The housing shortage is certainly the most challenging social issue Bermuda currently faces. The problem is accentuated by the fact that we depend upon market forces to resolve our housing shortages even though the market system does this inadequately. This is because housing is a basic need and the marketplace responds to basic needs only to the extent to which those with the need can also meet the price at which the need can be satisfied.

Basic needs are air, water, food, clothing and shelter. They are defined as basic needs because if they are not satisfied for an extended period of time, we shall almost surely die. Hence, since shelter is a basic need, all people must have shelter whether or not they can afford it.

The need for shelter to protect us from the ravages of the environment is obvious. However, other aspects of the need for shelter are derived needs. Hence, shelter is required not only for protection from the elements but also from other factors which ? while not life threatening ? are considered necessary aspects of adequate housing.

For example, shelter could be obtained by occupying a cave or large box that protects from the elements such as rain and wind. Yet, a cave or box almost certainly would have to be shared with pests and rodents and this would not be considered adequate shelter any longer. This would be true, even if the cave or box were to be upgraded to a room but remained infested with pests and rodents.

In countries with a relatively high standard of living, such as Bermuda, living in only one room without private toilet facilities also would be considered inadequate even if the occupying household had spent the previous several months sleeping in tents, cars, caves or on the streets. Clearly, as we move more and more from needing shelter as a life support requirement to meeting the desire for comfort, we move more and more into shelter as a derived need.

These twin goals ? the need for shelter as a protection and the need for shelter to provide a level of comfort ? makes the task of correctly estimating housing requirements a forecasting nightmare. Because of this inherent forecasting difficulty, when housing becomes available, it tends to be taken up not only by the families trying to fulfil a basic need, but also by families who are looking for increased comfort. This latter group might not even have its name on a Government list compiled for those trying to meet a basic need.

Nor is there likely to be substantial support forthcoming from relatives. True, some relatives who are fairly well off may lend a helping hand to other relatives in need of housing. But this soon becomes stressful for the family providing the housing as their once spacious living quarters are now congested. In addition, there are likely to be increasing conflicts over the use of household equipment such as the stove, fridge, washer, television and telephone, thereby creating continuing stress for both families.

The basic issue with the housing problem in Bermuda is the fact that while housing is a basic need, we attempt to meet this need via a market system which is designed to resolve the competing forces of supply and demand by adjusting relative prices. For instance, the supply of housing refers to the number of dwellings that will be produced at various rents or prices. In this context, it is assumed that the higher the rents or prices of housing, the more dwellings will be made available by owners of dwelling places. The demand for shelter refers to the number of dwellings households are prepared to rent or buy at various prices. In this context, it is assumed that the higher the rent or price, the less shelter households will rent or purchase.

Hence, if there are more households requiring dwellings than there are dwellings available, average rents and prices will rise. Those who require housing and can afford the higher rents or prices will obtain dwellings with little effort. Those who cannot afford the higher rents or prices will find they have to scale down their housing requirements by perhaps moving to a smaller dwelling. Other households may scale down their requirements by postponing trips, foregoing health care, delaying higher education of their children and drawing down savings. This scaling down process continues until households are prepared to pay the rising rents or prices match the number of dwellings being offered for rent and for sale.

At this point, those without shelter will continue in this state unless there is an intervention by Government. However market forces will have done its job, even though several families remain with housing needs unresolved. These families will join the ranks of those who will try to share space with relatives or friends, split up households, or live in tents, cars or wherever night finds them.

What should be the role of Government in these truly life threatening situations? Government could fix rents. However, housing suppliers who are depending upon the high rents to pay mortgage interest or other expenses will be discouraged from creating additional rental units. Some landlords may even withdraw existing units from the market. Hence, if Government chooses to fix rents, it must also be prepared to increase the housing stock to replace the units that will no longer be built or made available for rent by the private sector.

Will a policy of fixing rents and increasing the supply of dwellings slow down the increases in rents? Not very likely! In Bermuda?s case, we still have to deal with an economy that is creating jobs faster than the Bermudian workforce can fill them and this has created an almost insatiable demand for foreign workers. The increase in the number of foreign workers together with the rising incomes of Bermudians, who are benefiting from the economic expansion, will almost certainly continue to push up rents and the purchase price of housing. This follows from the fact that households who are benefiting from the economic expansion will certainly want to improve their existing shelter. Improvement will most certainly range from the purchase of new furniture to renting or purchasing larger dwellings.

The second factor ? the importation of labour ? follows from the fact that Bermudians are no longer adding to the labour force in the numbers required, hence any expansion of the economy can only be satisfied by the importation of labour. The need to import labour will in turn add pressure on the housing market.

In conclusion, Government has available three strategies by which to ease the housing shortage: They can fix rents at the lower end of the market. This has already been done and may have to be further extended. Government can add to the housing supply by building dwellings and easing Customs duties on items imported to build affordable housing by the private sector. This is also being done. Government can drastically regulate the number of imported workers entering the Island. This does not seem to be in effect.

My own preference would be to regulate the inflow of imported workers to a number which matches the number of dwellings expected to be created. This carries with it the danger of depressing the massive capital investment currently in progress. However, not to do so increases the possibility of unsettling social upheaval.

calvin