Bermuda is in the midst of a housing crisis.
From three- and four-bedroom family homes to studio apartments — to buy or to rent — there is more demand than supply. With an influx of extra people wanted as the Government targets growing the working population by 8,400 people over five years, demand is likely to grow further.
Anyone seeking a place to rent will be acutely aware of the lack of inventory. Adam Birch, sales and rental representative at Coldwell Banker Bermuda Realty, said there were some 600 units available for rent in 2018, compared to about 50 in February this year.
But why such a shortage now, after a decline in the population over the past 15 years? Part of the answer may be that households are getting smaller. Between 2010 and 2021, government statistics show the number of island households grew from 26,923 to 28,295, an increase of 1,372.
Mr Birch pointed to multiple trends behind the shrinkage in inventory, including an uptick in home purchases since 2020 that in turn displaced some renters; retirees selling larger homes to downsize; and first-time buyers seeking three-bedroom standalone homes.
“Additionally, some owners are transitioning to short-term rentals like Airbnb for their one-bedroom units to avoid issues related to rent control and tenant problems, aiming to better protect their investments,” Mr Birch added.
There were 565 vacation rental units at the end of 2022, according to a housing audit conducted by the Planning Department.
“We also have had some start-up companies, coupled with digital nomads and the regular influx of expat workers, all contributing to the reduction of inventory,” Mr Birch added.
One might assume there is a dearth of available land for development in tiny Bermuda, but the facts suggest there is enough to make a difference.
Brian Madeiros, president and CEO of Coldwell Banker Bermuda Realty, said: “Our market intelligence suggests that there are around 50 undeveloped residential lots on the market for sale, 80 per cent of which are under $1 million.
“The Bermuda Government and related quangos have a sizeable portfolio of developable land and brownfield sites. Within the City of Hamilton and western outskirts, many of the commercial properties have exceeded their useful economic life, presenting opportunities for hybrid residential and office development.”
In its Economic Development Strategy 2023-2027 document, the Bermuda Government said the Planning Department had identified 582 parcels, or 181 acres, of vacant Residential 1, Residential 2 or Rural land that had no conservation area development restriction.
The report added: “The data analysis for housing demand and supply therefore indicates that there is ample land available to meet housing demands within existing residential zoned areas, as well as the Mixed-Use Zones and the City of Hamilton.”
With housing demand high and plots available, should market forces not be driving a wave of newbuilds?
“The challenge of producing more residential inventory isn’t so much about the lack of available development land, but rather the cost of construction,” Mr Madeiros said.
“With construction rates ranging from $750 to $1,000 per square foot and sale rates for high-end condominiums hovering at around $1,250 per square foot, development profit margins remain thin or non-extent.”
Mr Madeiros added that one potential source of capital could be Economic Investment Residential Certificate holders, who gain residency rights by investing at least $2.5 million in the local economy, and who could find long-term rental income attractive.
He added that there was great market interest in Economic Empowerment Zones, two of which are in the city of Hamilton, which provided incentives for residential property development.
“The policy allows ‘restricted’ individuals — work permit holders, for example — to purchase residential property in these zones without the need to have a residential certificate,” Mr Madeiros said. “From a developer’s risk mitigation perspective, this is invaluable.
“As our residential inventory levels are so low and a considerable amount of our city commercial property continues to suffer from age and obsolesce, one questions whether the entire City of Hamilton should be designated an EEZ.”
Alex DeCouto, president of Greymane, agreed that today’s construction economics meant that newbuild homes could not qualify as “affordable”.
After steep increases in the cost of materials over the past four years, building costs per square foot ranged from $500 to $1,000, he estimated. “So a 1,000-square-foot, two-bedroom unit is going to cost at least $500,000 to build — and that does not include land, financing, or any of the other costs involved,” Mr DeCouto said.
The Government has tried to help more first-time buyers get financing through its mortgage guarantee scheme in partnership with Bermuda Commercial Bank.
David Burt, the Premier and Finance Minister, said in February there had been 49 successful applicants so far.
Mr DeCouto pointed out that, despite the good intentions, the initiative could be having an adverse effect on property affordability.
“The mortgage guarantee programme is a demand-side intervention and it has been quite successful in attracting borrowers, but I wonder what the impact has been on the price of properties under $750,000? Maybe someone trying to sell a property for $500,000 a year ago might now try to sell it for $700,000 because there are more potential buyers?
“My argument is that we need supply-side interventions. Anything else is just going to add gasoline to the fire of house prices.”
Mr DeCouto is compiling research on potential affordable housing solutions and he believes government involvement is critical, citing the success of Singapore as an example of what’s possible. He said Singapore invests about 10 per cent of its national budget in housing — by comparison the Bermuda Housing Corporation budget is less than 1 per cent of Bermuda’s public spending.
“The Government has access to land and finance,” he said. “There are billions of dollars in the Bermuda pension system and we invest it all overseas. In Singapore, they use some of their pension money to invest in Singapore.
“I accept the argument for protecting those pensions in realistic investments. But I do think we could probably invest 5 per cent in an affordable housing scheme that is going to produce perpetual cash flow returns.”
