By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Property prices and rental rates outpaced growth in Bahamian wages seven-fold during the decade to 2022 to deepen the housing affordability crisis, the International Monetary Fund (IMF) has revealed.

The Washington D.C. based Fund, in a paper accompanying its full Article IV report on this nation’s economy, said the “most vulnerable” persons in Bahamian society will have suffered most from real estate-related costs outstripping earnings and incomes. While property and rental prices were said to have increased by 14 percent between 2012 and 2022, in contrast per capita wages in this country rose by just 2 percent.

“Though the population in The Bahamas has expanded swiftly since 2010, the stock and affordability of new housing has not kept pace due to limited wage growth and financing constraints,” the IMF said in its assessment of housing affordability in The Bahamas. “Limited growth in wages may have impacted housing affordability over the past decade.

“Between 2012 and 2022, the implied price of real estate, owner-occupied and actual rents activities increased by 14 percent compared to just 2 percent for employee compensation per capita. The effect is likely to have been the greatest among the most vulnerable, with 58 percent of the poor living in privately-rented housing that is subject to changes in annual rental rates, compared to 34 percent across the country.”

Housing affordability, and the ability of many Bahamians to realise their dream of home ownership, has been a growing concern for many years given the relatively low annual economic growth pre-COVID together with stagnant incomes and wages. Higher construction costs, difficulties in accessing mortgage financing, a reduced supply of land particularly in New Providence, and escalating prices have worsened these fears.

Keith Bell, minister of housing and urban renewal, told last year’s Exuma Business Outlook conference that The Bahamas is suffering from a “12,000-plus” shortage of units and even went so far as to suggest ““there’s no such thing as affordable housing” in present market conditions. The IMF’s report said there were numerous factors behind this nation’s housing affordability and home ownership issues.

It pointed out that the supply of new residential housing in The Bahamas has declined ever since the 2008-2009 global recession, shrinking to a low of 607 unit completions in 2023. This, the IMF added, represented a 64.4 percent - or almost two-thirds decline - compared to this nation’s 21st century “peak” of 1,705 home completions in 2006.

The ability of Bahamians to access mortgage financing for home construction or purchases has also declined since that same recession, the Fund added. Yet despite this, and a drop in average interest rates for residential mortgages, “average monthly payments” on such loans have risen “more rapidly” since - further worsening affordability woes.

The IMF also implicitly criticised under-investment in affordable housing by the Minnis administration, noting that its investment in this area fell to “a low” equivalent to 0.02 percent of Bahamian gross domestic product (GDP) or economic output in 2021. It compared this unfavourably to the Caribbean’s average 1.3 percent of GDP investment in this sector.

Since then, the Davis administration has touted the development of communities such as the $20m Renaissance at Carmichael subdivision, as well as others located elsewhere in New Providence, Abaco and Eleuthera. However, this is still insufficient, and the IMF urged the Government to unlock private capital and investment to narrow the housing availability gap via public-private partnerships (PPPs).

However, while acknowledging the explosive growth of short-term vacation rentals, with registered properties having increased in number by 78.2 percent in the six-and-a-half years to August 2024, the IMF stopped short of blaming the sector’s expansion for all The Bahamas’ housing affordability and availability woes.

In particular, it pointed out that short-term vacation rentals accounted for under 5 percent of The Bahamas’ total residential dwellings inventory at year-end 2022. And it acknowledged that vacation rental owners, including Bahamians, have benefited from higher yields and returns that averaged 30 percent between 2018 to 2023 compared to just a 2 percent rise in property prices and long-term rentals for the same period.

The Fund, though, did warn against offering too many incentives for property owners to enter the vacation rental market as over-heating this sector will “crowd out” residential housing investments.

“The Bahamas has witnessed impressive growth in the short-term rental market since 2018 despite slowing growth in the stock of residential housing,” the IMF report found. “As of August 2024, there were 7,265 listings of short-term rentals across The Bahamas - up from 4,076 at January 2018 - spread across the archipelago.

“Moreover, growth has been the strongest for properties classified as apartments, condos or lofts, with the number of listings more than doubling over the same period. This growth has been particularly strong in The Bahamas’ most populated islands, with impressive growth in the Exumas, in particular. However, the stock of short-term rental properties accounted for less than 5 percent of the total stock of dwelling units in The Bahamas at the end of 2022.”

The higher rental rates and returns available has encouraged many property owners, especially in the Family Islands, to target the vacation segment and move away from long-term leases to locals. Many resorts have complained that this has resulted in higher prices, and a lack of suitable available accommodation, that has made it difficult to attract the staff they require for efficient operations.

“High rental rates and strong revenue growth have incentivised investment in the short-term rental market. The sharp increase in the supply of short-term tourism accommodation helped to offset the 9 percent decline in hotel room capacity between 2018 and 2023, supporting the sharp rebound in stay-over arrivals post-Hurricane Dorian and the pandemic,” the IMF said.

“At the same time, homeowners have benefited from additional rental income, with the average daily rate on short-term rentals rising faster between 2018 and 2023 (30 percent) than the implied price of real estate, owner occupied and actual rents activities (2 percent) over the same period. Average short-term daily rates vary widely across islands, with particularly high prices in the Exumas.”

Pointing to other housing market bottlenecks, the IMF report identified what it described as “financing constraints”. It added: “The number of new residential mortgage commitments for single dwellings, and duplex and row dwellings, has trended downward since 2008.

“Moreover, while employee compensation per capita has remained almost unchanged compared to 2012, average monthly payments on residential mortgages have increased more rapidly despite the secular decline in average interest rates for residential mortgages over the same period. Mortgage applications recorded the lowest approval rate of all credit categories in the 2024 first half, standing at 54.3 percent.

“Most application denials were due largely to low credit scores, constraints on banks’ lending outside of internal policy, underemployment, the applicant’s prior history of delinquency on prior loans, higher debt service ratios, insufficient working history in the current job, the bank’s inability to verfiy the applicant’s income and inadequate funds for a down payment.”

And, according to the IMF, housing supply has failed to keep pace with demand and population growth. “The supply of new housing has trended downward since the global financial crisis. An assessment in 2000 on housing needs estimated that, to meet future housing demands, the housing stock would have to rise by 2,378 units annually between 2000 and 2011,” the Fund’s report found.

“The actual stock of dwelling units increased in line with these recommendations during the proposed timeframe. However, since then, the number of residential construction completions contracted sharply, reaching 607 completions in 2023 from a peak of 1,705 in 2006.”

Suggesting there was “room” for greater government involvement and support in addressing residential housing supply and affordability, the IMF acknowledged that the Bahamas Mortgage Corporation’s ability to provide financing for new homeowners is limited due to “high delinquency rates” with its existing portfolio that have “constrained lending capacity”.

“The Government’s spending on housing falls short of that of its regional neighbours. In 2021, central government spending on housing and community amenities declined to a low of just 0.02 percent of GDP, compared to 1.3 percent for an average of Caribbean peers, and down from 0.11 percent of GDP in 2008,” the Fund said.

“Alleviating supply constraints and increasing public spending on affordable public housing may help to improve housing affordability in The Bahamas. Incentivising private investment combined with additional public investment in affordable housing would help to address rising demand in New Providence due to increasing population density.

“It would also alleviate housing shortages in Grand Bahama and the Family Islands exacerbated by previous natural disasters. However, care should be taken to ensure that additional initiatives meant to encourage growth in short-term rentals do not inadvertently crowd out investments in residential housing. Finally, easing access to credit for residents would also support increased home ownership.”

Pointing out that The Bahamas’ population “increased sharply” through 13 percent growth between 2010 and 2022, the IMF said this expansion was especially pronounced on New Providence at 20 percent while similar rates were enjoyed by Bimini, the Berry Islands and Acklins.

“Despite the rise in total population, the average household size remained relatively unchanged since the last census. However, the average household in New Providence increased from 3.5 to 3.7 persons between 2010 and 2022, with the increases most prominent in the coastal districts of Fort Charlotte and Freetown, and the already-densely populated neighbourhoods of Englerston and Bain & Grants Town,” the Fund added.