A New Housing Policy: Let’s Start With The Problem(s)

A New Housing Policy: Let’s Start With The Problem(s)

 Last week the government debated a new resolution to convey 1.2 acres of land for the purpose of its Access to Affordable Housing program.

These new lots in the Fox Hill area are a new addition to the program which has shifted the government away from building turnkey homes to selling affordable service lots and providing tax breaks for new landowners to build their homes.

Unfortunately, the news of the resolution was drowned out by statements made by the Minister of State for Legal Affairs Elsworth Johnson.

Drawing from his own experience during the debate on the land resolution, Johnson implored potential homeowners to avoid going to the bank to finance the construction of their homes.

“If I had it to do again, and I do have it to do again, never go to a bank unless it’s the purpose of a significant investment, not to purchase a home, you could build that. When I was told that, I thought the person who told me that was crazy, you can get together and do that. It has been done, it has been done by our people,” he said Wednesday in the House of Assembly.

There seems to have been widespread criticism of Johnson’s statement with many onlookers noting that this perspective seems woefully out of touch with the reality of everyday Bahamians.

If that is true, could the same be said about the government’s new housing policy?

First advanced with some detail by Prime Minister Hubert Minnis February 2018, the housing policy sought to provide lots for sale priced less than $30,000. Those who purchased the lots would be allowed to build homes free of customs duties and excise taxes. The construction would have to be completed two years after the purchase of the lot or the land would be returned to the government.

Before this policy change, the government contracted builders to construct turnkey government homes which would then be sold to Bahamians.

The alleged mismanagement of the construction of homes in the Ardastra Gardens subdivision led to the government distancing itself from this policy. This administration has claimed that homes were built at a much higher cost that necessary, making the program untenable.

Along with this policy change, the government has also promised to establish one new subdivision a year for the next 10 years.

The question of housing policy and land development is high on the list of priorities for the Prime Minister’s Delivery Unit in the Office of the Prime Minister.

The Prime Minister even took a trip to the United Nations, meeting with the Secretary General to ask for funding to develop housing for those under the poverty line.

It is clear that solving the housing dilemma is a key issue of this administration, as it should be.

According to the Inter-American Development Bank (IDB), a housing needs study conducted in 2000 estimated that to meet new household formation, reduce overcrowding and replace old dwellings, The Bahamas would have to produce 28,530 units between 2000 and 2011, or an average of 2,378 units annually over the period.

On average, private contractors build only 200 units annually. In addition, the State of the Nation Report asserts that over the 2008-2014 period there was considerable slowdown in the construction sector, especially as it relates to the domestic investment segment, in both residential and commercial projects. This is supported by a fall in residential construction permits from 2005 to 2018, resulting in an $82 million decrease in construction investment.

Even if these homes were built, the question would be, could Bahamians afford them?

This goes to the very heart of the criticism lobbed at Minister Johnson and his statements—wages have stagnated while the cost of living has substantially increased.

After launching the new housing policy, the Minister of the Environment and Housing Romauld Ferreira reported that despite offering lots as low as $15,000, 85% if applicants failed to qualify for the new program. Those lots have now been sold.

The government’s austerity measures also seem to conflict with its push to solve a growing homeownership crisis.

Ferron Wilson, Arawak Homes president and former Bahamas Reality Association president, lamented the Value Added Tax (VAT) hike during the 2018 National Budget exercise would price most Bahamians out of the housing market.

He disclosed that the price for Arawak Homes’ three-bedroom, two-bath package will increase by $21,000 alone—from $192,000 to $213,000. He argued that many Bahamians will be unable to afford the price increase given largely stagnant salary levels.

While no evidence specific to The Bahamas could be located, economic analysis of the United Kingdom for the Intergenerational Commission has established that, for example, millennials born between 1986 and 1990, now in their late 20s and early 30s, are earning no more than their predecessors did when they were the same age 15 years ago.

These outcomes are compounded by housing trends in the UK which show that young people today typically need to save for around 19 years for a deposit on their first home. In the late 80s the figure was just two years.

This has led to lower levels of home ownership, with millennials half as likely to own homes by the age of 30 as baby boomers were, and 4 times as likely to be renting privately. This has meant a huge increase in housing costs across generations, and much lower levels of wealth accumulation within younger cohorts.

We may have some evidence of this in our own case.

There are also competing views on the housing policy itself.

Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president has contended that there are already too many properties in the Bahamian market. Instead, he argued that the focus should be placed on how to place existing homes – subject to delinquent mortgages – into the hands of qualified buyers at affordable prices.

An oversupply of housing is not unusual in our region.

The Barbados National Habitat III Report indicates that the population there increased by 5.8 percent between 1990 and 2010 while housing units increased 14.6 percent and unoccupied units increased 117.9 percent over the same period.

According to the report, the housing crisis in Barbados is not really about unmet demand; rather, the supply of housing does not match the type of housing needed.

Meanwhile, Leonard Sands, the former president of the Bahamas Contractors Association, believes the government has made a misstep by running away from building homes.

Sands, quoted in a local daily said, “[The issue of Bahamians not being able to secure mortgages at private banks is the reason why] the government cannot walk away from the home building business. It will be detrimental to our country if they walk away like they’re intending to do. This is not the solution.”

It has to be noted that Bowe is also Fidelity Bank’s (Bahamas) chief financial officer. It would be favorable to banks if the government were to assist them in offloading delinquent mortgages. And Sands is and has represented Bahamian contractors in the past. The government using tax payer money to fund construction would be a boon to the industry.

Their industry interests aside, these perspectives add to the layers of the housing puzzle we face.

The Bahamas has either too much housing or not enough housing. In either case, with stagnant wages and an ever-increasing cost of living, it is likely that everyday Bahamians will not be able to afford homeownership. This may be especially true for young people who make up most of our population. The government’s solution to this quandary has been to sell lots, instead of building homes and to provide tax breaks for construction.

Does this new policy address the challenges we have? If not, how can the government build a new policy that does? What would a truly Free National Movement housing policy look like?