Dear Sir,

With election season approaching, I’m writing to share some important points about our housing market for policymakers to consider:

There is no affordable private-market housing in Bermuda

Affordable housing is generally defined as no more than 30 per cent of income including utilities. This equates to $1,725 a month for a one-bedroom apartment in Bermuda — ie, 30 per cent of a $69,000 median gross income. Unless the property owner is also in the construction trade, the present costs of interest, insurance, professional repairs and maintenance make this rent level unattainable for the private market to meet on a stand-alone basis.

This is a global issue

The problem is not exclusive to Bermuda. Many high-cost areas and cities around the world face similar housing challenges.

Existing interventions are extensive

Did you know 77 per cent of apartments, 26 per cent of condominiums and 15 per cent of houses are already under rent control? See attached exhibit. It isn’t working. Why? Because of the economic incentives. Here is a simple example: imagine we put a price cap on cheese pizza sold in our restaurants but left the price of pizzas with toppings unchanged. What do you think would happen to the supply and quality of cheese pizza versus pizzas with toppings? It is easy to appreciate that few would want to offer cheese pizzas if they can’t cover their costs; the reaction would be swift!

Landlords have alternatives

Over time, being a responsible landlord and providing units in good condition to the open market is an optional endeavour. As conditions change, such as labour and materials inflation exceeding the allowed increase under rent-control adjustments, property owners will make different decisions. “Inflation meets rent control” is a bad combination. People can decide to sell and invest any savings elsewhere, either in the form of property overseas or financial assets. Increased financialisation over time has made that alternative even easier.

Recommendations

Although well-intentioned, policies of increased control and reporting will not increase the supply of affordable housing. The fundamental issue is that the economics don’t work. Between our high building code standards, which are necessary given hurricane risk, rent control and immigration policies — refer to the closed and restricted jobs in the construction and maintenance industries — housing is already a highly regulated market. It is a myth to believe we have an open market. More regulation will not produce different results. Instead, we need policies that lower building costs, we need to increase available housing units, and we need to boost incentives to invest in Bermuda housing while continuing to support other sources of housing. Specific areas to explore include:

• Rental supply: If landlords already struggle to make a return on rent-controlled rental units, the added challenge of needing six months or more to vacate a tenant who refuses to pay rent may be enough for some to stop renting. Anecdotal evidence points to this happening at scale, and a lower supply of rental units causes rent-inflation ripples across the rest of the market.

• Labour supply: Addressing inflation in construction materials costs is challenging but there are 2,500 construction jobs today versus 4,000 in 2008. A tight labour market would push up costs, so it is ideal to increase the number of Bermudians entering trade jobs over time — or lower friction in importing trade labour — to lower construction costs to more sustainable levels.

• Other sources of housing: Reforms aside, the reality is the private market will never be the only solution. Key alternatives to private rentals include public subsidised housing (eg, Bermuda Housing Corporation with about 777 units), family support (multigenerational living) or employer-subsidised housing allowances. All of these are an important part of the housing equation. The mix will fluctuate over time and there is no right answer. Take multigenerational living, for example: in Italy, 70 per cent of 25 to 29-year-old adults live with their parents versus 65 per cent in Portugal, 56 per cent in Ireland and only 20 per cent in Germany.

In terms of personal disclosure, I do not own any units under rent control, nor am I in the construction industry. I am simply a Bermudian who believes better public policy leads to better outcomes. Proposals that don’t address at least one of the three areas listed above would result in more of the same.

WILLIAM SOARES

Smith’s

Sources:

https://www.gov.bm/bermuda-employment-statistics

https://www.consumeraffairs.bm/landlord-tenant/rent-control-properties

https://www.landvaluation.bm/

https://www.visualcapitalist.com/chart-where-adults-in-their-late-twenties-live-at-home-in-europe/