As Christmas approaches, one gift older generations could give younger people now setting out on their careers is a foothold on the housing ladder. In most Western democracies, homeownership has been the key measure of household prosperity and a leading metric of how we are progressing through life. In fact, one of the cornerstones of post-war prosperity has been homeownership. In most developed economies, with the notable exception of Germany, the growth in homeownership has been the driver of household asset accumulation.
Even in those more mature developing economies, such as China and Brazil, fast-growing homeownership is a mark of the developing middle and professional classes. Yet, for reasons that are not yet clear, Barbados has failed to develop a substantial local homeowner class – over and above the extravagances of the Heights and Terraces – even though all the basic conditions are there.
Every year the island produces hundreds of university graduates, hundreds more join the workforce in secure jobs and tens of thousands more, who under the right circumstances would rather own their own homes, are left in the rental sector. One senior member of the present government, when in opposition, told parliament that 30,000 people were in need of housing.
Given there are under 130,000 homes in Barbados, according to some records, that number may be a bit extravagant, but what is incontestable is that there are still a number of homes with two, three and even four generations living under the same roof. Under no reckoning can this be acceptable. How then, with all this potential, can a dynamic housing market be created from scratch, sustainably funded and without creating a bubble?
Without repeating arguments for a sustainable land use policy, which governments since Independence have avoided, I will concentrate on one particular, underused and undervalued parcel of land which could be better used providing mixed use homes for an aspiring middle and professional, many of those badly in need of decent homes, and even for holiday homes for those living overseas and regular visitors. All this is along with a proper use of brown-field sites, the regeneration of the City and its environs and the rebuilding of many of the old communities, such as Carrington Village and Deacons.
A Residential Market:
The Transport Board site could provide an incredibly, architect-designed site, comprising one, two and three-bedroom apartments, a leisure centre including a gym, shops and offices, a supermarket, medical and dental surgeries and a nursery. As a mixed residential site, with a bias towards younger professional owners, the site could become a highly sort after residence for aspiring young people, couples and singletons.
With the added advantage of bordering Weymouth playing field, which at present is dominated by the Police Club, the entire site could be planned as major residential, commercial, leisure and entertainment site, without rivalry in the Eastern Caribbean. Weymouth, although separate, could form of the overall attraction of the area, with a modern and well-equipped leisure centre, a swimming pool, netball and basketball courts, tennis and road tennis courts, and a silver service restaurant. In fact, with some of the apartments having balconies overlooking the playing field, this could become an added marketing attraction.
To extract value from the site, government could move the Transport Board to a site in St John. This would have a number of economic advantages, and, indeed political opportunities. The parish of St John is generally recognised as the poorest of the parishes, with relatively few job or business opportunities. Politically, if a DLP government were to move the Transport Board to St John, its staunchest parliamentary seat, it would strengthen its connection with voters and make the seat even safer.
If a BLP government were to do it, it would undermine the strength of DLP support and turn what has been a safe DLP seat since Errol Barrow won it, into a marginal at best. But it is the social policy advantages that would be of greater benefit to the nation, including reversing in a small way the flow of rush-hour traffic in to Bridgetown, moving jobs out to the periphery, thereby encouraging small businesses to develop in the cluster, and tempt many of the men and women working for the Transport Board to move to parish.
The other major job would be making the site suitable for development by bringing in the bulldozers to remove the bus carcases and other rubbish on the site and know down the old school building. In the meantime, detailed plans should be drawn up (I cannot see whey buildings cannot go up eight or ten storeys), with the freehold held under a Real Estate Investment Trust, or an independent Sovereign Wealth Fund. The main funding for would be borrowers could be arranged through a Post Office bank, with existing retail banks and credit unions – and cash purchasers – being all in the mix. Sales could be off-plan, based on a show apartment, and, according to the success of the marketing, through a well worked out pricing policy.
A Rental market:
There is ready-made rental market, made up of young professionals, individuals and couples, temporary foreign workers and even short-term rentals for visitors and short-stayers. For the wealthy, especially those with low returns on their bank deposits and investments, buy-to-let residential property can provide the much-needed yield that they are looking for, while at the same time satisfying a social need by providing rented accommodation for young people.
Over and above the off-plan sales, government could create a REIT, as already suggested to develop the site, or alternatively, issue housing bonds, housing exchange-traded funds. Lending through a newly created Post Office bank would be balance sheet and prudent lending, taking the lessons of the 2007/8 banking crisis in to consideration, along with compulsory protection cover. Responsible lending must be based on certain fundamental principles, apart from the health of the balance sheet. Some of these are: the general state of the macro-economy, the volatility of house prices, general employment prospects, housing supply and any facing economic headwinds. With, for example, a loan to value of 85 per cent, first-time buyers will be investing a substantial amount of money in their new homes and are unlikely to default, if experience in other markets is anything to by. We know that the majority of homeowners would prefer to go without meals, or cut down on their leisure pursuits, than to default on their mortgages.
A new housing development would provide a number of jobs, most of them direct, including builders, electricians, plumbers, security, lawyers, surveyors, civil engineers, architects, shop assistants, maintenance staff and nursery nurses, for example, which would be of central value to consumption.
Analysis and Conclusion:
There is no risk of over-heating the housing market in Barbados, since for all extents and purposes, the over-priced West Coast developments are as separated from the real local economy as Spain is from Bridgetown.
At present the three main drivers of the local housing sector are, as said, the super-wealthy buying trophy homes on the West Coast, returnees, who in the main return home to resettle with cash from the sale of their homes in Europe and North America and, in the case of the UK, the 25per cent cash free lump sum from their pensions.
So, in short, they are not in need of loans; the third and under-supplied sector, is the local aspiring homeowners who cannot access decent mortgages and the under-supply of homes. It is the job of government to create the monetary environment to kick-start this development. The downside of any over-heated housing market is the risk of defaults and, sadly, repossession.
Repossession laws in Barbados, and in particular regulation, are badly in need of reform. I know this from personal experience. The first was an approach to a Broad Street bank for a mortgage to buy a local property, which was agreed in principle, until the young lady clerk informed me that I would have to take out mortgage indemnity; I sad fine, but who would be the beneficiary, if the unthinkable were to happen; it was, predictably, to be the bank’s. Such fraudulent practices should be outlawed. Basically, when taking out a mortgage, the lenders forces the borrower to also take out a mortgage indemnity insurance, which covers about 80-85 per cent of the market value of the house. If there is a default, and the borrowers cannot resolve the problem, the lender (usually a bank) will start proceedings for repossession: letter before claim, formal notice seeking possession, court action, eviction and enforcement of judgement.
It is the latter of these where the fraudulent activity by the lender takes place. One of the first things the lenders do is to call on the mortgage indemnity insurance, which is most cases, mean they will get 80-85 per cent of the value of the home paid direct to them and not to the former home owner. This still leaves the lender with possession of the house, with its 100 per cent value. In Barbados they will get their attorney to also act as auctioneer, a professional they are usually not qualified for. In legal terms, the auctioneer will be aiming to obtain a buying price above that reserved by the lender; but it is incumbent on the lender to obtain the highest price possible. But, having already obtained up to 85 per cent of the value, it is not in the lender’s interest to haggle about the selling price; anything above 15 per cent will be icing on the cake. However, many of the auctioneers do deals with property developers, which I learned from hard experience.
My second experience was putting in a written bid for a property, but having to return to London, I asked to be allowed to make a telephone bid; at the same time, I asked a member of attorney/auctioneer’s staff, who I knew privately, to keep an eye out on proceedings for me. Needless to say, the property was sold in a semi-private deal, while all the time pretending the process was open and transparent. It was a practical experience of the corruption at the very heart of Barbados – the very island that Transparency International can sit in Germany and pronounce as one of the most transparent nations in the world. It says a lot about how Germans go about these things.
Developing a dynamic housing market is necessary, much-needed and hardly rocket science.