The Role of Real Estate: Planned Property Development in the Economy of T&T
Remarks delivered by Marla Dukharan on December 13th 2022 at the celebration of the 50th Anniversary of Raymond and Pierre Co. Ltd. in Trinidad.
Most people would not have any reason to know the following equation, which shows how the size of a country’s economy (also known as its Gross Domestic Product (GDP)) is measured
You would notice that M for imports carries a negative sign. This means that our imports actually shrink the size of our economy. So the more we import, the more our economy shrinks. This is why it is of paramount importance for us to be mindful about imports and how the level of imports is affected by our trade / tax policies and our foreign exchange policies, in particular.
But what this equation does not reveal, especially for Small Island Developing States and for highly open economies (where international trade (imports plus exports) accounts for a significant proportion of GDP, or even exceeds GDP) like ours, is that even though Consumption and Government spending, in particular, carry positive signs (meaning higher consumption and higher Government spending should cause the economy to expand). Remember that the majority of what we consume is imported, and the majority of the Government’s spending is spent directly (goods and services) and indirectly (transfers and subsidies, wages and salaries) on imported goods. Investment (based on the import of construction materials for example) and exports (based on imported raw materials / ingredients) also carry some level of import component, but on a net basis is less import-driven than consumption and government spending, and therefore, investment and exports are the best ways to drive economic activity over time in highly open economies like ours.
According to the 2022 Review of the Economy, the Construction sector has been in decline for years prior to the pandemic and remains in decline this year. The Construction sector accounts for about 4–5% of GDP and had the 2nd highest unemployment rate of any sector in the economy, at 9.6% (the latest data was Q1 2022), after Oil and Gas unemployment at 15.2%.
A declining Construction sector is a trend that is of major concern, especially where you hear cries of insufficient supply of decent, affordable housing in our country. Why is this happening? And how does this relate back to the overall socioeconomic picture and future of our country?
There is a lot you can tell about how a country is doing, by looking at the macroeconomic, social, and demographic data. But there is also a lot you can tell by driving around and seeing what is happening, talking to people (especially taxi drivers, who always know EVERYTHING!). But nothing says “this country is booming” more clearly than construction activity. Many times you see analyses citing how many cranes are visible in the skyline of Dubai or Singapore for example, as evidence of booming investment and construction activity. And also, as evidence of confidence.
It is clear that confidence is weak in T&T, and has been for some time. When the PM has to appeal to the public to have faith in our ‘leaders’ you know there is a problem with confidence. The CBTT used to publish a Business Confidence Report — but there is no data beyond 2014. Likewise for their Consumer Confidence Report. Once you start measuring something, you start to make mistakes and I have seen many a confidence report being attacked for supposed biases or flawed methodology. But in my opinion, nothing tells you as unambiguously the condition of confidence in any country, as construction activity. By that measure, ours does not look bright at all.
Owning a home has traditionally been seen as one of the most fundamental features of personal financial progress and stability. For most people, owning a home is the largest investment we will make, and it is one of the most important ways in which personal and even inter-generational wealth is created and transferred. It forms a major part of family and community structure.
It is noted globally that millennials are much less property obsessed than older generations, especially the generations of my parents and grandparents, who saw property — land specifically — as the one thing that ‘don’t spoil’, and can’t be stolen or lost. So buying land in particular was seen as one of the best ways to save / invest / and look after the future generations, even after we are gone.
Many of us in my generation benefited from land purchased by our parents and grandparents, but how many of us in my generation are able to do what they did? And how many of our children and grandchildren will appreciate this kind of inheritance anyway? There may be a fundamental shift in saving and investing behaviour underway, which I think may be a factor in explaining some of the softness we see in the property market / construction activity overall. I could be very wrong.
Furthermore, as Trinbagonians most of us, I believe, are more outward looking than inward. Like the Guyanese, even now despite their oil fortunes, most of us aspire to leave, or aspire for our children to leave, especially. Again, I could be wrong, but perhaps this could be a driver of relatively soft activity.
But also — and here is what I think could be the most significant explanatory factor; when we see our nation experiencing its highest homicide rate ever on record; when we see that the availability of FX is severely restricted despite the fact that we supposedly abandoned FX controls many years ago; when we are told by our Prime Minister to just leave home earlier to avoid the hours of traffic commuting to work (rather than committing to solving the problem, which is what leaders are elected to do); when we are told that the reason our homes were flooded is because we built on too-flat land and we look for that — but we are also told that the reason our homes were destroyed by landslides is because we built on a hillside and we look for that too — so we now have no clue where anyone should buy land or build therefore!! All of these factors deeply affect the way people feel and the confidence they have in this nation and its future.
If we as a people are more and more interested in leaving and less and less interested in cementing our roots here, like our forefathers did and wanted for us, what does that say about the outlook for our society? What can we expect things to look like here, in 20 years, 50 years?
On a macro scale, property rights and the ownership of property is a major factor explaining the existence of a thriving middle class and, therefore, why some countries succeed and others fail. Abundant literature demonstrates that one of the fundamental features of a stable and prosperous society is a large, growing and thriving middle class. But when the middle class can’t afford housing in safe and decent neighbourhoods, with reasonable access to work and school and public services and amenities, and are forced to reside in less desirable areas, this erodes the middle-class-ness of the middle class. It makes the middle class look and feel more poor — and it affects us deeply in a myriad of ways as you may imagine — from unhappiness and unhealthiness to unproductiveness and other undesirable behaviours. On a macro scale, this leads to the shrinking of the middle class and to socio-economic decline. And this is what I see happening right here, in my country.
We know that globally, poverty is on the rise, and more people are slipping out of the middle class into poverty, more so than those ascending from the middle class into the upper class, giving rise to a shrinking middle class and greater income and wealth inequality, higher poverty itself, greater entrenchment of power and influence in certain pockets, and broad-based disenchantment. Our nation is not immune to this global devolution.
In fact, the Economy of Trinidad and Tobago declined for the entire decade in total prior to the pandemic. Of course we continued to decline in 2020 by over 7%, in 2021 we declined by about 0.7% when the rest of the world was showing positive year over year growth because of how abysmal 2020 was — we were still shrinking last year! Unbelievable. This year we are supposed to see positive growth but the jury in the trial by data is still out.
The Minister of Finance boasts a fiscal surplus which fills my heart with joy, but he has not told us how much arrears remain unpaid and how much he is depositing into the Heritage and Stabilization Fund, both of which will reduce the size of the surplus when paid. We also don’t know the extent to which state-owned enterprises are in arrears. So I await the data before I get too excited. But what to do with this windfall, if indeed there is a surplus?
One of the best and easiest ways to stimulate the economy in the short term is to engage in well-planned climate-adaptive construction activity, especially for important infrastructure and housing (as opposed to hospitals in canefields). Because such construction activity has many domestic linkages to other sectors, such as the Mining and Quarrying sector, Manufacturing, Finance and Insurance, etc., the economic impact of housing construction in particular, is broad-based. But another positive spillover effect in the longer term, of well-planned construction activity and property development, is the alleviation of poverty and the upliftment of the middle class — and this is something our society desperately needs.
Confidence is to construction, what the middle class is to our long-term socio-economic progress. Socio-economic progress is good for confidence, confidence is good for construction and home ownership, and home ownership is good for a thriving middle class. A thriving middle class is good for socio-economic progress, and socio-economic progress is good for confidence. And so the cycle goes.
We have to start somewhere. And no easier place to start, than with well-planned construction.
