Do we really need more rental units?

WEDNESDAY, MAY 16: Minister Weeks’ announcement of a $36m project to demolish and rebuild rental housing for Bermudians at the West End reeks of mistake, error, and miscalculation.

It is another outcome of the ‘silo’ style of Cabinet decision-making that has created so many of the economic and social consequences that Bermuda now faces.

All national decisions should be driven by or be based on sound data and solid facts, and clear objectives. Minister Weeks’ decision is not.

Is there a need for new rental units? From 62,059 in 2000, Bermuda’s residential population peaked at 67,000/68,000 in 2008, before falling to the 64,237 counted in Census 2010. Since Census 2010, the population has fallen further as Bermudians continue to emigrate and guest workers pack up and go home.

In 2012, Bermuda’s resident population is likely closer to or even below the 62,059 of Census 2000. Given that 67,000/68,000 residents were housed in 2008, and there are likely to be only 62,000 — or fewer — residents now; the total number of newly emptied rental units will be between 1,200 and 1,800. These units will be in all price ranges.

Certainly, there were 9,065 guest workers in 2010. 

That number fell to 8,374 in 2011. This one-year departure of 691 guest worker/residents freed up as many as 300 housing units just since the Census count finished in August 2010.

In 2011 and 2012, guest workers are still leaving, so even more rental units are emptying and coming onto the open market.

Add these 1,200 to 1,800 newly empty units to Bermuda’s ‘inventory float’ of 1,900 to 2,000 empty housing units that Bermuda has had since 2000 * and before.

This means that Bermuda’s current national inventory of empty housing units now sits between 3,000 and 3,800.

This means that in 2012 Bermuda has a housing glut — not a housing shortage. With unoccupied units in the four newly-built towers at Southside and with 125 units still coming on stream at Grand Atlantic, the Bermuda Government proposes adding to that glut.

Confirmation of a glut? See the rental ads and note the declining rents. Rising foreclosures. Think about the empty rental units and houses in your neighbourhood.

Because there is a current national oversupply of rental units, there is no need to build additional and new housing unit for rent or for sale. Use up existing inventory from the ‘inventory float’. Although the Minister says that the Government Quango WEDCO is responsible, the fact is that WEDCO is still borrowing foreign funds to finance this un-needed project; and must repay in foreign funds.

That WEDCO’s accounts are, strictly speaking, not part of the Ministry of Finance national accounts does not negate the fact that WEDCO is a publicly-owned corporation; that taxpayers are still on the hook for its obligations; and that WEDCO is doing its business in the same local real estate market in which all other 50,565 Bermudians are participants.

WEDCO’s status as a Quango means that any protection against free market losses are provided by the taxpayer, and that any negative consequence created by WEDCO actions, will redound against the taxpayer.

Currently, the Bermuda Government’s overall financial position is that it clips $0.13 off every revenue dollar and immediately sends that off or sets it aside to pay the overseas lenders who have provided the Government’s current gross loan of $1,287,490,260 (as at 31 March 2011 .... and will go higher this year.)

The $115,800,000 that is budgeted for Bermuda’s annual debt service costs in 2012/13 acts as a significant de-stimulant or a drag on growth in the Bermuda economy.

Borrowed

Because the $36m for the WEDCO project is borrowed, and because at least 40 per cent of that $36m must go overseas for materials; the stimulus impact will be severely reduced. Add that fact to the overall de-stimulating consequence of that $0.13 Government clip-off, and any honest economist will tell you that the WEDCO project will not and cannot stimulate Bermuda’s economy. At this juncture, it will increase de-stimulation.

Put the finance issue alongside the over-supply issue and you get a double whammy miscalculation that will have a strong negative national consequence.

Bermuda has only two industries. IB and tourism. These bring in foreign currency. Everything else in the GDP listing feeds off these sources of real income. The ‘construction industry’ is one such feeder activity.

The ‘construction industry’ exists to build and supply the ‘concrete and stone’ facilities that make up the infrastructure that Tourism, IB, Government, and the working resident population requires in order for the national business model (now IB + tourism) to function on-island.

If that were not true, then all we’d ever have to do is just build, build, build, and Bermuda would boom, boom, boom. But that is not so. In 2012, Bermuda has no need for any new buildings - either residential or commercial or government.

In 2012, from Commissioner’s Point to St David’s Head, including both Hamilton and St George’s, Bermuda has more than 2,000,000 square feet of empty or significantly under-used but ready-to-use commercial property.

With 3,000 to 3,800 unrented residential units, Bermuda has at least another 2,000,000 to 2,500,000 square feet of empty residential space.  The Bermuda Government admits having excess buildings/spaces and says that in 2012/13 it is planning to sell of $10,000,000 worth of no-longer-required and unused Government buildings/properties. In Bermuda’s 13,000 acres, there is currently well over 4,000,000 square feet of existing excess inventory — all currently standing empty or significantly under-used.

From 1920 to 2008, the ‘construction industry’ built infrastructure for an economy and population that was changing and expanding.  In 2009, that pattern of economic and demographic growth had changed.

In 2012, three years on from 2009, and for many years ahead, there is no need at all for construction work of the kind and magnitude announced by Minister Weeks. The Minister and the Government need to recognize this.

What to do?

There is a simple solution. Do what Government did with the badly thought through and ill-advised Workplace Equity Bill (2007).

Quietly shove this $36m ill-advised project into a dark corner and never mention it again.

(Note: Those strongly-built Victorian era units at the West End can be re-furbished and renovated at much less expense and with a far greater proportion of the outlay remaining on-island. Renovation and refurbishing happens all the time in the UK and other countries.)

*In 2000, when I stepped down as Chairman of the BHC, I gave the late Minister Nelson Bascome a paper recommending the re-claiming and refurbishing of existing empty properties, of which there were about 1,900, and which created a national ‘inventory float’. This was better than the more expensive option of building of new properties. Cost difference? About $75k per reclaimed unit versus $250k per new unit. Additionally, about 80 per cent of that $75k would have remained on-island. In 2000, the BHC client ‘list’ was about 130. The potential supply of 1,900 units island-wide greatly exceeded the current and future need. That 1,900 ‘inventory float’ has not changed materially since 2000.