“Many ” Bahamians would be unable to pay their mortgages if corruption and all forms of criminality were eliminated in this country, an economist said yesterday, arguing that the Bahamas’ relatively high house price to per capita income ratio damaged the economy and social mobility.
In an address to Rotarians, Dr Gilbert Morris, head of the Landfall Centre, said that while economists expected affordable house prices in a “well-managed” economy to be about 3.5 (to 4 times annual income per head, in the Bahamas that ratio was at least eight times annual income.
This compared unfavourably with the US where, depending on time and location, house prices for affordable homes has been as low as 2.5 times annual income per head. And, Dr Morris added, the Bahamas’ ratio may be even higher than eight, because it was likely that his nation’s stated average annual income per head of $16,000 to $17,000 was higher than the reality.
Dr Morris said: “In the Bahamas, looking at the most popular affordable home prices – about $125-140,000 – that would represent, if we accepted $16-17,000 per capita GDP, at least eight times annual income.
“In our view, however, our GDP figures are not reflective. Our view is that real GDP per capita is about $11,000, and so that would mean the average affordable home price is 12.2 times gross annual income. If we took the average of all home prices in the Bahamas, the number balloons to 24 times gross annual income.
“In our view, this is extremely problematic for the vitality of our economy and the advancement of the ordinary.”
Dr. Morris described housing as one of the Bahamian economy’s faultlines since a was in demand from both private and public sector workers.
He drew parallels with Britain, where the ‘Right to Buy’ policies of Margaret Thatcher’s Conservative administration during the 1980s, which allowed former local government tenants the right to buy their homes, reduced the price of flats to about 3.5 times per capita income in that country. This had helped fuel the residential housing growth in the UK over the past seven years, having given 1980s buyers equity and price appreciation to draw upon.
Turning back to the Bahamas, Dr Morris said: “We took the extraordinary step of looking at the total square footage of houses in 2002, and the average cost per square foot, and found that the per capita income could not support those residential buildouts.
“In fact, we concluded that there is such significant grey/blackmarket activity in the Bahamas, including theft, that if one were to clean up corruption, many mortgages would go unpaid.”
Dr Morris added that the Bahamas, among open economies, had “one of the most unusual mixtures of economic phenomena”.
He said the economy consisted of two ‘theatres’, one being the formal sector, consisting of tourism, financial services and the rest of the private sector, plus the public sector. The other was the informal “grey and black market”, which would consist of activities such as drug trafficking and dealing, goods smuggling, and other forms of unregulated, unlicensed activity.
Dr Morris said the size of the grey and black market was “so substantial” that it made data on the Bahamian economy “unreliable” and influenced economic growth “in ways we have yet to account for”.
He added that the “central problem” facing the Bahamian economy was the lack of clarity in the rules and their application. It was the predictability of the rules governing economic transactions that influenced the values of all assets involved in economic transactions.
Meanwhile, Dr Morris said the Bahamas’ capital and credit base was too low, with “too incestuous a relationship” between credit availability and politics.
He added that Bahamians would be able to borrow money over the Internet within three years.
Corporations
Meanwhile, Dr Morris said that unlike in Europe and the US, where major corporations and the wealthy had helped to create other rich men, the “larger players” in the Bahamian economy did not operate in this way.
He added: “In order to be able to create Mentor or Angel investor opportunities; we must have a vibrant capital market as the mechanism through which such investors can inflict consequences in appropriate circumstances.
“I think we have a short window to improve our economic model. As I have said, I think financial services – as one would find in the Singapore model, along with IT and any services area in Florida that is over priced – should be our aim.
“But first we must educate our children and reduce the influence of personality, connections and subscription in our economy, thereby reducing the impacts of corruption or grey economies, which is a reflection of inefficiencies.”
By NEIL HARTNELL Tribune Business Editor
