Let’s say you are a mid-level Haitian government employee, a non-expat NGO worker, or one of the 50,000 people working in the country’s tiny formal private sector. You arrive at the point of your life where you want to buy a house. How would you go about doing that? Most of the time, the answer will be that you can’t.
The reality is that if you want to stop paying a landlord rent and invest in what is widely seen as the biggest asset many families in the world will ever possess, there isn’t much you can do. You will have to build the place you call home anew, by yourself. And by build, I don’t mean just hiring a construction firm to do the job.
You’ll have to look actively for a piece of empty land, buy that land after checking extensively whether the seller is the genuine owner, hire masons and a foreman and – if you’re wealthy enough – a civil engineer or an architect. You will also have to shop for your own cement, sand, cinder blocks, rebar, and other necessary building materials. On top of that, don’t forget to add regular meetings with the foreman as well as frequent visits to the construction site to make sure that sacks of cement or stacks of rebar are not being stolen. The activity is so time consuming that employees sometimes have to take a leave of absence from their jobs so they can spend a few weeks inspecting what is happening on the construction site.
Most significant of all is that your homebuilding project will take years to be completed. Indeed, as a large part of the expenses will be financed directly out-of-pocket by the aspiring homeowner, the endeavor will endure a series of stops-and-gos, following the family’s income flow.
It’s an unfortunate state of affairs, but you may ask why on earth, in a country where two-thirds of the population lives on less than $2 per day, should we worry about the middle-class having to go through some hassles in order to build houses. After all, they are lucky enough to expect to own a house someday, while around 300,000 Haitians are still living under tents.
Nevertheless, the housing market illustrates how in developing countries, domestic resources can abound, but because of various institutional hurdles, they often cannot be used to address people’s needs, create badly needed jobs, and help the economy grow.
Back to our employee in Haiti. Why can’t she just buy a house or an apartment with a 30-year mortgage? With an estimated demand of 4,500 new housing units per year, why don’t construction firms start offering at least the same quality of housing that thousands of middle-class Haitians try to build almost by themselves each year? If construction firms instead built these houses, they could be cheaper as the fixed costs would be spread over a larger number of units.
One reason is the absence of a thriving market for housing finance. Without banks providing accessible mortgages, entrepreneurs lack the incentive to enter the market. So why don’t banks provide these loans? It’s not because they lack necessary funds. As of March 2011 for instance, Haitians banks were sitting on a $1.1 billion pile of liquidities, U.S. Treasury bonds, and other foreign investments that amounted to 35 percent of the deposits they received.
And here enters the institutional hurdles that prevent banks from providing more housing loans. First of all, many potential clients simply can’t provide a clear property title. In 2011 for instance, one Haitian bank launched a program aimed at financing the housing construction needs of more-or-less middle-class clients. Many months after the program was initiated, and after receiving tens-of-millions of dollars worth of loan applications, none could be approved because not a single title provided by potential clients could be 100 percent certified. Moreover, until 2012 it was practically impossible to buy and sell apartments. The most efficient means, therefore, of building and selling housing units was not an option. There are also high transaction costs associated with buying and selling housing units: Notary fees and various forms of taxes can add up to more than 9 percent of the mortgage value and must be paid up front.
Investing in a land registry that would clarify land rights and changing laws that would lower transactions costs should be no brainers in a strategy to jumpstart the housing construction sector. But these issues are rarely at the forefront of political debates. The demand for more housing finance comes from the middle class, which represents a very small part of the electorate. Thus for a candidate, there is no strong incentive to make these issues a central part of a political agenda. The banking sector, however, could lobby for measures that would help develop the housing finance market. Indeed, Carl Braun, the head of one of Haiti’s largest banks, made a presentation pushing the issue two years ago. But over time, banks have found other ways to make their deposits useful and may prefer not to spend too much energy trying to convince political actors about the issue.
In the meantime, piles of cash sit in the country’s banks, our potential homeowner may spend up to seven years trying to build her house, and thousands of jobs that could exist in the construction sector are not being created.
