insensitive. Roughly half of Jamaica’s working population falls into categories that cannot access formal mortgage finance regardless of the interest rate. The rate environment has been transformative for those it reaches; it has left the other half exactly where it was.

Construction Costs vs. Rate Savings

One of the underappreciated dynamics in Jamaica’s current housing market is the race between falling mortgage rates and rising construction costs. The rate reductions of the past eighteen months have meaningfully improved the monthly serviceability of a given loan amount. But the cost of building a formally constructed two-bedroom unit has also risen — driven by cement, steel and labour costs that track the improving economy. A house that could have been built for a given sum in 2013 costs meaningfully more in 2017, partially offsetting the affordability gains from lower interest rates. The net effect on housing affordability is less positive than the rate environment alone would suggest, and this dynamic deserves more attention in public policy discussion than it currently receives.

What This Means

For buyers who qualify, the summer of 2017 is a genuinely attractive buying environment. The rate improvement is real and substantial. Employment stability is improving. Lender appetite is healthy. A buyer who has been deferring the decision should assess their current position honestly; many households that could not comfortably service a mortgage in 2014 or 2015 can do so now. The decision to act or to continue deferring should be based on current conditions, not on the memory of conditions that have since improved.

For developers, the pipeline signal from sustained demand is clear. The constraint on supply delivery is not demand; it is the economics of construction at prices that buyers can afford. Developers who can find the formula — whether through innovative construction methods, suburban location strategies or public-private partnership arrangements with the NHT — will find a market eager for their product.

The Outlook: The Second Year Matters Most

The first year of the JLP government has established the right conditions for housing market recovery. The second year is when those conditions need to begin translating into structural supply improvement. The mandate’s clock is running; by the time the next election approaches, the government will need a housing record that it can defend in communities where homeownership aspirations have been repeatedly disappointed. The policy tools are available. The economic window is open. What the housing market’s second-year agenda requires is the ambition to use both.

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

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