IN the last decade Government policies of easy money, reduced taxes, lax regulations and a relentless drive to transfer public funds to private developers have caused house prices, which bear no real relationship to the decline in the rest of the economy, to rise to heights never before reached — in effect creating a bubble.

And as household debt skyrocketed, financial sector profits exploded and economic growth remained anaemic, fortune-seekers, margin-gatherers and sundry other hustlers and scofflaws joined in the mad rush for gold. Like sharks in a feeding frenzy, they came to the feast armed with earthmovers, backhoes and front-end loaders. Pristine beauty was soon replaced with garish monstrosities of concrete and steel.

In cloud cuckoo land, household loans — representing the largest share of banks’ loan portfolio — have continued their steady upward rise, increasing by 5.5 per cent in the first two months of 2022 compared to the stock at end-December 2021. In 2020, 60.9 per cent of the credit portfolio of banks was in personal loans, a marginal decrease over 2019 but far above the historical average of 51.6 per cent. Household sector debt as a share of banks’ portfolio rose to 62.4 per cent in 2021, well above the historical average of 53.3 per cent.

This increased exposure, which places the financial system at enormous risk, is reflective of the greater appetite of obligatory brood parasites for the type of lending which crowds out investment in the real economy, stifles growth, imposes a drag on socio-economic development, and foments social unrest. The increase in personal loans was primarily driven by growth of 7.6 per cent — in just two short months — in residential mortgage loans, influenced by cut-throat competition among banks and building societies as well as by more favourable credit terms offered by the NHT, a public entity which provides charity to privateers. Meanwhile, the impecunious many continue to have their human rights to decent housing denied while being victim-blamed and falsely accused of personal irresponsibility.

In real terms, household debt grew by 8.9 per cent in 2021 compared to 3.4 per cent in 2020. Mortgage loans grew by 15.0 per cent in 2021 compared to 10.1 per cent in 2020 during the pandemic when construction was declared an essential service, immune to curfews and lockdowns. In pre-pandemic 2019, a recession year, mortgage loans grew by 4.7 per cent.

Between 2017 and 2021 mortgage loan rates offered by building societies declined from 8.6 per cent to 7.2 per cent, and those offered by commercial banks fell from 8.7 to 7.0 per cent. In real terms (taking into account inflation), mortgage loan rates from building societies declined from 3.2 per cent in 2017 to -0.1 per cent in 2021; and from commercial banks from 3.3 per cent to -0.3 per cent. Or in other words, mortgage rates were not just low for long, they were actually negative. [There was a blip in 2018 when mortgage rates rose to 5.8 per cent but “De Dacta”, Nigel Clarke, was to fix that in 2019 with a suite of tax cuts.]

Household mortgage loans as a share of overall personal loans increased to 46.2 per cent at end-February 2022 relative to 45.3 per cent at end-December 2021. Between December 2019 and December 2021, with borrowing accelerating as the Government deliberately and skilfully shifted the public debt burden onto the backs of households, the household debt-to-GDP ratio rose from 31 per cent to 37 per cent. Almost all the metrics used by the BOJ — level of household indebtedness, loan quality and the capacity of households to service debt — show that at its current level and cost, household debt is unsustainable. Interestingly, both the IMF and the entral bank tell us that public debt is sustainable.

But now as inflation becomes unhinged, money tightens, the buying power of borrowers collapses, the economy descends into a state of stagflation and anomie takes hold in the society, house prices have begun to fall. The excesses and iniquities of the real estate/industrial complex are being exposed, investors are melting away, and promises are turning to dust. Speculators are fleeing to safety and yield-seekers have flown north. There is a lot of room in the building but neither bed nor breakfast is being had. Scores of luxury apartments and townhouses lie empty, the product of venal politicians overdosed on market ideology and seduced by the siren songs of property developers — even when investors have started to realise that they have bought into a mirage, and that their overpriced Khrushchyovkas have brought them little satisfaction and even less income. Some of those who should be in the dock standing accused are giving witness and placing blame. Soon, pretty soon, it will be made clear to many, as prices plunge, that their equity is negative; few will be willing and able to buy; and the crumbling totems of hubris, greed and folly will become scars on the once-joyful hills. Financial distress will set in, confidence will be shattered, and a bailout demanded.

Meanwhile, heavily indebted households ravaged by inflation, robbed by low deposit rates, fleeced by extortionate fees, and pillaged by super-elevated borrowing costs, are defenceless against the onslaught from the unstable and predatory financial system. The social and political consequences could be dire. Many lives and livelihoods will be ruined. It will be bitter. Fed Chairman Jerome Powell has promised “economic pain”. The IMF says things will get worse before they get better. The World Bank believes few will escape the coming stagflation unscathed. And UNCTAD warns of prolonged stagnation and a “cascade of debt, health and climate crises”.

De delusion Dacta, precariously perched on the cusp of an event horizon, is in denial. As a hedge-funder and derivative trader, he had encouraged, promoted and defended the housing market boom. As the great tightening is imposed, his 60 per cent dream is turning into a 150 per cent nightmare as public debt and the cost of servicing it rises. The “bubbling up” he had promised has turned out to be so-so fizz.

Land and housing, historically bones of contention, are proving to be more politically vexatious than ever. Add a housing bust with many suddenly made financially vulnerable, cross, miserable and angry and things could really get interesting.

In its 2020 financial stability report the BOJ published the results of its “empirical assessment of a housing price bubble” which, according to it, may be said to exist when “excessive public expectations of future price increases cause prices to be temporarily elevated”; or when “housing prices grow faster than the fundamentals [of the economy] can explain”.

While concluding that there was no evidence of a bubble in housing market prices “at that time”, the bank issued a warning that, “given the deterioration in macroeconomic conditions, prices in the housing market [were] expected to soften in the near term”. This “softening”, the bank noted, was consistent with the statistical evidence of a fall-off in prices in Kingston and St Andrew due to the novel coronavirus pandemic.

The bank’s assessment also revealed that “the real estate market might be facing increased exposure to credit risk”. Banks and building societies, the BOJ feebly urged, should therefore “closely monitor the potential risks that might emerge from exposure to real estate price changes”.

For more than a year the bank has carefully avoided the issue of a housing bubble. In August this year Governor Byles, in response to a question, said that while he expected the construction and housing sector to be negatively affected by rising mortgage rates there had been no fallout yet in the housing market, but that if interest rates continue to rise it could have an impact on the housing market.

Senior Deputy Governor Dr Wayne Robinson said at the time that, “There is a risk, and we do expect to see some slowdown but at this point we don’t think that it would drive the sector into a recession. There is going to be some slowdown, nonetheless [but] at these levels of interest rates it would not push the construction and housing sector into recession. When we look at the trends in mortgage credit up to June, mortgage credit is still growing pretty strongly.” Pure obfuscation.

As the macroeconomic situation deteriorates and monetary policy tightens, there is an evident softening in the housing market. It is time the bank front up with the Jamaican public and let us know whether a crash of the hyper-inflated, turbocharged housing market is imminent.

What are the consequences for the unstable financial sector and the anaemic economy more broadly? And what measures is it putting in place to protect us from a 1990s-type meltdown and bailout of the morally hazardous who have resisted all efforts to “bale-in” themselves?

Ambassador Emeritus Audley Rodriques served, among other duties, as Jamaica’s senior envoy to Venezuela, Kuwait, and South Africa.