(In photo: Alex DeCouto, of Greymane Construction)
With residential real estate inventory for sales and rentals at historically low levels, rents skyrocketing, and the Government aiming to increase the working population by thousands, one might expect the economic principle of supply and demand to trigger a wave of homebuilding.
The housing crisis Bermuda faces has led to a lack of availability of units for all income levels.
More than 800 people are experiencing homelessness, driven partly by the lack of affordable housing while, at the other end of the economic scale, international companies struggle to find swish accommodation fit for incoming executives.
If the overwhelming need for more homes is so apparent, why is there not a matching surge in residential construction?
An impossible task
Alex DeCouto, of Greymane Construction, believes the answer comes down to high construction costs changing the economics of newbuilds. Many people building a new home today expect its market value on completion to be less than what it cost to build, he suggests.
Add to that today’s relatively high borrowing costs — with banks charging about 8.5 per cent interest on commercial loans — and the prospects of any profit margin for developers look bleak.
“At today’s construction costs, it’s impossible to build units at prices that the average Bermudian can afford,” Mr DeCouto said. “The only people who can afford newly built homes are the wealthiest buyers.”
Even the most basic residential properties will cost more than $500 per square foot to build, according to Mr DeCouto, rising to $1,000 per square foot for higher-end homes, and higher still for luxury builds.
Historically, developers such as Sir John Swan, Gilbert Lopes, and Sanz “Kitty” Pearman built substantial housing developments in Bermuda at costs that made homeownership achievable for middle-class Bermudians. This is no longer realistic, because construction costs have risen at a much faster rate than average salaries, Mr DeCouto said.
“Developers have to consider what they can sell a place for, and what it will cost in terms of land, construction, borrowing and other expenses — and factoring in a profit margin,” he said. “And there’s no market for $1.6 million, two-bedroom apartments.”
Impact of local and global factors
Bermuda suffered a spike in concrete costs in 2023, driven by the depletion of local quarries, requiring aggregate to be imported. Exacerbated by supply-chain issues related to the Covid pandemic, which led to higher-than-normal materials inflation, construction costs rocketed. And although building material inflation has cooled off, Mr DeCouto stressed, that does not mean costs have fallen.
This year, another potential cost driver has emerged — US President Donald Trump’s fondness for imposing tariffs on imports from America’s largest trading partners. In February, Mr Trump raised tariffs on all imported aluminium from 10 per cent to 25 per cent, as well as a 10 per cent tariff on all goods from China.
Steve Barber, owner of Commercial Glass & Aluminum, said: “About three-quarters of the materials we import come from the US and almost all the rest from Canada.
“Just before the presidential election, one of our suppliers said they would not quote until after they knew who won, because some of the material we bring in from the US was manufactured in China, and tariffs could make those costs higher.
“I just spoke with one of our manufacturers, who supplies us with a mixture of glass and aluminium products, who said prices were going up 6 per cent. So, we do continue to see increases.”
Lessons from Singapore
If costs make addressing the housing crisis problematic, so do social trends. Mr DeCouto, a keen collector of data relevant to his industry, discovered an enlightening statistic by rooting through old censuses. The average household size in 1970 was 3.3 people and by 2016, this number had dipped to 2.2 people. He suspects fewer multi-generational households, lower birth rates, and increased divorce rates may have all contributed to declining average household size.
The result is that between 1970 and 2016, a period when Bermuda’s population grew by 7,000 people, the number of households increased by 13,000. If the shrinkage in average household size continues, more units will be required to house the same number of people, driving up competition and rents further. Hence the desired increase in population threatens to deepen the crisis.
Mr DeCouto believes that significant government intervention is required to address the problem. Tax breaks or subsidised borrowing rates for developers of residential projects could help, he said. However, to change the economics of affordable housing development, he believes greater subsidisation will be required, along the lines of Singapore, where housing costs are also very high.
“About 80 per cent of Singapore’s population lives in government-assisted or subsidised housing,” Mr DeCouto said. The city state builds and sells homes to Singaporean citizens, backed by a system of grants to make them affordable to individuals and families on low incomes.
“The result is that people on different wealth levels live in the same developments,” he added.
Without such measures, Bermuda’s market forces will continue to favour high-end developments that cater to only the wealthiest residents. Policymakers considering potential uses for Corporate Income Tax revenue should have housing needs high on their agenda, Mr DeCouto suggested.
The need for training
A shortage of skilled labour is also a challenge for Bermuda’s construction industry. In recent years, the number of Bermudians working in construction has declined, while the number of guest workers has increased. Many trades, such as masonry and carpentry, lack formal certification requirements, making it challenging to develop a skilled local workforce.
Mr DeCouto advocates for a more structured training and certification system, like what exists for electricians.
Mr Barber shared those sentiments and noted a proposed apprenticeship programme for glass installers in conjunction with the Department of Workforce Development had failed to materialise.
Young Bermudian workers at Commercial Glass & Aluminum learn the trade over time from experienced staff and from overseas and online courses. But when the firm lands a major contract and needs qualified staff immediately, there is often a need to bring in staff from overseas, a reality reflective of the whole construction industry’s reliance on skilled foreign workers.
Rarely has Bermuda needed the product of the construction industry more — but it may take some bold policy moves to close the gap between supply and demand.
