Improving Access to Affordable Housing
School of Business COB. Chaired by Mr. Rupert Pinder
1. Introduction. Good evening guests and thank you for inviting the Bahamas Contractors Association to make a contribution to this important round table discussion on access to affordable housing. My name is Stephen Wrinkle and I am here in the capacity of council member for the BCA. I am a developer and builder & CEO of our 40 year old family-owned business, Wrinkle Development. One of our current projects involves the building-out of a sold-out 25 home, single family residential development called "Rolling Hills Estates, located on Carmichael Road. Building-out means that we actually develop the land and build the homes, creating a whole community. The house & lot package prices range from $200-250,000 and while this certainly is not low cost housing the practices and problems encountered in low cost, multi, or high-end housing are the same.
2. Overview. The housing industry is one of the leading economic factors in an emerging economy such as ours. After tourism the construction industry is the biggest employer and economic provider in the country. Housing is the biggest sector within the industry. The demand for affordable housing is far outpacing the supply. This is due to both population increase and economic activity. The government of the Bahamas has taken a leading role in providing hundreds of homes for people but this is really just a start and when one can count the major players in this industry on one hand one begins to see that the demand is nowhere near being met.
3. Supply & Demand. The primary reason for this disparity, in my opinion, is supply & demand. The supply of land suitable for housing development is the first hurdle & I can attest to this problem on a personal level. We purchased RHE over 5 years ago when land was affordable. The market price for comparable land today has doubled yet the selling price of the house has increased only 5-10%. This means that the costs are disproportionately skyrocketing while the margins barely keep up with inflation. So where are we, as private developers supposed to find the land to build affordable housing on?! Either the price of new homes must go up or we must find more affordable land. One problem this poses is that it prevents the existing developers from expanding and prevents new entrepreneurs from getting started. One possible solution is for the government to sell, to qualified developers, parcels of land which must be mandated to be developed into a completed community of residential units, both single & multi family. The developer could then pay the govt. for the land & under guarantee, build and sell the housing units at market price.
4. Complete Projects. The reason I mention guarantee is that so much of our island has already been cut up into subdivisions which have not been built-cut into completed residential communities that unless the government changes it's policy of allowing persons to just carve up tracts of land & sell off lots without building homes on them we will never have the country's housing needs met. When a developer goes to the Min. of Works for permission to subdivide, the application goes to all the utility companies for approval first. This is for two primary reasons; the first is to insure that the supply is available at the time the project is constructed and the second is to plan for the future requirements of the utility corporation. When a developer just chops up the land & does not build homes, there are no new consumer's and so the projected revenues of the corporation are never realized. This unplanned non-growth costs the remaining home-owners the shortfall, so we all pay. One solution is to refuse any land development that does not see the project through to a completed community. This should be mandatory, particularly for all foreign developers, some of whom are now reaping huge profits from vacant land that they have simply cut up and speculated on, walking away leaving the individual to go through the difficult process of building a home in a project that may or may not ever be completed into a community like the brochure showed. To go further I think that foreigners should not be permitted to get into the local development game period. This should be reserved for Bahamians exclusively. What recourse does a lot purchaser have when the foreign developer has left the country with his profits? Let them build for the second home or touristic market, which is mostly foreign anyway. If Bahamian Developers had this level of security we would be better suited to negotiate our lending requirements; knowing that some huge conglomerate won't be smothering us with their vast resources and huge tax write-off.
5. Financing. Ultimately, as with most things, development really comes down to the financing. In the Bahamas this is a new area for the commercial lending institutions. After all the coffers were filled with consumer loan profits they decided to open the home ownership market. When we began RHE only 1 in 100 applicants were approved. This year we had no refusals. Supply & demand will continue to bring this competitive market down to the benefit of the consumer. hut associated costs must be addressed to really access the population. Depending on the sale amount, it can cost up to 22% of the loan amount in closing costs to secure your new home. That means that a $300,000 home can cost up to $66,000 extra, in cash, prior to paying anything on the actual mortgage. This is all area that needs to be addressed if the working family is ever going to realize the dream of home ownership. Government housing is limited and unless & until the private sector can provide a solution to this aspect the housing industry will not blossom to its full potential.
6. Materials. One of the biggest problems that we have to overcome is the inability to accept change. Our dilemma is how to build a more affordable home without sacrificing strength and beauty. We do live in a hurricane prone region so without hesitation we must put strength first. I think all one has to do is look at the footage of the total destruction of New Orleans & Mississippi buildings to realize that total devastation comes with cheap or shoddy construction. The traditional style of constructing a home here is with heavy block walls, both exterior & interior, strong timber framed roofs and tiled floors- Our homes are designed to withstand the terrible hurricane forces and when properly constructed, they do. We also have an excellent inspection process at the Min. of Works, that when adhered to by the builder, gives a comfort level not enjoyed in the heavily populated areas of the US.
7. Training. There are however, things that we can do to reduce the cost of the home while insuring the integrity of the structure and this requires educating the buyer and the builder. Toward this end the Bahamas Vocational Training Institute (BVTI) is currently implementing, in conjunction with Kerzner International, BahaMar and the BCA, new training Courses designed to teach Bahamians the trade of construction and the related. . methods materials and techniques associated with modern industry trends. The goal of this joint effort is, that upon completion of the course, provide qualified personnel for the construction industry, with the skills and training to enter the field at skilled levels. The latest techniques. materials and management skills will be taught by experienced instructors and integrated with actual field practice. This is the training ground for the next generation of builders and developers and the BCA feels that this is a remarkable opportunity for young Bahamians to gain invaluable training and education in our industry.
8. Joint Venture. This is the key to our future in the Bahamas, not not only in building and development but in all areas of economic growth. We are a country of only 300,000 people, many of whom are unskilled. The United States has 300,000,000 people with some of the brightest minds in the world. The position of the BCA is that all development projects in the Bahamas should be joint ventured with Bahamian companies in a participating role. This forces the foreign investor to impart the knowledge and skills that enabled them to be successful enough to come here and it serves as our university for the next generation of builders, developers and all related industries, because we just cannot learn the level of expertise required to move our country to the next level without integrating the modern technologies available to the first world mega-companies. This can now been seen in the phase 3 work now being carried out at Atlantis, but it was a hard fought battle by our government and the private sector working together to get there.
9. Legislation. One of the immediate problems that must be addressed is the passage of the Bahamas Contractors Bill. This act will provide, for the first time, a licensing mechanism that will go a long way in protecting the consumer from unscrupulous contractors as well as insuring that the contractor is sufficiently qualified to carry out the level of work which they have received. Do you realize that to drive a motorbike you need a license but to build a $1 0,000,000, multi-story building there is absolutely no legal qualification requirement. Now then think about the qualifications required to construct a house. It is a scary fact that does no good and plenty bad to our industry. The government and some lending institutions have an approved list of builders but there is no law or regulation guarding this industry. The BCA is desperately trying to get this bill to passage and we need your support to do this. We urge you to write your member of Parliament in support of the passage of this important legislation.
10. Solutions. The need for affordable housing has never been greater. The government has made a giant step toward achieving this goal, but simply by the nature of population & economic growth they will never be able to fulfill the mission entirely. This means then, that the private sector must play a leading role in the housing industry. The land must be made available for viable projects. The commercial lending institutions must work with the developers with the bridging or infrastructure loans to buy, develop & build-out a project in a timely manner.. We must train our workers to skill levels that will allow them to specialize in a trade with the knowledge that there win be 50-100 homes worth of work for them. This enables them to plan ahead & encourages them to get the training and tools required to most effectively complete the work. Finally we need to research, test and implement new building techniques and materials to our homes in an effort to hold the costs in line. Bahamian home ownership is the best thing we can do to improve our society and economy, Bahamian home builders are the backbone of the construction industry. By joint venturing with the big boys we will enhance our skill levels. By training our workers we will insure a qualified pool of workers to successfully grow this industry for years to come.
On behalf of the Bahamas Contractors Association I thank you for this opportunity and I will be pleased to answer any questions you might have.
Speech: Stephen Wrinkle, Wrinkle Development, BCA Council
November 23, 2005 |
