The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The pace of home construction is failing to keep pace with the Bahamas’ housing needs, with residential starts and completions both declining by more than two-thirds in the decade up to 2014.

A newly-released Inter-American Development Bank (IDB) report, which assesses the state of housing policies in the Bahamas and five other countries, exposes the dramatic impact that the 2008-2009 recession and its aftermath have had on a key Bahamian industry.

The study reveals that between 2005 and 2014, residential housing starts and completions in the Bahamas declined by 67 per cent and 68.2 per cent, respectively.

And the annual rate of residential construction permit issuance over the same decade fell by more than half or 63.1 per cent, from 2,846 in 2005 to 1,049 in 2014. The value of these permits also fell, from $402 million to $318 million, a decline of 20.9 per cent .

“Indications are that there has been a decline in housing production in the country since 2005,” the IDB study said of the Bahamas.

“Residential construction permits issued in 2005 totalled 2,846 compared to 1,049 in 2014, with a value of US$402 million and US$318 million, respectively.

“There was also a decline in housing starts and completions over the same period. Housing starts declined by 67 per cent, while completions declined by 68.2 per cent. This is due, in large measure, to prevailing economic conditions in the country.”

The data highlighted by the IDB report emphasises why the Bahamian construction industry, and especially those contractors reliant on the domestic housing market for their ‘bread and butter’, continue to struggle mightily.

The report also illustrates the negative ‘knock-on’ consequences for sectors such as real estate and attorneys, especially those professionals who specialise in the Bahamian-dominated middle and low income ends of the market.

The inability of many home buyers to access bank financing, amid high non-performing loan levels and tightened lending requirements, will also have contributed to the housing market collapse.

The IDB report said per capita incomes in the Bahamas remain 8.2 per cent below pre-recession 2007 levels. And, more worryingly, it says the pace of new home construction in the Bahamas is insufficient to meet the demands of an expanding population.

“Current housing production levels are below those set out in the housing needs estimates,” the report said, referring to a Bahamas Housing Needs study that was conducted in 2000.

It added: “A housing needs study conducted in 2000 estimated that in order 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,” the IDB paper added.

“In addition, approximately 13,440 units were in urgent need of repair. New Providence accounted for 68 per cent of this housing need, Grand Bahama 16.8 per cent, and Family Islands 15.2 per cent.”

The number of new construction permits issued in 2014 is less than 50 per cent of the 2,378 average new home builds rate that was cited in the 2000 report.

Elsewhere, the IDB report said the number of annual mortgage commitments issues, and their value, had declined by 59.2 per cent and 50.8 per cent, respectively, over the decade between 2005 and 2014.

“In 2005, approximately 64.8 per cent of mortgage commitments went to new construction compared to 28.7 per cent for existing dwellings,” the study noted.

“The situation was reversed in 2014, as 33.5 per cent of residential mortgage commitments went to new construction, and 54.4 per cent to existing dwellings.

“This was as a result of the current high level of inventory in the domestic real estate sector, with the majority of applications (75.7 per cent) going toward the acquisition of existing dwellings rather than new construction (12 per cent).”

The IDB also noted the “low demand” for mortgage credit, which stood at 6.5 per cent of total loan applications, compared to 90.5 per cent that were for consumer loans.

Referring to a Central Bank of the Bahamas study, the IDB paper added: “The survey reports that over 90 per cent of mortgages were for private housing purposes. Some 90 per cent of mortgage applications were processed at New Providence branches, with a much lower rate of 5.5 per cent reported for the Family Islands and 4.5 per- cent for Grand Bahama.

“The majority of applicants sought financing to purchase single-family properties, while fewer than 10 per cent were in the market for income-generating projects.”