A New Prime Minister, the Same Old Mortgage: Jamaica’s Housing Crisis at the Close of the Golding Era

Jamaica Homes Housing Affordability & Cost of Living Review — October 2011

• Bruce Golding resigned as Prime Minister and JLP leader on September 26, 2011; Andrew Holness, at 38 the youngest PM in Jamaica’s history, assumed office immediately
• An election is expected within the coming months; both major parties are campaigning in a housing market shaped by the JDX 2010 era and persistently high mortgage rates
• The 2010 Jamaica Debt Exchange reduced the government’s domestic interest bill but commercial lending rates remain in double digits, making formal homeownership inaccessible to most working families
• Jamaica’s housing deficit is estimated at more than 100,000 units; the formal construction sector has delivered a fraction of what is needed; informal housing fills the gap at the urban periphery
• NHT continues to be the only practical affordable mortgage mechanism; its contribution-funded model has insulated it from the worst of the fiscal compression
• The election cycle brings uncertainty that traditionally suppresses housing market transactions as buyers, sellers and developers all adopt a wait-and-see posture

On September 26, 2011, Bruce Golding — the man who had led the Jamaica Labour Party to a narrow election victory in 2007 and had governed through the most turbulent economic period in a generation — announced his resignation as Prime Minister and party leader. His departure was triggered by a political crisis whose origins lay in the extradition saga of Christopher “Dudus” Coke and its aftermath, which had damaged the JLP’s standing and made Golding’s continued leadership untenable in the eyes of his own party. Andrew Holness, the young Member of Parliament for West Central St Andrew who had served as Minister of Education, was chosen by the JLP’s parliamentary group to succeed him. At thirty-eight years of age, Holness became Jamaica’s youngest Prime Minister.

The change of prime ministerial leadership is the political backdrop against which Jamaica’s housing market opens its October review. But housing markets do not read political biographies; they read interest rates, income levels, credit availability and the confidence that shapes buying decisions. And on all of those dimensions, the fundamental story of Jamaica’s housing market in October 2011 is unchanged from the one that has defined the market for the last several years: an economy in which the debt burden is heavy, the interest rate environment is elevated, the commercial mortgage market is accessible only to the well-resourced, and the NHT provides the only affordable formal path to homeownership for the majority of working Jamaicans.

The Golding Era’s Housing Record

Bruce Golding’s four-year tenure as Prime Minister coincided with one of the most difficult periods in Jamaica’s economic history. The 2008 global financial crisis struck Jamaica through several channels: reduced tourism revenues, lower remittance inflows, compressed commodity prices and tightened global credit conditions that raised Jamaica’s borrowing costs. The government responded with a stabilisation effort that included the 2010 Jamaica Debt Exchange — a landmark restructuring of domestic government bonds that reduced annual interest payments by persuading institutional bondholders to accept lower yields and extended maturities.

The JDX was a significant policy achievement, one of the most consequential economic interventions in Jamaica’s post-independence history. But its benefits for the housing market have been slower to arrive than its architects might have hoped. The exchange reduced the yields that banks receive on their government bond portfolios, theoretically creating space for lower commercial lending rates. In practice, the transmission has been incomplete. Commercial mortgage rates remain in the double digits. The gap between what the NHT offers qualifying contributors and what the commercial market offers everyone else remains vast. The JDX created conditions for improvement. The improvement itself is still pending.

Pre-Election Housing: The Deferral Dynamic

Jamaican political culture is familiar with the housing market’s behaviour in election years. Buyers defer. Sellers hold. Developers postpone ground-breakings. The logic is straightforward: a major property purchase is typically the largest financial decision of a Jamaican family’s life. Making that decision in the final months of a political cycle, when policy continuity cannot be assumed and when the economic environment that both parties offer may differ in material ways, introduces a level of uncertainty that most buyers prefer to avoid. The rational response to this uncertainty — to wait for the election result and then proceed with a transaction that reflects the post-election political environment — is individually rational and collectively deadening for market activity.

With an election expected in the coming months — the latest it can constitutionally be held is January 2012 — this deferral dynamic is already visible in October 2011’s market data. Transaction volumes have softened. New development announcements have been minimal. The informal housing sector, which is less sensitive to political cycles because it relies on family resources and diaspora remittances rather than formal credit, continues at its characteristic pace. But the formal market, which depends on institutional credit and institutional confidence, is in the particular state of suspended animation that election proximity produces.

The Structural Housing Deficit: A Generation in the Making

Behind the cyclical dynamics of election deferral and interest rate fluctuation lies a structural deficit that no single government has yet adequately addressed. Jamaica’s housing deficit — the gap between what the housing stock provides and what the population requires in terms of adequate, formally owned or rented, legally compliant dwelling units — is estimated by the planning authorities at more than 100,000 units. This estimate is almost certainly conservative; the number of households living in informal, overcrowded or physically inadequate conditions is very difficult to quantify from formal data alone.

The deficit has accumulated over decades, driven by the combination of a growing population, a strong urbanisation trend, a formal housing delivery system that has never been able to produce at the scale the deficit requires, and a commercial mortgage market that has always excluded the majority of Jamaican households from formal homeownership. The NHT has been the most effective instrument for narrowing the gap — but even with the NHT’s sustained disbursements, the formal affordable housing supply has never come close to keeping pace with demand. The informal housing sector — the communities built without planning approvals, the self-built structures on family land, the rooms added incrementally as remittances arrive — is not a failure of housing policy. It is housing policy’s primary consequence: what happens when the formal system cannot deliver what the population needs.

What This Means

For buyers contemplating a transaction in the pre-election period, the calculus is familiar: if the transaction makes financial sense on its own merits — if the NHT contribution record is sufficient, the property eligible and the buyer’s income capable of servicing the debt — then political uncertainty is a reason for caution but not for indefinite deferral. The NHT’s subsidised rates are not contingent on the election outcome. The property that is available and suitable today may not be as available or as reasonably priced after the election, when deferred buyers re-enter the market simultaneously.

For the new Prime Minister and his team, the housing market’s needs are well understood even if they are difficult to address in an election environment. Both parties will be making housing promises in the coming months. The credibility of those promises will depend on how clearly they engage with the structural constraints — the debt ratio, the credit market, the infrastructure deficit, the planning system’s inefficiency — that have limited every previous government’s housing ambitions. Housing promises that ignore these constraints are promises that the housing market cannot bank on.

The Outlook: An Island That Keeps Building, Whatever the Government

Whatever the coming election produces, whatever party forms the next government, whatever fiscal framework the IMF negotiations eventually deliver, Jamaica’s population will keep growing, families will keep forming and the need for housing will keep accumulating. The housing market’s most reliable prediction is its own persistence: the demand is not going away, the NHT is not going away and the Jamaican family’s aspiration to own its own home is not going away. The conditions that make that aspiration achievable for more rather than fewer Jamaicans — lower interest rates, a functioning credit market, adequate infrastructure, legal land title, affordable formal housing supply — will come when the fiscal adjustment that Jamaica is in the process of making works its way through the economic system. In October 2011, as a new prime minister settles into office and an election campaign begins to form on the horizon, that moment is still ahead. But it is not, for the long-patient Jamaican housing market, beyond sight.

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

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