Thu | Mar 28, 2024

Housing squeeze

Rising costs could wipe out low-income market, developer warns

Published:Friday | January 7, 2022 | 12:11 AMEdmond Campbell/Senior Staff Reporter
Carlton Maxwell, managing director of Moorland Development Company Limited.
Carlton Maxwell, managing director of Moorland Development Company Limited.

At least one developer is warning that the proposed increase of eight per cent in the price of cement by the country’s main supplier, Carib Cement, will have a significant impact on the lower-income end of the housing market. “The low-income end of...

At least one developer is warning that the proposed increase of eight per cent in the price of cement by the country's main supplier, Carib Cement, will have a significant impact on the lower-income end of the housing market.

“The low-income end of the market will totally be eroded. Very soon, there will be no such thing as the low-income end of the market as there will be an affordability challenge,” declared Carlton Maxwell, managing director of Mooreland Development Company Limited.

He told The Gleaner that developers who were constructing houses would now have the challenge of returning to their clients to explain to them that they should anticipate a cost escalation.

“Most of these persons have borrowed money, and, therefore, what is going to happen is that you are looking – separate and apart from the cost of cement – at a four to six per cent [increase] in the total cost of construction that is going to happen over the next 12 months,” he said.

The developer said that while the Government is pushing to provide low-income housing units in the region of $8 million, escalating costs in primary inputs such as cement and other building material would result in a hike in housing costs.

The Gleaner sought comment from Donald Moore, senior general manager of construction and development at the National Housing Trust (NHT). However, his office did not return a promised call.

The construction sector has experienced steady growth last year despite the effects of the COVID-19 pandemic on the economy.

“There is a significant amount of construction taking place now, but there are also significant increases in the cost of the material,” said Maxwell, who noted that efforts by the Government to have private developers partner with the State to construct low-income housing could be negatively impacted.

“As these increases take effect, the margin for developers is being eroded, so there is very little margin they are going to be getting,” said the developer.

He noted that an increase in interest rates by the Bank of Jamaica would also have to be taken into consideration.

Carib Cement recently notified customers of an increase in the price of cement set to take effect on January 17, noting macroeconomic challenges in the form of inflation – driven primarily by fuel, electricity and other costs – over the past year. It said that this led to a general inflation rate of 8.5 per cent, year on year, and consequently, generating an average depreciation above 9.8 per cent for 2021.

Maxwell suggested that the NHT might have to be a source of funding for developers in offering low interest rates.

“You have to make the money cheap enough for developers to really come on board. For developers to really partner with the Government, you need to be looking at rates of two to three per cent,” he said.

Maxwell said that with the price of cement expected to jump by eight per cent, this could trigger a one to two per cent increase in the construction cost of a unit, coupled with the proposed increase in labour cost next month.

Pierre Shirley, president of the Realtors Association of Jamaica, argued that with the expected spike in the cost of cement and other building material, the NHT would have to revisit the current loan limit offered to individual borrowers.

He indicated that houses costing between $18 million and $20 million were priced out of the reach of low-income earners.

“I don't see where the demographic is that falls into that category where an individual is earning the kind of income necessary to get a mortgage to purchase houses at these prices,” he said.

He said two or three persons would have to come together to be able to afford houses priced at that level.

Shirley said that with the NHT offering loans at a ceiling of $6.5 million, an individual who wants to purchase a house for $15 million would not be able to afford it.

The head of the realtors association reasoned that the challenge was not a lack of willingness on the part of developers to provide housing solutions, but rather that there was not an adequate market of people who could afford to buy the end product, especially when the inputs continue to increase.

Meanwhile, at least two major hardware stores in the Corporate Area said that with the pending increase in the price of cement, there has not been any significant increase in the purchasing of the primary building input.

edmond.campbell@gleanerjm.com