National Housing Trust — What it was supposed to be and what it has become
I was a first-term member of parliament still in my 20s when Michael Manley established the National Housing Trust (NHT) in 1976. Initially, it was tucked into the National Insurance Act but was given its own statute in 1979.
It was to be funded by compulsory wage-related contributions by both employees and employers. The purposes and objectives of the NHT, as explained at the time, were crystal clear: to finance the building of houses and provide mortgage loans to enable employee contributors who could not otherwise afford to do so to own a decent house.
The trade unions insisted, as a condition of their support, that the NHT should reside within the portfolio of the Prime Minister. They were adamant that the funds should be used for no other purpose than to assist the contributing workers to own a home and that the process of selecting beneficiaries be kept free of partisan political interference. Only the Prime Minister’s direct control, they felt, could provide that guarantee.
Diversion of NHT funds
That mandate has been severely disturbed in recent years. More than $400 million was used to establish Emancipation Park and close to $100m is spent each year to maintain and operate it. It is undoubtedly a fabulous addition to the landscape of the Corporate Area and was justified by a broad interpretation of the provision in the law which authorises the NHT to provide social services and physical infrastructure for communities in which it has developed housing projects. The same interpretation can be used to justify the NHT’s investment in 2004 of another $400m, which it has since written off, in the Central Wastewater Treatment Company to treat raw sewage that was being dumped into the Kingston Harbour.
However, in 2005, $5 billion was diverted from the NHT to finance the Education Transformation Project, the importance of which cannot be questioned, but it was outside of the NHT’s purpose and the law had to be specially amended to facilitate it.
Then came 2013 when the Government decided to withdraw $45.6b from the NHT over four years for budgetary support, something that is clearly extraneous to the NHT’s mission but was stoutly defended on the basis that fiscal consolidation was a national imperative. When those drawdowns came to an end in 2017, the new Government extended them for four more years.
All told, almost $100b will have been diverted from the NHT’s defined purpose over a 15-year period. This is equivalent to over 28,000 mortgage loans at the current average amount for new loans of $3.4m. By 2021, it will represent almost 30% of the total contributions paid into the NHT since its inception.
Unrecoverable investments
There are other instances in which NHT funds have drifted away from their intended purpose of addressing the housing needs of contributors. In 2003, the NHT made advances to the Harmony Cove project which, with accrued interest, now stand at $1.7b and are unlikely to ever be recovered. It’s investment in 2002 and 2003 of $1b in the National Road Operating and Construction Company for the development of Highway 2000, a company that suffers substantial losses each year ($8.3b in 2016/2017), is also unlikely to ever be recovered.
Although the rules prescribe the minimum number of weekly contributions required to qualify for a mortgage loan, more than $5b have been used to provide housing solutions to inner-city residents and other designated categories of persons, many of whom had never made a single contribution to the NHT prior to being selected as a beneficiary and, more than likely, having secured the benefit, no longer do so. Despite the fact that these interventions were heavily subsidised by as much as 60%, their delinquency rates in terms of mortgage repayment continue to exceed 50%.
I have always been concerned about these irregular uses of NHT funds even while I appreciate the issues that have had to be confronted. If the funds were loaned to the Government for these purposes and secured by interest-bearing notes, they could have been treated as recoverable investments and the essential purpose of the NHT would have been preserved.
Given that its debt reduction targets would not have been able to accommodate this, I have repeatedly suggested that the Government, which is the largest landowner in the country, transfer suitable parcels of land of equivalent value in exchange for the funds withdrawn. This would have protected the NHT’s balance sheet while having no impact on the Government’s accounts since they do not book land as an asset. Over time, these lands could be developed into housing schemes or serviced lots and allocated by way of mortgage loans to its contributors or, if not suitable for housing development, sold to recover the cost.
NHT cash cow
The allure of the NHT as a cash cow is proving to be difficult to resist. Its assets are equivalent to 20% of those of all the commercial banks. It pulls in more than $45b each year in contributions (net of refunds), mortgage collections, and other investment income. It is not far-fetched to fear that after eight consecutive years, the fiscal accounts will have become addicted to NHT support.
During the recent budget debate, the Leader of the Opposition suggested that NHT funds be used to upgrade and regularise squatter settlements and provide titles to unregistered landowners. The Prime Minister was of prior mind and announced that the NHT would provide $2b toward the registration of 20,000 parcels of land over the next three years and that NHT funds would also be used to address the problem of squatter settlements.
Perhaps in recognition of the NHT’s mission creep and his own dramatic shift from his previous undertaking to restrict the use of NHT funds to its prescribed functions, the Prime Minister indicated that changes would be made to the NHT’s purpose and mandate based on the recommendations of a review commission he had appointed in 2016, the report of which, to my disadvantage in writing this article, I have not yet seen.
What the NHT is and is not
The functions of the NHT as set out in section 4 of the National Housing Trust Act relate exclusively to “promoting housing projects” and “making available to such CONTRIBUTORS as may be prescribed… loans to assist in the purchase, building, maintenance, repair or improvement of houses” (my emphasis). Two things are pristine clear: the NHT is about (a) promoting the building of houses; and (b) providing home loans to its contributors.
Many workers have laboured under the impression that the NHT is like a “pardner” where you “throw your hand” and are assured of a “draw” and thousands are disgruntled that after many years, including reaching the age when they are no longer eligible for loans, they have not been able to get their “draw”. In law that is not so and in practice it has not been so.
Unlike the National Insurance Scheme which guarantees specified benefits to its contributors, the NHT is not a mutual fund in which contributors have a beneficial interest in not only the contributions they make but the purposes to which those contributions are applied and the income earned therefrom. Legally, the contribution of employees to the NHT is an involuntary loan since the contributor is not exposed to any risk and it is refundable after seven years at a prescribed rate of interest. The contribution of employers is non-refundable and therefore constitutes a tax to which employees have no preferential claim. Contributing employees who meet stipulated criteria have a chance to obtain — but have no guaranteed entitlement to — a mortgage benefit. Their only guaranteed entitlement is to recover their contributions with interest after seven years.
In practice, not all who will may come either. Mortgage approval, subject to the availability of funds, is based primarily on one’s need for housing and his or her income capability to meet the mortgage payments. Given the cost of even a one-room house, a minimum wage worker is unlikely to qualify for an appropriate mortgage loan. But he or she is obliged to make weekly contributions to the NHT.
The household helper and gardener find it difficult to accept that they are forced to contribute to a fund that provides a mortgage to their employer but they are told that their wages are too low to qualify. Despite the NHT’s efforts over the years to structure its mortgage lending to favour its low income contributors through subsidies and even interest-free mortgages, the data indicate that people earning less than $10,000 per week who make up close to 60% of its contributors benefit from only one-third of the mortgages issued.
Since its inception, the NHT has issued approximately 190,000 mortgage loans. It has received contributions from approximately 800,000 workers (current and past contributors) and their employers. The ratio of mortgage loans to contributors is therefore less than one in four. This figure requires more detailed analysis than the data available to me has allowed. Some of the contributors already own homes and some of the mortgage loans have benefited more than one contributor.
Additionally, mortgage loans are not all for new houses; they include loans for open market purchases and home improvement including things like solar water heaters. Bearing in mind the statutory purpose of the NHT, it would be important to determine precisely the extent to which it has increased the country’s housing stock over these 40 years and what portion of its 800,000 past and present contributors were never able to own a house. What cannot be disputed is that large numbers of contributors are in need of houses.
Needed – an entitlement guarantee
In the policy research work in which I have been engaged at the UWI, I have explored the possibility of the NHT being transformed into a guaranteed entitlement scheme where every contributor, after a qualifying period, would be guaranteed a mortgage loan, the amount of which would be calculated based on his or her contributions and income affordability. The loan could not be used for any purpose other than housing. Employee contributions would no longer be automatically refundable since there would now be a guaranteed mortgage entitlement and would be refunded only at the age of retirement if an entitlement was not accessed.
Detailed periodic actuarial assessments would be required to align disbursements with entitlement and it would most likely lead to a queue in which contributors would have to wait their turn but they would be given a firm date as to when their mortgage entitlement could be accessed and the amount that would be available.
A contributor could elect to defer his or her entitlement to a future date, if necessary, in order to “grow” sufficiently to finance an appropriate housing solution. In other words, if my entitlement today is not sufficient to cover the cost of the two-bedroom house that I need for my family, I could let it accumulate and try to increase my earnings so that in a few years the amount that I could borrow would match up with my needs. I would also have the option of contributing more than the specified wage-related amount in order to increase my entitlement. Contributors would thus be able to plan and work toward owning their own home. I found several models in Asia, South America and eastern and central Europe that offer useful insights.
A guaranteed entitlement programme would have to include flexibility in the solutions offered to address the dilemma we face in Jamaica where affordable housing is inadequate and adequate housing is unaffordable. One of the challenges the NHT has faced in providing mortgage loans to its low-income contributors is the difficulty in identifying and administering affordable solutions. For many low-income families, building or obtaining a house has to be done incrementally — virtually one room at a time.
We also have to face the harsh reality that some families will never be able to afford to own a house. But to the extent that the NHT is returned to its original purpose of expanding the housing stock through the provision of mortgage loans to its contributors, more houses will be available for rental at more affordable rates as new home owners vacate tenanted premises.
The constitutionality issue
At the risk of causing alarm, I feel constrained to point to a constitutional issue that has never been raised but needs to be addressed. As stated earlier, the compulsory contribution by employees which is refundable is an involuntary loan. The compulsory contribution by employers which is non-refundable is, in essence, a tax but is not imposed pursuant to any tax collection authority in the way that, say, the education tax is collected. Both may well be in contravention of the property rights protection enshrined in the constitution.
This issue has never been tested in our courts. The closest we have come is in the case of Fitzroy Fagan v the Attorney General et al where the Government’s action in withdrawing NHT funds for budgetary support was challenged in the Supreme Court. The Court in 2016 dismissed the application which had to do with the use of the funds, not the compulsory collection of the funds, which was not an issue before the court.
However, there is an interesting ruling in a case in Guyana in 1964, Inland Revenue Commissioner & Attorney-General v Lilleyman & Others, to which passing reference was made in the Fitzroy Fagan case. It has been cited in many subsequent decisions in other Commonwealth jurisdictions as well as published works. Although I am not a lawyer, it seems to be apropos to the NHT arrangement. This was a case where the Government of then British Guiana imposed by law a salary deduction from workers that was to be used to fund development projects. The deductions would be refunded with interest after a specified period, similar to our NHT employee contributions.
The matter was decided on appeal before the British Caribbean Court of Appeal which upheld the decision of the trial court that money constituted property within the meaning of the property rights protection in the constitution and that while the Government had the authority to impose a tax, the proceeds of which were to be used for public purposes, the mandatory and refundable salary deduction “is in the nature of a forced loan, and is neither a tax nor a due” and was therefore unconstitutional since it violated the right to protection of property. Although this ruling has been questioned by some legal scholars, it does not appear to have been superseded by any subsequent decision of an equivalent or superior court.
Housing deficit
There is a huge deficit in the country’s housing stock. The National Housing Policy that was developed in 2008 estimated that 15,000 new houses would be required each year up to 2030 to eliminate the backlog as well as replace obsolete housing. Since then, the average annual output including privately built houses has been just over 3,100.
It was also estimated in 2008 that there were over 700 informal or squatter settlements scattered across the island on which approximately one quarter of the country’s population lived. This poses major socio-economic and political challenges which, not surprisingly, the NHT funds are being eyed as a means of addressing. It is certain that many of these occupants are NHT contributors but it is likely that many more are not and would therefore not meet the contribution test that is intrinsic to the original NHT concept.
Need for public discussion
Given what has transpired with the use of NHT funds since 2005 and the recent statements by both the Prime Minister and Leader of the Opposition, a fulsome debate on the NHT and its future is urgently needed. The credibility of the NHT, which is one of our better managed public agencies, will continue to be stressed if so many of its contributors can never expect to ever receive a benefit.
I think it would be a tragedy, not to mention Michael Manley’s restlessness in his grave, if the NHT were to become, like the Capital Development Fund, an appendage of the Consolidated Fund to be used to finance government priorities as they arise from time to time. It is simple arithmetic that the use of its funds for purposes other than providing housing for contributing workers means that less of them will be able to own their own home. This cannot be fair to the contributors, given the statutory mandate of the NHT and the huge unsatisfied demand that exists.
I do believe that a contributory home mortgage lending facility with a guaranteed mortgage loan entitlement is needed to encourage and facilitate people to save toward and eventually own their own home. I don’t believe that this role can be left entirely to private institutions like building societies (we now have only two) and credit unions without vast numbers of low-wage workers, who are the ones most in need of housing solutions, being excluded.
There are many creative ways in which such an entity could leverage additional funds from the financial market. These include public listing (as is the case with the National Housing Bank of India) and the packaging and selling of stable mortgage portfolios to long-term investors to bring new money into the process and thereby stimulate the construction of houses and expansion of home ownership. It would provide contributors with a certainty that the NHT — despite all its efforts has not been able to offer that the dream of owning a home of their own — is within their reach even if not immediately within their grasp.