Does the NHT Drive Up House Prices? A Charged Question at the Heart of Jamaica’s Housing Market — May 2019

Publication Date: May 3, 2019 | Coverage Period: April 3 – May 2, 2019 | Category: Monthly Review

April in Brief

• Opposition housing spokesman raises provocative claim: NHT loan ceiling hikes may drive up prices
• Post-Easter market surge; April sees sharp increase in property viewings and offer activity
• New fiscal year begins; NHT construction programme for 2019–20 formally commences
• Private developer confidence high; new gated community projects announced in St James
• Kingston apartment completions accelerating; professional segment market remains tight
• Remittances on track for another strong year; US economic strength supporting inflows

Housing Market Overview

April 2019 delivered one of the year’s stronger months in terms of transaction activity. The post-Easter market, combining the seasonal energy of the spring period with the momentum of a new fiscal year, produced a noticeable uptick in property viewings, offer activity and mortgage pre-approval requests across the island. Estate agents in Kingston, Montego Bay and Ocho Rios all reported activity levels above those of the preceding month, consistent with the historical pattern of spring market buoyancy.

The market’s underlying character — strong demand, constrained supply, firm prices and active mortgage market participation — has not changed materially from the pattern established through the preceding months. What April added was a provocative intellectual challenge to the policy framework that underpins the market: a claim, advanced by the opposition’s spokesman on housing, that the National Housing Trust’s periodic increases to its loan ceiling may be doing more harm than good by fuelling the very price inflation they are intended to help buyers surmount.

The NHT Loan Ceiling and House Prices: A Live Debate

The argument advanced by the opposition housing spokesman in April is economically coherent, if contested. The claim is that each time the NHT raises its maximum loan amount — now in the J$5.5–6.5 million range per beneficiary — the market price of a standard two-bedroom house increases by a comparable amount. In this view, the NHT’s efforts to help buyers afford more expensive properties inadvertently validate and entrench those higher prices, creating a cycle in which ceiling increases and price increases reinforce each other.

The argument draws on elementary price theory: if a subsidy increases the purchasing power of a defined pool of buyers without increasing the supply of properties available to them, the result will be higher prices rather than improved affordability. The NHT’s loan ceiling increase puts more Jamaican dollars in buyers’ hands; if that money chases a supply-constrained market, it bids up prices, leaving the real affordability situation unchanged or worse.

The counter-arguments are also substantial. The NHT does not only provide financing; it also builds houses, thereby adding to supply. Its Joint Venture programme with private developers is intended to expand supply alongside its financing. And in a market with a deficit of over 100,000 units, the primary driver of price inflation is the gap between supply and demand — a gap that exists independently of NHT loan ceiling decisions. Blaming the NHT’s loan increases for house price inflation, in this view, mistakes a symptom for a cause.

The NHT has been called upon to commission independent research to determine whether its loan ceiling policy has a statistically significant effect on market prices. That research, if commissioned, would provide an empirical foundation for a debate that has so far been conducted primarily on the basis of intuition and anecdote. The outcome of any such research — and the policy implications that would flow from it — will be one of the housing sector’s more significant intellectual developments in the coming period.

New Fiscal Year: NHT Construction Programme

The formal commencement of the NHT’s 2019–20 construction programme marks a new chapter in the Trust’s ongoing housing delivery effort. Sites that were in planning or pre-construction phase at the end of the previous fiscal year are now moving to ground-breaking. New Joint Venture agreements with private developers are being executed. The Guaranteed Purchase Programme is accepting new developer applications for the fiscal year. Across all fourteen parishes, the Trust’s field operations are at work.

The Trust’s construction targets for 2019–20, as presented in the budget, are consistent with recent years. The HAJ’s social housing programme, funded separately from the NHT, also enters a new year of delivery, with particular emphasis on communities in St Catherine, St Andrew and St Elizabeth where social housing need is most acute.

Construction Sector

Construction activity in April 2019 reflects the energy of new fiscal year commencement alongside the continued momentum of private sector projects that are indifferent to fiscal year boundaries. Material costs remain broadly stable: Carib Cement’s production is maintaining supply at manageable prices, and steel reinforcement bar — the input most exposed to global commodity market volatility — has not seen the kind of spike that would threaten project economics.

The HEART/NSTA training pipeline continues to provide the construction sector with a supply of certified tradespeople in the skills most needed: masonry, carpentry, plumbing and electrical. Labour availability has not been a significant constraint on construction activity through the current period, in contrast to the situation in some Caribbean neighbours where construction boom conditions have created genuine skilled labour shortages.

Municipal corporation planning approval processes remain a persistent bottleneck. The government has acknowledged the problem, and some improvement in processing times has been noted at certain locations, but the backlog of pending applications and the staffing constraints within planning departments continue to delay project starts across the industry.

Major Developments

Private sector developers in St James announced new gated residential community projects in April, reflecting continued confidence in the north coast market’s demand dynamics. The Montego Bay area’s economic vitality — driven by tourism, the Montego Bay Free Zone and associated business services — continues to generate residential demand across income segments, from premium gated communities to mid-market family homes.

In Kingston, apartment completions are accelerating as projects that commenced construction in 2017 and 2018 reach their delivery milestones. The first significant cohort of Kingston apartment buyers is moving into new urban residential buildings, providing early validation — in terms of actual occupancy rates and resale values — for the apartment development model that developers are now expanding into new sites.

Infrastructure

Infrastructure investment through April has continued at the pace established in the preceding months. Road works under MIDP remain active across multiple parishes. The government has reiterated its commitment to highway development as a medium-term economic growth enabler. For the residential property market, the steady advance of road and utility infrastructure is a positive structural driver of both land values and development viability in growth corridors.

Investment and Finance

The mortgage market in April reflects the seasonal buoyancy of the post-Easter period. Loan applications are up, pre-approval pipelines are active, and the competition among commercial lenders for quality mortgage business is generating some product innovation — including flexible repayment structures and combined NHT co-financing products that maximise the affordability of homeownership for qualifying buyers.

The BOJ’s monetary policy posture remains accommodative. The US Federal Reserve, which had been hiking rates aggressively through 2018, paused its tightening cycle in early 2019 as global growth concerns mounted. This pause has reduced some of the pressure on Jamaica’s exchange rate and given the BOJ additional room to maintain its own accommodative stance — a positive for Jamaican mortgage borrowers.

Diaspora

The diaspora buyer market continues to perform strongly for US and Canadian Jamaicans. Remittances — tracking toward another strong year, with the US economy’s sustained strength generating good income levels for the diaspora — are flowing steadily into Jamaica. The April-May period is not a primary seasonal peak for diaspora visits, but enquiry levels and online property browsing from the diaspora remain elevated, indicating sustained interest that will likely translate into transactions during the summer visiting season.

UK diaspora buyers remain on the sidelines, Brexit uncertainty having now persisted long enough to become the background assumption of that community’s property market psychology. The Article 50 extension to October 31 has, if anything, deepened the sense of paralysis: UK-based Jamaicans who might have hoped for resolution by now are recalibrating their timelines and continuing to defer major financial commitments.

Affordability

The April debate about the NHT loan ceiling and its potential effect on prices has sharpened the affordability conversation in ways that are intellectually productive, even if the immediate policy implications remain unclear. If there is any empirical basis to the claim that loan ceiling increases are partially being capitalised into house prices, the implication is that demand-side subsidies alone are insufficient — and may be counterproductive — as affordability tools in a supply-constrained market. The policy response that would follow — a supply-side intervention, whether through NHT construction expansion, regulatory reform of planning approvals, or serviced land provision — is the right one in principle, but difficult to execute at the required scale.

Regional Context

Jamaica’s tourism sector enters the April–May period — the end of the high season and the beginning of the shoulder season — with occupancy rates that reflect a strong full-year performance trajectory. Visitor arrivals for the year are tracking ahead of the equivalent period in 2018, and the hotel sector’s capacity expansion continues, with new and upgraded properties opening across the north coast and in the Kingston area. This tourism dynamism is both a direct and indirect driver of residential property demand.

Looking Ahead

May 2019 is expected to sustain April’s market momentum. The post-Easter period typically carries its energy through May, and the pipeline of buyers who have been pre-approved and are actively searching for properties provides a solid foundation for continued transaction activity. The NHT loan ceiling debate will likely persist and may generate policy responses — in the form of commissioned research, legislative discussion, or both — over the coming months. The broader market narrative — strong demand, constrained supply, firm prices, active mortgage market — remains unchanged and is unlikely to shift materially in the near term.

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