“…that this is “a defining moment for the housing construction industry in Trinidad and Tobago”, the Minister stated that “the Government through agencies like the HDC, remains committed to providing affordable, well-designed housing accommodation and adequate infrastructure and amenities for the various low and middle income citizens…”
—Statement by Housing and Urban Development Minister, Major-General Edmund Dillon at launch of the HDC’s latest housing initiative.
On Friday 17 May 2019, the HDC signed contracts for an extensive program of new public housing with China Gezhouba Group International Engineering Co. Ltd (CGGC). The arrangement is that CGGC will design, finance and construct 5,000 new homes for the HDC in phases.
The first two-year phase is for 204 flats at South Quay in POS and 235 at Lady Hailes Avenue in San Fernando at a cost of $71,739,411 USD. The contract sum for the first phase was stated in USD, which raises for me questions as to why it was not stated in TTD. The contract sum is equivalent to $490M TTD, so the average cost per unit exceeds $1.1M. That does not count the land of course, since we always seem to place no value on the land.
I have three concerns with these ambitious proposals –
- the price of these new homes being promoted as affordable;
- the actual arrangement between HDC and CGGC; and
- the role of foreign contractors.
This arrangement is one in which the contractor’s investment is recovered from the sale of the completed new homes. I will examine that arrangement more closely later in this article, but it is safe to assume an average sale price in excess of $1.1M TTD. There is no way that price can be considered affordable. None whatsoever. Let me explain.
The official figures from the Central Statistical Office (CSO) for 2014 state that 60% of the country’s households have a monthly income below $9,000. It therefore stands to reason that the average monthly household income is less than $9,000.
I checked with home mortgage lenders as to the estimated monthly installment for a $1.0M mortgage for 20 years on the most favourable interest and was told that would be in the $5,000+ range. What is more, the monthly income an applicant would need to qualify for that mortgage would be in the $18,000 range.
In 1968/69 HDC’s predecessor, NHA, sold new homes at Morvant to lower-income applicants, one of whom was Dr Keith Rowley’s late mother (see pgs 32- 35 of Dr Rowley’s autobiographical ‘From Mason Hall to Whitehall‘). That hard-working woman was a cook at the Breakfast Shed, yet the powers that be at that time were able to create housing opportunities affordable to her.
But that was fifty years ago, so what has changed? In the intervening period, we had financial boom after boom, together with a tremendous expansion in education and training. Can we really say that we are providing for those humble, hardworking citizens who are truly unable to afford a home? If the answer is no or we are not sure, it seems to me like our national public housing program needs to be seriously re-examined.
Sometime ago, I quipped about some people trying to tell you that a fish was an egg. This is no joke, this is how a serious re-distributive policy, intended for the benefit of our neediest citizens, was derailed in broad daylight.
This design, finance and construct contract seems to be one in which the contractor recovers those monies from the sale of the completed units. This is a type of Public Private Partnership which can be achieved without placing any Public Money at risk, but three points need to be noted.
- Some critics have questioned the lack of tenders and so on, but that is a part of how this program is meant to work. The HDC launched its Housing Construction Incentive Program (HCIP) in 2016 to encourage investment from contractors who would design, finance, and build new homes on public lands. The fundamental principles being that the private sector deploys its capital to provide new homes and that no public Money is required. An underlying aspect is that the construction, design, market and financial risks are carried by the private sector. On that basis, the case was made that suitable contractors could be selected from applicants without the need for tenders which would arise in a conventional contract.
- The preceding point is that tenders were not used since the contractors carried the risks. There was some reported skirmishing on the matter of risk allocation between HDC and NH International on the first such of these projects, at Mahogany Court in Mount Hope. It was later reported that those issues had been resolved, but we need to ensure that the risks remain with the private sector, that is the deal.
- Land Value remains a tangible and significant public investment in these projects, so it is important to allocate the correct weight to that element. Our negotiations must not ignore that element.
Finally, the HDC’s statement on this aspect made me smile –
“…Local content including materials and labour are expected to be used for this project…” Given the poor record of Chinese contractors in engaging local professionals, labour, materials or subcontractors, it surprised me to see those claims. I did wonder if any percentages, monitoring procedures or penalties had formed part of this contract.
This is exactly the kind of issue on which the JCC would have made a statement and/or proposals in the past. The most recent statement shown on that organisation’s website is 23rd November 2016.