Growth & Jobs | Tackle unemployment; low savings to address housing shortage
Experts from the country’s leading mortgage institutions acknowledge that unemployment and low levels of financial literacy are contributing to the nation's grave housing problem.
Speaking recently at the Regional Housing Conference organised by the Ministry of Economic Growth and Job Creation in partnership with the World Bank, the experts noted that the housing need in Jamaica was at a crisis level, pointing to low demand, due to low income levels; and a lack of understanding about saving for such goals.
Leading the panel discussion, Carlton Earl Samuels, assistant general manager at The Jamaica National Group, who represented the JN Bank, a member company of the JN Group, noted that 15,000 to 20,000 units need to be constructed annually to 2030, to meet the growing housing needs of the population.
“This rate is exacerbated by what people can actually afford versus their taste. And, often most persons cannot afford to purchase a home, because they do not have the income to support their taste; and, in some instances, their need,” he said, highlighting the fact that as many as 60 per cent of contributors to the National Housing Trust (NHT) were not benefiting from its mortgage offers.
“That is further complicated by the fact that some people are such low earners that... even if the rate was at zero per cent, they would still not be able to afford a home of their own,” said Samuels, who is also a former head of the NHT.
He added that the capacity for demand is further reduced by high unemployment and underemployment. Jamaica has an unemployment rate of 12.2 per cent, according to the Statistical Institute of Jamaica, which has seen some marginal decline when compared to the quarter ending March.
“However, income levels in Jamaica are also generally low, with a per capita income of US$4,796 or about $618,684 per year or $51,557 per month,” he said.
His data was supported by Courtney Campbell, president of The Victoria Mutual Building Society, who pointed out that more than 60 per cent of the population earns less than $1 million per annum. That’s less than $83,000 per month or less than US$645.
“At those salary levels, persons cannot afford a mortgage of greater than $2.5 million,” he said, while a basic unit costs $4.5 million.
“We need to be more inclusive,” he pointed out.
“The average house completions over the last six years, 2011-2016 was 3,372; and the average mortgage disbursed during that period was $33 billion, which really means its $10 million per unit,” Campbell argued.
... Jamaicans giving up on buying homes
Quoting the Jamaica Conference Board Survey, Courtney Campbell, president of The Victoria Mutual Building Society, has indicated that many Jamaicans are not hopeful about purchasing a home, noting that in the third quarter of 2017, the number of persons expressing a wish to purchase a home declined to less than 10 per cent.
He added that, as a result, the country’s mortgage disbursements, as a percentage of gross domestic product (GDP), lagged behind others in the Caribbean and Latin America, which have low levels of penetration when compared to the rest of the world. Mortgage disbursements, as a percentage of GDP in Jamaica, is two per cent compared to Barbados, which has a GDP per mortgage disbursement of 39 per cent and TheBahamas with 35 per cent.
The problem seems most troubling among the country’s prime working age group of adults 25 years old to 35 years old, he said, who, compared to their counterparts in developed countries, don’t own a home in the short term after completing tertiary education. In developed countries, many young people purchase their homes three years after completing tertiary education he said.
According to the Statistical Institute of Jamaica, unemployment is 13.3 per cent among that age group.
“People need a consistent, legitimate income stream to be able to afford even the minimal cost for housing; and that, therefore, means: they must be employed to improve their chances of accessing financing,” said Carlton Earl Samuels, assistant general manager at The Jamaica National Group.
“Consequently, to address the housing needs of the population, we must address the demand side of the equation, so that the supply side can respond. In other words, we must address the employment concerns, as income determines the shelter that one can afford,” he affirmed.
However, Campbell also said poor individual savings for investments, such as housing is also a problem; andhe pointed to the various costs involved in a house purchase, which includes: stamp duties, deposit and closing costs; as well as, legal fees.
“Our savings rate in Jamaica is comparatively low, when you look at other territories in this region, such as Trinidad and Tobago,” he said.
“We need to encourage our people to start saving, so that by the time they are ready to make that first home purchase, most, if they were diligently saving, would have built up that five or ten per cent required to [purchase] that first property.”
He maintained that it was important to get young people, in particular, to start saving for life goals.
... Solutions to Address Housing Shortage for Low Income Earners
Chairman of the Jamaica Mortgage Bank, Dr Patrick Thelwell, says housing must become a part of the government’s five per cent in five years economic growth agenda.
He says that in order to unlock the full potential of the housing market, government should facilitate the development of the mortgage indemnity insurance; refinance, secondary mortgages; and reverse mortgages, to allow pensioners to earn an income from their real estate. He also said that government should facilitate micro mortgages and financing for social and subisidised housing.
“It is the responsibility of government to set the framework and facilitate the private sector to come in,” he said, underscoring that the 95 per cent loan for 25 to 30 years now provided by mortgage institutions was as a result of government intervention.
“That model has worked well for the middle income market to the low income market. And, it can be done, but it’s going to need government intervention,” he stated.
For their part, both Courtney Campbell, president of The Victoria Mutual Building Society and Carlton Earl Samuels, assistant general manager at The Jamaica National Group, have highlighted the need for government to pursue a rental regime, which could comprise developing housing for rental only, especially in tourism areas; and a rent-to-own model, where a portion of the rent is taken as a deposit towards purchase of the property.
Samuels added that Government could also consider tax incentives to low income earners, by offering the opportunity for low income mortgagors to reclaim taxes on the interest portion of their mortgage as a tax deductible expense for low income units. He added that government could also look at encouraging development of housing, which mixes entrepreneurial activities with development, for low income earners, particularly those who are unemployed or marginally employed. This would provide units with housing upstairs and a shop downstairs.
Donald Moore, general manager of the country’s largest mortgagee, National Housing Trust (NHT), disclosed that the institution has been working with private developers to establish a programme, which includes a foray into social housing. Pointing to developments in Friendship, St James and Winchester in Hanover, he noted that the Trust was able to partner with private developers to provide solutions to the lower income bracket.
However, he acknowledged that the solutions would not cater to the lowest income earners, who can only afford $2.5 million and less. Moore said other solutions have to be sought.
The NHT general manager also cautioned that much consideration should be placed as to where housing is provided, so as not to compromise other economic sectors.
“Some housing lands are also the best agricultural land. That’s just a fact,” he said. “We, therefore, have to shift from agricultural land into housing and then from housing into commercial.”