War, Wheat and the Jamaican Rent Cheque: How Global Shocks Are Reshaping Home Economics

Jamaica Homes Housing Affordability & Cost of Living Review — July 2022

• Russia’s war in Ukraine enters its fifth month, with global fuel and food prices remaining at or near multi-decade highs
• Bank of Jamaica accelerates its rate-tightening cycle as annual inflation in Jamaica surges well above the 4–6% target band
• Global oil prices peak above US$120 per barrel in June before moderating, but Jamaica’s fuel costs remain at punishing levels
• NHT mortgage approvals slow as the rising rate environment reduces the qualifying borrowing capacity of contributors
• Rental demand intensifies in Kingston as aspiring buyers are priced out of the ownership market and pushed back into renting
• Jamaica’s construction sector faces the worst materials cost environment in living memory

There is a logic to the way global crises reach Jamaica’s housing market. The island imports virtually all of its energy. It imports significant quantities of its food and most of the materials with which it builds its homes. When the price of these things rises dramatically in global markets — as it has done since February 24, when Russia’s tanks crossed into Ukraine and the world’s commodity markets went into a paroxysm of anxiety about supply — Jamaica feels it on every line of every household budget. And what households feel in their monthly spending, they feel again in their ability to pay rent, save for a deposit, or service a mortgage. The war in Ukraine is, among many other things, a Jamaican housing affordability crisis.

Global crude oil traded above US$120 per barrel in June, the highest level since 2008. It has since moderated — demand concerns and fears of global recession have pushed it back toward US$100 — but for Jamaican households and businesses, the damage of the first half of 2022 has already been done. Electricity tariffs are up. Fuel at the pump is up. The transport costs embedded in every product that reaches Jamaican shelves are up. And the Bank of Jamaica, whose mandate is price stability, has been raising its policy rate in response to an inflation that, in significant part, it cannot directly address because it is driven by the global price of things Jamaica does not produce.

The Cost-of-Living Arithmetic and What It Does to Housing

Housing affordability is a residual calculation: it measures what a household can spend on shelter after it has met its other essential needs. When those other needs become dramatically more expensive — when food, fuel, transport and utilities consume a larger share of household income than they did a year ago — the residual available for housing shrinks even if housing costs themselves have not changed. In Jamaica’s case, housing costs have changed too: rents have risen in most urban and peri-urban markets as tighter supply and recovering demand push landlords toward higher asking prices. The result is a double compression that leaves many households with less money for housing at precisely the moment when housing is costing more.

The Statistical Institute of Jamaica’s Consumer Price Index through the first half of 2022 has reflected this broad-based pressure: not the sharp spike of a single commodity but the grinding, persistent increase in the costs of daily life that, over months, erodes the foundations of financial security. For aspiring homeowners, the practical consequence is that the deposit accumulation timeline has extended. For existing renters, the consequence is that a larger share of their income is going to rent and less is available for the savings and investment that might eventually enable them to leave the rental market.

What the BOJ’s Rate Cycle Is Doing to Mortgage Qualification

The Bank of Jamaica began its rate-tightening cycle in early 2022, and each successive increase has reduced the qualifying mortgage amount available to borrowers at any given income level. The mathematics is straightforward: higher policy rates translate, with a lag of several months, into higher commercial lending rates, which translate directly into higher monthly repayments for any given loan amount. A borrower who could have qualified for a J$15 million mortgage at the low rates of 2021 may find that the same income now qualifies them for J$10 to J$11 million — a reduction that, in Kingston’s market, represents the difference between a range of viable properties and very few.

The NHT’s subsidised rate structure provides some insulation from this dynamic for contributors — the Trust’s rates, which range from 1.5 to 6 per cent depending on income level, remain far below commercial market rates and represent the most important single factor maintaining some level of homeownership access for formal workers through the current tightening cycle. But NHT benefit caps, which have not been adjusted to reflect construction cost inflation, mean that even contributors accessing the full benefit may find themselves unable to finance properties at the prices that the current cost environment requires developers to charge. The market gap between what it costs to build and what buyers can finance is widening.

Construction: The Year Materials Got Impossibly Expensive

Jamaica’s construction sector is navigating the most expensive materials environment in recent memory. Steel reinforcing bar — essential for the concrete construction that dominates Jamaican residential building — reached record prices in the first half of 2022 as global supply chains disrupted by COVID and then by Ukraine sanctions struggled to meet recovered demand. Cement, roofing sheets, PVC piping, electrical components and imported kitchen and bathroom fittings have all moved substantially higher, reflecting both the global commodity price environment and the dollar depreciation that makes all imported goods more expensive in Jamaican-dollar terms.

For developers attempting to deliver affordable housing at NHT-accessible price points, the cost environment of mid-2022 is one in which the economics of many projects have moved from marginal to unviable. The gap between the cost of construction and the price at which units can be sold to lower-income buyers is wider than at any point in recent years. This is not a problem that falls entirely on developers: it is a systemic challenge that requires a systemic response — including adjustments to NHT benefit caps, land cost reduction through government land contribution, and construction technology innovation that can reduce the cost of delivery without compromising structural quality.

Diaspora in a High-Inflation World

Jamaica’s diaspora — the three-million-plus Jamaicans living in the United States, United Kingdom, Canada and beyond — is itself navigating the global inflation shock. US inflation in 2022 has reached its highest level in four decades. UK inflation is running at its highest since the 1980s. Canadian households are facing their own cost-of-living crisis as mortgage rates rise and grocery prices surge. The diaspora’s capacity to send money home — and to maintain the level of remittance support that has historically sustained both family consumption and property investment in Jamaica — is under pressure from inflation in their host countries even as demand for those remittances in Jamaica rises.

Remittance volumes through the first half of 2022 have nonetheless shown resilience, supported by strong labour markets in diaspora destinations and by the structural commitment of Jamaican families abroad to maintain financial ties with home. The BOJ’s balance of payments data is likely to show remittances at or above 2021 levels for the full year. But the real value of those remittances — measured in what they can purchase in Jamaica’s now-higher-priced market — is lower than the nominal figures suggest.

What This Means

For buyers, the summer of 2022 is not the time for financial stretch. The rate environment is deteriorating; construction costs are making new properties more expensive; and the cost of living is reducing the financial headroom that mortgage servicing requires. Buyers who can wait should build their financial strength and monitor the rate environment for signals of a turn. Those who must act should prioritise NHT-eligible properties and the Trust’s subsidised rate products as the most durable protection against the current commercial market environment.

For the rental market, landlords are facing a difficult calculation: the cost-of-living pressures on tenants are real, and rent increases that exceed wage growth risk vacancy and rent arrears. The sustainable approach is rent increases calibrated to what tenants’ incomes can absorb, not to the maximum that market competition might momentarily allow. A tenant under severe financial stress is a credit risk; a vacant property earns nothing at all.

The Outlook: Waiting for the War to Run Its Course

The trajectory of Jamaica’s housing affordability through the remainder of 2022 depends significantly on factors over which neither the BOJ nor the government has any control: the duration and resolution of the Ukraine conflict, the decisions of OPEC+ on oil production, and the pace of global supply chain recovery. What is within Jamaica’s control — the NHT’s programme design, the government’s land and planning policy, the BOJ’s calibration of its tightening pace — should be oriented toward minimising the depth of the affordability trough and ensuring that the market is positioned for recovery when global conditions eventually improve. They will improve. The housing market must be ready when they do.

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

Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomesnews Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com