The Challenge of Providing Middle Class Housing
The challenge of securing middle class housing where the potential homeowner does not qualify for low income assistance and cannot afford the inflated, unregulated prices requested by some sellers is one which has been with us for the last 20 years or more.
The Prime Minister in April 2013 announced the latest subsidy to the low-end government-built housing with a 2% interest rate on up to $450,000 loans over a 5-year period, with no down payments, for pensions on $8,000 per month or less. Good as it sounds, this is seen by many as a meaningless gesture since government already is challenged to keep up with demand for these low-cost houses. This new initiative only serves to increase demand for a product that already cannot be supplied at the price and in the time frame needed.
Emails between Herbert Volney, then Member of Parliament for St. Joseph and Karen Bart-Alexander, Social Development Planning Consultant, stated that the answer to the rental dilemma as outlined by Mr. Volney is for “…. government to provide low-cost housing for persons in the lower economic bracket. We are tired of seeing that the 80% of the labour force who work for $3,000.00 and less per month cannot afford public housing. You are calling for the private sector to provide affordable housing for rental accommodation, but public housing remains unaffordable. Why do so many HDC apartment units remain unoccupied in the face of the high demand for housing? I seriously think that an efficient, high tech approach to low-cost housing can make a dent in the demand.” She concluded that government also needs to “deal with the ridiculous fees and cost along the value chain of housing.”
Demand for housing stock is said to be some 80,000 houses in arrears. It can be argued too that such a low-income housing subsidy does nothing to stimulate the economy, to improve the job and housing markets, and that it merely increases dependency of the poorer strata of society, on government handouts.
The top end of the housing market as usual fixes itself since access to cash or financing is no problem. It is commonplace to find high rise apartment blocks, where the starting price of Studio apartments is two million dollars, in addition to a ridiculous monthly maintenance fee that sometimes equal the rent being paid for a house. This together with luxury Golf Course residences and second home investment in Tobago and Florida create a market attained by few.
But what about the middle span of the market? AREA believes that this segment of the land and housing market is not only neglected on the assumption that it is not screaming out for help as the lower income segment is, but it has been allowed to, in a way, collapse unseen. The silent majority. The middle class of society, AREA maintains, is suffering without a murmur, despite the dangerous social implications of such a situation. Does real estate value play a part in this social disintegration?
If the middle class is indeed the majority of the population, then almost everyone reading this article will in fact be a member of that demographic classification. So our own personal experience of purchasing a home will actually be fairly typical. Anecdotal evidence indicates that for most of us, therefore, that first house is a stretch! For many, it is only possible because of our mature, settled and affluent parents help us to make the deposit or monthly mortgage payments. If we are lucky, they may actually purchase it for us. Some of us may even “massage the facts” when making that mortgage application to our banks, knowing that we can handle the loan even if the rules indicate that the borrowing is at too high a level. Sacrifices are made and the family scrapes through those first few years, meeting their financial obligations any way they can.
If this scenario is accurate, and parental assistance is prevalent in our society, it would indicate that there is a significant divide between affordable housing and what most properties are valued at. Or put the other way around, a significant divide between property values and borrowing power of the average salary. Even with both spouses earning, it is not necessarily possible to qualify for a loan to purchase what is considered to be suitable housing.
In Tobago, the housing market is very different from Trinidad’s but we see the same mismatch in terms of what is offered and what is in demand. At the lower end of the spectrum, very few houses change hands, because the population is not as mobile and families remain in their homes. In the past decade, however, there has been demand for a better quality of housing as well as additional housing for new family units, both of which became affordable after 2000 thanks to the tourism industry which was building towards its 2005/6 economic peak.
At that time a lot of construction was carried out in Tobago providing bigger and better homes for the population, but also B&B rooms or guesthouses for the growing number of visitors. That scenario has now changed, thanks to the decline in the tourism industry and its flexible earning power. Some 65% of the working population is now employed by THA and on a fixed salary that does not always allow for the level of borrowing that is needed to purchase the kind of property now on the market. With prices ranging from $1m+, if you are lucky enough to find it, but more likely $2m and upwards to $3m for a good home/villa, at these prices, sales are restricted and the housing market is slow; and this situation exists despite a good 40% drop in property values since 2007.
Where does this leave young people, young professionals, looking for a home and career, or families looking for an upgrade due to family size or general upward mobility? Do they wait years for property prices to drop or do they take more drastic action and make plans to migrate to foreign lands where employment and educational opportunities exist that will allow them to enter the housing market much sooner and move up the social ladder more quickly?
The 2011/2012 Census shows falling populations throughout the teen years, as children presumably are sent away to be educated. The number of T&T residents at tertiary education level is an estimated 194,000 or 14.6% of the population.
What are the social and business implications of this disconnect and unsustainability in terms of brian drain, voting politics, ability to be competitive and to innovate.
What can we learn from the 2011/2012 Census that might shed light on what the population is doing, and therefore what their housing needs now are as compared with 2000 when the last census was taken. The following data has been extracted from Minister Tewarie’s address at the launch of the 2011 National and Housing Census Demographic Report.
There has been a slowing of the growth rate of the population of Trinidad and Tobago from 1990 to the present time. In the decade between 2000 and 2011 the population grew by only one half percent to 1,328,019; but within the stable figure, certain areas changed significantly. The populations of Port of Spain, San Fernando and Diego Martin are declining. The San Juan/Laventille region remained more or less the same, while the highest growth area was the Borough of Chaguanas. Does the availability of planned housing match the demands of this changing demographic?
The number of households in Trinidad (estimated at 381,258) increased by 16% since 2000 with the highest number of households recorded in Tunapuna/Piarco (64,176) and the lowest in Point Fortin (6,680). Tobago saw a massive 32.6% increase to 20,125 households with the greatest concentration (6,038) lying between Carnbee/Scarborough/Bacolet, and the lowest (904) between Englishman’s Bay and Speyside. Do government or the THA development plans reflect this changing demand?
Rather than try to force government ministries to keep up with a moving target, it may be better to devise a way for the middle class to buy land at affordable prices and get mortgages at preferential rates so that they can then hire their private contractor and get their house built in a timely fashion and in line with their available funds. If we anchor young families in T&T, the social and economic benefits would be considerable and impact job creation, innovation, a return on investment in education, and a more healthy contribution to the social and political life of the country.
Let the State lead by example and stimulate middle-income home construction, and then let the private sector follow. Banks can offer more realistic mortgage arrangements, the building supply owners better priced materials, builders with more competitively priced services and even the legal and insurance services can scrutinize their fees.
AREA believes that we must urgently – and indeed we owe it to society – to focus on the middle class housing crisis as a way of securing our future economic performance and generating new commercial opportunities, especially innovation in high tech products and services. As a country we need our middle class as the glue that binds us together as a society and creates a healthy economy with clear opportunities for sustainable growth.