Every Jamaican dreams of owning a home; having a property with one’s name on its title and turning one’s own key in the door. Whether they decide to build it or buy it, this dream, for the majority, will require a loan to make it a reality. This is where a mortgage institution comes in.

The National Housing Trust (NHT) was established in 1976 by Prime Minister Michael Manley as Jamaica’s national mortgage institution to provide financial assistance to low-income Jamaicans desirous of building, buying, or upgrading a home. This was a great idea and a beacon of hope and national pride for ordinary Jamaicans who would not ordinarily qualify for a mortgage at commercial banks or building societies.

Since then the NHT’s mandate has been funded through 2 per cent salary deductions from employees and voluntary contributions from individuals considered self-employed, as well as a 3 per cent contribution from employers. These contributions in to Trust are mandatory by law.

In addition to affording individuals the pride of homeownership, expenditure in the construction sector is one of the greatest stimuli towards achieving economic growth. When a home is built it creates a multiplier effect throughout the economy, with increased employment, more tax revenue to the Government, and an expansion to the income base of utility companies.

Financial advisors suggest that a person should spend 25 per cent of their salary on a mortgage or rent. The NHT offers mortgages at interest rates of zero per cent for a monthly income of up to $60,000; one per cent for $61,000 – $120,00; three per cent for $121,000 – $168,00; and 5 per cent for anything higher than these thresholds.

Even at zero per cent interest, a house costing $7 million on a 30-year mortgage, just for principal, would require a monthly payment of $19,444, or a monthly salary of $77,777. Therefore, using the normal criteria, someone earning $60,000 would not be able to qualify for a NHT zero per cent mortgage on his/her own and would require another person to co-sign the mortgage.

The NHT has proposed to reduce their interest rates by 1 per cent across the board for new mortgages. However, the average interest on loans by the NHT today is 4.4 per cent, suggesting that they are lending to the higher income earners versus the lower.

By comparison, in the US, the profit-making private sector mortgage company charges 2.98 per cent for a 30-year fixed mortgage, or less than 1.4 per cent of what the NHT charges, and still makes a profit.

How is the NHT performing?

In Jamaica’s current reality, the NHT is operating more like a private investment bank rather than a government mortgage institution. Its 2020 annual report gives a clear indication of their inefficiency in the delivery of its mission by stating that the Trust spent $9.264 billion in operating expenses to deliver 2,008 new homes. In other words, based on the NHT’s records, it is costing them $4.61 million in overhead costs to deliver one home.

The NHT may argue that it provides two other services; namely, providing administration services to the total mortgages in their portfolio and following up on delinquent contributors. Yet a mortgage company in the private sector, without the advantage of national tax revenues, is providing the same mortgage services on less than a 4 per cent interest spread.

If we compare the operations of the NHT to Fannie Mae in the US, for example, which has administration expenses at 12 per cent of its income versus the NHT, at 81.3 per cent, it makes the reality even more stark for the Jamaican people. Fannie Mae’s income is US$25.328 billion, while their operating expenses is US$3.068 billion. The NHT’s (non-tax) income is $11.394 billion and its operating expenses are $9.264 billion. To put things into more perspective, the salaries of the 12 executives who run the NHT amount to $211.4 million.

It, therefore, appears that the NHT, as a result of its high operating costs, is now consuming too much of its funds for its own use, rather than making funds available for providing low-income earners with mortgages to buy a home.

Additionally, over the past five years the NHT has only delivered an average of only 1,702 houses per year (Planning Institute of Jamaica’s Survey of Living Conditions, 2020). As a result of this low level of performance, the NHT has ended up with excess cash for the Government to borrow, rather than it being used for its intended purpose.

Is there a better way?

Obviously, the structure that the NHT has taken on will not redound to the best interest of low-income Jamaicans. A better way could be for the NHT to provide the funds to the existing building societies and banks for them to administer the mortgages at an agreed fixed interest spread of 2 per cent. At the moment the Trust is duplicating efforts that the private sector is doing efficiently at lower operating costs.

Additionally, the NHT should recalibrate and focus on developing properties to provide lots with proper services of water, sewerage, electricity, roads, and not houses. By focusing on this infrastructure, rather than housing, the NHT could deliver four times the number of titles that it is currently providing. Furthermore, with this model, any person desirous of buying one of these lots can be issued a mortgage guarantee certificate which they can take to any bank or building society to get financing to build their own unit.

The best approach to reduce costs of building materials is through standardisation. Based on its projections of more than 2,000 homes a year, the NHT should have building material suppliers bid for the supply and storage of these materials. Then individuals or developers building on NHT lots could access these materials at lower costs.

Employers should also be given tax credits if they choose to pay their employees mortgages to the NHT.

Currently, if an employer gives an employee a car they can write off the cost of the car in seven years, as opposed to giving an employee a home, where it would take 40 years to recover the capital.

The best opportunity we can give to someone is to have the pride of owning his/her own home. This is transformative to the wholesome development of family structures and communities. When a person is given the sense of security that he/she can afford the roof over one’s head it builds confidence and self-worth.

This is the Jamaica we must all create for all Jamaicans. The NHT is pivotal to making this a reality. Therefore, the work of the NHT needs to fulfil the mission it was intended to achieve.

Lisa Hanna is Member of Parliament for St Ann South Eastern, People’s National Party spokesperson on foreign affairs and foreign trade, and a former Cabinet member.