This work analyzes housing finance in Trinidad and Tobago during the last 20 years. The period covered is influenced by an economic bonanza led by the energy sector. Housing prices in this period skyrocketed, but the demand for mortgage loans was low. The results suggest that this is explained by affordability problems in the dynamics of the new post-shock equilibrium, as housing prices increased more rapidly than wages. Public housing finance also played a role, but in recent times it has been more prudently managed than during the previous boom of the 1970s. Both the public and private sectors undertake the supply and financing of houses in T&T. The state enters the housing market through the direct production of new houses, the provision of housing solutions such as squatter upgrading and public rentals, subsidies,8 public mortgages and a secondary market for mortgages. The public sector is an important player; it supplied around 50 percent of the new houses and almost 30 percent of the value of new mortgage loans in the period analyzed. Housing policy is set by the Ministry of Housing (MH), and the policy intervention is justified on distributional grounds.
For a variety of reasons, housing has always been a sensitive topic in Trinidad and Tobago (T&T), an energy-dependent country with a small open economy. First, the land is scarce, and housing competes with other uses. Second, the economy is influenced by international energy prices that have generated volatility; in the past, these prices were augmented by pro-cyclical fiscal policies. Third, and because of the size of the energy sector (approximately 50 percent of GDP and 80 percent of exports), the economy is subject to Dutch Disease problems that, among other things, affect the price of housing, a non-tradable. Since the energy sector employs only 7 percent of the total labor force, income shocks related to the energy sector’s fortunes are not directly translated into higher wages. On the other hand, public sector resources increase significantly during booms and, in the past, the public sector has reacted to affordability problems during booms by spending more on housing, which might have aggravated the problem. In the current boom, the evolution of the mortgage market and that of the policy response have been different from what was observed in the 1970s. The relationship between housing finance and the macroeconomic management of income shocks is one of the reasons why studying the case of T&T is interesting, but there are further reasons. The country’s housing finance system is relatively well developed, and public intervention includes policies that range from the typical public housing programs of developing countries to more sophisticated interventions in the secondary market. The institutional and regulatory frameworks are appropriate, and the system has long-term funding from pension funds and insurance companies. Finally, T&T has better standards than the average Latin American country in terms of rule of law.