By NEIL HARTNELL
Tribune Business Editor
High construction and mortgage costs, coupled with the unwillingness of banks to take losses on toxic loans, have resulted in a “catatonic” Bahamian housing market, Tribune Business was told yesterday.
Stephen Wrinkle, a former Bahamian Contractors Association (BCA) president, told this newspaper that “the housing industry has collapsed”, bringing a large portion of the construction industry “to its knees”.
Speaking after Tribune Business revealed the contents of an Inter-American Development Bank (IDB) report, which revealed that annual housing starts and completions had contracted by two-thirds in the decade to 2014, Mr Wrinkle described such data as “conservative”.
And he described as “worrisome” the report’s finding that the pace of home construction was insufficient to match the demand from a growing Bahamian population.
With working and middle class Bahamians unable to find adequate homes, Mr Wrinkle warned that this nation was in danger of “stunting” and “stifling” economic growth and social mobility.
Describing this nation’s residential housing woes as “multi-faceted’, the former BCA president said the construction, banking and real estate industries needed to sit with the Government to hammer out solutions that will get the market moving again.
Outlining the issues that need to be tackled, Mr Wrinkle told Tribune Business: “The cost of building a home, buying the mortgage and sustaining the mortgage are prohibitive, and when you couple that with the cost of catastrophic insurance cover and life insurance cover, the cost of affordability for the average Bahamian is astronomical.”
Mr Wrinkle said the Bahamian economy and individual companies were in no position to support increased affordability through greater salaries, meaning there had to be adjustments on the cost side to make home ownership available to more Bahamians.
The IDB paper, entitled ‘The State of Social Housing in six Caribbean countries’, effectively backed Mr Wrinkle’s assertion, pointing out that per capita incomes in the Bahamas are 8.2 per cent below pre-recession 2007 levels.
“The cost of construction must come down, and the cost of mortgages must come down,” he argued yesterday. “Those are the problems, and there are potential answers and solutions to those problems, but unless and until the relevant parties come to the table and work them out, the industry is going to remain catatonic.”
The Bahamas’ relatively high construction costs were cited as an issue by the IDB report in reference to the Government’s low-cost housing programme, an initiative intended to enable all Bahamians to realise their dream to ‘own a piece of the rock’.
“A major constraint facing the housing sector is the high cost of materials. The ministry is exploring all avenues to keep the cost of home construction in the region of $60,000 to $80,000, as at least 50 percent of applicants are low-income,” the IDB report said.
It referred to internal Government discussions about reducing import duties/Value-Added Tax (VAT) on building materials for use in its housing programme, plus exploring the use of prefabricated houses.
These homes were cited as being “less labour intensive” than traditional construction models, and could be completed in eight weeks rather than the typical three months.
Meanwhile, Mr Wrinkle said Bahamas-based commercial banks needed to follow the lead established by their US counterparts and accept ‘write downs’ on the value of bad mortgage loans to ‘unclog’ the Bahamian housing market.
“They got rid of those toxic assets in the US, took losses, and people got back into the marketplace, refinanced and got the ball rolling again,” Mr Wrinkle said.
“They got those toxic loans off their balance sheets, but our banks don’t want to lose asset value on their loan books.”
The Central Bank of the Bahamas’ monthly economic report for February, released yesterday, revealed that some $666 million in non-performing and past due loans remain on commercial bank balance sheets.
Mr Wrinkle conceded that this understandably made the sector reluctant to lend new mortgages, with qualified buyers also hard to find. Yet he also suggested that the banks themselves were partially responsible as a result of overly-aggressive lending in the run-up to the 2008-2009 recession.
“The banks are not interested in opening up their coffers to the middle and low income market because of problems they’ve had with mortgage collections,” the ex-BCA president said.
“They’ve put their toe in that fire and got burned. That’s not entirely the fault of the consumer. The banks lent them money when they were over-borrowed, and they know it.”
Mr Wrinkle said all these factors had combined to devastating effect for the Bahamian construction industry, especially for small and medium sized contractors who relied on residential housing as their ‘bread and butter’.
“The housing industry has collapsed, no doubt about it,” he told Tribune Business. “I think they [the IDB] might be a little generous, a little conservative with those figures.
“Our industry is on its knees with absolutely no change in sight, which is a really worrisome position. Everyone knows where we’re at; the problem is no one knows where we’re going.
“It’s nothing short of catastrophic. It’s an extremely dismal picture with no resolution in sight, and no positive input.”
The IDB study revealed 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.
The number of new construction permits issued in 2014 is less than 50 per cent of the 2,378 average new home builds rate cited in a 2000 report as necessary to meet new household formation, reduce overcrowding and replace old dwellings.
Current housing production levels are below those set out in the housing needs estimates,” the report said.
Mr Wrinkle said the inability to meet the housing needs of an expanding population, as highlighted by the IDB report, would hamper the ability of low and middle income Bahamians to upgrade to hew homes and improve their lot in life.
He added that it would also force Bahamians to increasingly rely on rental accommodation, some of which is inadequate.
“Everything is stymied, everything is stifled,” Mr Wrinkle said of the consequences. “We’re stifling the growth of the economy, stunting social growth.
“Housing controls the economy. It’s said over and over again in every country: If you don’t have a housing market, you don’t have an economy.”