PROVIDING homes affordable to the lower-income residents has proved a major challenge for Bermuda for many years. And an economic boom that has sent the price of the average home to more than $1 million, plus a high divorce rate that has resulted in more single-parent families and more people living alone, has only exacerbated the situation.

The sky-high cost of real estate means the majority of Bermudians who don't already own property, don't have wealthy relatives, don't work in the financial or insurance sector and don't benefit from a substantial non-employment income, cannot even contemplate buying their own home on the open market.

It has been claimed that one in four Bermudians owns their own home ? the lowest rate in the western world.

Many blame the international companies which pay housing allowances to their top employees from overseas, arguing it has encouraged landlords to hike rents to ridiculous heights, which has had a knock-on effect through the whole market.

Some blame Government for failing to get to grips with the housing crisis, and for stoking the overheating economy through increased public spending. And others pin the blame on landlords, whom they claim are being greedy.

Others say Bermuda's high housing costs are simply the result of market forces, with demand increasing and supply limited.

What is certain is that the lack of affordable housing is a major problem, one which is already breeding frustration and alienation among those Bermudians for whom owning a home is not a viable option and even renting is a struggle.

Government has acknowledged the gravity of the situation and is showing signs of trying to do something about it. Several Government-backed projects will see homes sold at a price well below open market value, including a plan to build 96 condos at the site of the former Loughlands Guest House in Paget and a further 54 similar units at Southside.

These are being described as "affordable homes" and the two- and three-bedroom units will each have a price tag of between $450,000 and $525,000. But for whom are they affordable? There is no doubt that those homes are still beyond the means of many Bermudians.

The proliferation of privately-built housing developments, mushrooming around the island in recent years, have overwhelmingly been designed to cater for the wealthier end of the community.

The basic question is: What is affordable housing?

BERMUDA does not have a housing crisis in terms of stock to meet demand ? but it does have a housing affordability crisis.

That is the view of C.T. (Eddie) Belfon, vice-president of consumer credit at Butterfield Bank, one of the island's leading mortgage lenders.

"Rising interest rates and high prices have stalled things in the housing market," Mr. Belfon said. "In 2003, the base rate was 4.25 per cent and the mortgage rate was 7.25 per cent. Now the mortgage rate has gone up to 8.25 per cent.

"That one per cent rise has meant people who borrowed $800,000 will now be paying an extra $1,000 a month for their mortgage."

Coming on top of a four-year period of phenomenal growth in property prices, the rise in the cost of borrowing has pushed yet more potential homes out of the reach of the average Bermudian family.

Mr. Belfon said condos have risen in value by more than 50 per cent since 2002 and stand-alone properties by around 75 per cent, although the market had stabilised in recent months.

His Butterfield Bank colleague Shawnette Griffin, assistant vice-president of consumer credit, said Bermudians were increasingly adopting a team approach to taking out a mortgage that would otherwise be unaffordable.

"People are joining forces as a family to be able to purchase something," Ms Griffin said. "Mother, uncle, brother and grandmother are all paying a share."

Ms Griffin said that each case was unique, but the basic rule for clients was that mortgage payments should not exceed 50 per cent of household income for mortgages of 80 per cent of property value and below. For 95 per cent mortgages, the figure rises to 55 per cent of income.

"Basically, if you want a $4,000-a-month mortgage, we will be looking for an $8,000 a month income," Ms Griffin said.

She produced some test case figures that showed that anyone looking to buy a property on the open market and needing to borrow $700,000, paying it back over 30 years, could expect to pay $5,258.87 per month at the current interest rate of 8.25 per cent.

In that case, the Bank would be looking for a combined income of at least $127,000 per annum from the applicants.

Ms Griffin stressed that the interest rate for individual mortgages was negotiable.

"We often find that people qualify for the mortgage, but not for the down-payment," she added. "If the mortgage is going to be $5,000 a month, then we would urge them to try to save that amount every month for a year to practise.

"If you do that, it's surprising how fast the money adds up and you get your down-payment. Some people do it and some people don't."

While middle- and high-income families can probably afford to pay half of their incomes in housing costs, the proportion gets smaller the further down the wage scale.

According to US federal guidelines, if a low-income family is spending any more than 30 per cent of its gross annual income on renting housing or paying a mortgage, it will struggle to pay for other basic living expenses.

The government of the Australian state of Queensland agrees: "Low-income households (the bottom 40 per cent of households on the income distribution) should spend no more than 30 per cent of their income on mortgage or rental payments."

The US Department of Housing and Urban Development (HUD) defines a low-income family, as one which earns up to 80 per cent of the area median income.

Apply the formula to Bermuda and it would appear that affordable housing for low-income Bermudian families is almost non-existent.

the latest Employment Survey results released by the Department of Statistics, the island's median employment income in 2005 was $48,183.

That means a low-income couple, both working, would have a gross household income of up to $77,093. And so for housing to be classified as "affordable" the couple could pay up to 30 per cent of their income which would allow $1,927 per month to spend on rent or a mortgage. Working to the HUD formula, that is the best-case scenario faced by the upper limit of Bermuda's low-income families.

Many, of course, will be worse off. Low-income households where only one person is working will have up to $963 a month to meet housing costs before it becomes financially burdensome. And what does that buy on the Bermuda market? A studio, if you're lucky.

When Housing Minister David Burch announced the Loughlands plans, he said: "More than housing, this project represents genuine economic empowerment.

"Those young professionals who struggle to understand how their collective household income of $150,000 still cannot afford them a home need look no further.

"Making homes available to first time homeowners at prices that are simply unavailable in the ordinary market place represents the 'hand-up' that honest, hardworking young Bermudians so desperately need."

A couple with a joint $150,000 income earns nearly double the island's median income.

Senator Burch's comments clearly acknowledged that these homes were not suitable for the bottom third on Bermuda's economic ladder.

We invited Minister Burch to make a comment for this article and asked him whether the Government aimed to cater for the needs of that bottom 30 per cent with any future public housing projects. He declined to answer.

A family looking to buy one of the $450,000 two-bedroom units at Loughlands and making a $50,000 down-payment would have to pay $3,005 per month for a 30-year mortgage at current rates, or $3,380 if they bought a $500,000 condo with the same down-payment.

Shadow Housing Minister Kim Swan believes that Loughlands is an example of how the Government has turned its back on the "underclass poor".

"There was a time when Bermudians would work two or three jobs to get ahead ? now they have to do that just to pay the rent," Sen. Swan said.

"The 2000 Census showed that 30 per cent of residents were poor or near poor ? that is when household income is $45,000 or less.

"That was before the economic boom and the huge rise in property prices and I believe the situation will be even worse now."

He said Loughlands would do nothing to alleviate the problems of those people and, in reality, the condos would be a struggle for even middle-income families to afford.

In the US, interest rate rises of the past 18 months have caused an increase in the number of mortgage defaults and foreclosures.

There were 23,982 new foreclosures in January in the US, a figure which rose to 27,064 in May. But Bermuda is not seeing such an alarming trend.

"Our record on defaults is excellent," Mr. Belfon said.

"Bermudians have a tremendous pride in ownership and once they have a property they will do what is necessary to make the mortgage payments to hang onto it."