Piece of the pie or pie in the sky?
A middle-income mother, encouraged by the prospect that her two young adult children could actually have a clear and realistic path to land ownership through a plan Prime Minister Dr. Hubert Minnis announced last week for the development of a residential community in western New Providence for young professionals, got us thinking on a deeper level whether such enthusiasm is misplaced.
After all, we are in a political climate, Minnis does have an election to win and the proposal as currently presented with scant details, does seem like a half-baked proposition from a man who is widely known to be the seller of dreams — the most common characteristic of a politician seeking to win at the polls.
The initiative as presented by the prime minister in the House of Assembly will involve the sale of 83 acres of public land, located north of John F. Kennedy Drive, between Prospect Ridge and the Ministry of Public Works, to young Bahamian professionals (individuals 18 to 45).
Minnis said the government will put all of the infrastructure in place “such that the lots would be worth $150,000 with all of the infrastructure installed”.
He said 40 percent of the lots will be multi-family, available for purchase at $50,000, and 60 percent of the lots will be single-family, sold for $40,000.
The prime minister also announced that a number of banks have said that once they determine the land is worth $150,000 or more, “the equity is such a vast amount that individuals would not have to come up with any down payment to construct their homes”.
We asked Fidelity Bank (Bahamas) Ltd. President Gregory Bethel whether it is realistic for prospective buyers to expect such a lucrative deal could actually be realistic.
“Banks lend based on cash flow, not based on the value of the property,” Bethel pointed out.
“And I think that is being overlooked by some. It really doesn’t matter how much you pay for the property. It doesn’t matter what the value of the property is. What is important is your cash flow over the period of the loan.
“Are you able to make the monthly payments that are required to service the loan, which means, your employment status is really the biggest concern. What is your immediate status and what are the prospects for you being employed over the life of the loan? That really is what banks look at, not so much the appraised value of the land.
“Although that is important, the banks don’t want to be stuck with homes and land. What the bank would like is to lend the monies that have been deposited by savers and have the persons who borrow the money make the payments every month so when the depositors come looking for their money it’s available.”
Asked specifically about down payments being waived due to “equity”, he repeated, “I am saying it’s not all that relevant to me. What’s relevant to me is the individual’s cash flow.”
Policy outcome envy
Former Minister of State for Finance Zhivargo Laing, while on his talk show “Z Live” on Guardian Radio on Friday, raised several pertinent issues as they relate to what the prime minister is proposing.
On the surface, he noted, the initiative is a “beautiful proposition” as an individual’s net worth would immediately increase by $100,000 should Minnis’ plan prove viable.
Wanting people to be in homes is a good policy objective, Laing noted.
“Wanting to be able to make land in New Providence affordable, a good objective; no question about that,” he said.
“I think where the issue runs into difficulty is on the numbers. Now, if you get support because the people who belong to that group (18-45) say ‘oh look what they are doing for us’, you’re good.
“…But here’s what is true: When it comes to the actual effect of it on the numbers of people, here’s where the government runs into [issues]. Eighty-six acres of land — and I checked with some of my folks on this — some of that land has to be secured for infrastructure, some of that land has to be secured for, I understand a swimming pool, some of it has to be secured for a park and whatever else. So let’s take 20 percent of that land away.
“…Let me say wildly, that you can get 200 lots from those 86 acres. Let me say you can get 300 lots from those 86 acres. So, let’s say you bless 300 families with those lots. That means that of the 156,000 people in that age group, divide them by an average of three people in a family, you have about 50,000 households who cannot be so blessed.”
Laing also noted that it is unrealistic to expect that 18 to 20-something-year-olds will be able to buy land at $40,000 to $50,000.
“In fact, I don’t see this as a genuine proposition for the vast majority of the group under 30. I don’t. That doesn’t mean it can’t happen. I just don’t see it,” he said.
“So you can hope that that group of people … that they say ‘I’m glad they’re doing that for our group’, but the fact of the matter is there are thousands of people who will not be able to benefit from this.
“So now you run the public policy risk of policy outcome envy. ‘They got, what about us?’ And even if the government did this 10 times in New Providence and was able to affect 300 people each time, that’s 3,000, you still have thousands for whom there will be no such benefit and this is using public funds. Public policy outcome envy is what you get.”
Laing said the risk of the government “ticking off more people than you end up making happy” is great, noting that the sheer policy outcome will mean many more people get dissatisfied than delighted by the policy.
“On top of that, when you have a selection that you have to make from a wide body or group of people you now run the risk of ‘are you being selective, discriminatory on your selection in giving out this huge bonus to these people?’” he added.
“So here’s the man who is out east, found a piece of land, young man, young woman, Bahamian, struggles to buy the land off financing, now struggling to build a house; he or she has to pay duty on their material, these people in this select place don’t have to do so.
“Here’s the individual who isn’t . They just actually turned 47, 48; they don’t get the $40,000 land that’s worth $150,000. They have to go and find and buy the $70,000, $80,000 land and build it without the duty free.
“Do you run the risk of ticking all of them off while you’re just making happy at best couple hundred people? And I say at best because I am highly skeptical that there will be hundreds of people like that so benefiting.”
The prime minister has said the government will waive customs duty on all building materials and appliances for homes within the community.
Given his decades-long experience in the real estate market, we asked Arawak Homes Chairman Sir Franklyn Wilson his thoughts on what Minnis is proposing.
“For someone to come up with this, I would love to see any sensible economic analysis that’s been done to say this makes economic sense,” Sir Franklyn told National Review.
“This doesn’t appear to me, being in the housing business, to be something that makes economic sense.
“When you drive down there, you pass that property, just the quantum of fill, I haven’t done the analysis, but just from looking at this, the quantum of fill you need to put in there before you can talk about building a house is massive, sufficiently massive that I’m saying you’d have to cut down a lot of hills or dredge; you got to do something, which has environmental implications to that property before you can talk about building a house.
“So my bottom line point is, show some evidence that some thought, some study has gone into this. This doesn’t even get into the merits of the policy and all that stuff.”
Speaking last week, the prime minister noted that the construction of homes in the community will need to be completed within two years of purchase and that “flipping of property” will not be allowed.
“The government will be given first right of refusal,” Minnis said.
Sir Franklyn questioned: “What lender is going to lend someone money which in two years’ time the government can come and take the property back before you finish building the house? Who’s going to lend you money like that? Who’s going to do that? Which lender will do that?”
He said, “I don’t wish to speak ill of any effort to encourage the spread of homeownership. That’s a ton of sense, but my first point is show some evidence that this has been thought through, because on the surface it just appears it has not been thought through.”
Sir Franklyn added, “I don’t see how it makes sense to focus on giving tremendous benefit to 150 people when thousands and thousands and thousands of people in this country are trying to find food. How does it make sense to prioritize, to fix up 150 people?”
We asked him to respond to some individuals who might say his comments are colored by selfish motives given that Arawak Homes is in the business to make money.
Sir Franklyn, who celebrated a birthday on Saturday, said, “I accept that people might say that, but I am now 74 years of age, and truthfully, I’m at this stage where it doesn’t matter to me what people say about [things like that anymore].
“I just speak on behalf of what I think makes sense for our country. I’m 74. I’m not looking for anything else except the grace of God, so people who want to go down that road, go down that road.”
He added that given the very limited nature of the initiative, it is likely to be “a highly political process”.
“It sets the stage for the politician to basically hand pick that 150 people,” Sir Franklyn said. “It gives [the impression that] man this smells like rotten egg.”
President of the Bahamas Real Estate Association Christie Wallace-Whitfield appeared more hopeful about a positive outcome from the initiative.
“I think that it’s encouraging for young professionals,” Wallace-Whitfield told us.
“Purchasing property locally, especially on New Providence, has not always been easy or easily accessible. Properties have definitely gone up over the last few years, especially with all of the new developments coming on stream.
“When there’s new development, that always increases property values, so I know certain areas have generally been unreachable or unattainable for locals to buy; and I think it’s a good way to encourage young professionals to kind of own a piece of the rock, a piece of land in their country, so I think it’s good.”
But she acknowledged that there is a need for more details to be provided on how the proposal would work.
“…I just hope that at the end of the day when they do buy, that they are satisfied and happy because the government, like any developer, will put in all their own rules and regulations to satisfy what they want as the government,” Wallace-Whitefield said.
“So when a person is going in to purchase, they have to make certain that that is what they want because two years to build, is it okay? Would they then be able to resell? All of these things you have to look at.”
Both Laing and Bethel pointed to the need for a more broad-based approach to homeownership on the government’s part.
“Vacant land in New Providence for housing purposes is scarce and focusing on that on this island as a broad policy objective is fraught with limitations, but if we change our policy as we have done for the hotels and decide okay build upward, maybe I don’t get the land I want, but maybe I get a beautiful home I want in a community of beautiful neighbors, and I wouldn’t have to pay the $50,000 for the land at all. I can just pay for the beautiful space that I’m going to live in inclusive of a common usage part and facilities that I can have. Maybe that’s an alternative solution,” Laing said.
Bethel said choosing a “select class” of “professionals” makes the initiative too restrictive.
“It would have been a good idea if it was brought and included initiatives to get other Bahamians in homes not just ‘the professionals’,” he said.
“We need a broad-ranging plan to deal with, for example, the distressed properties. There are thousands of distressed properties that are available for Bahamians and that would reach even more Bahamians, so I would have liked to have seen this new initiative in companion with other initiatives to reach a cross section of Bahamians.”