?There is something wrong with the housing market ? it is dysfunctional.?

So says Bermuda College economist Craig Simmons, who fears the plight of Bermudians on average incomes, now priced out of the market, is unlikely to change anytime soon.

And he has harsh words for Government?s performance on the issue, blaming them for creating uncertainty in the market which, with an average home going for $1.2 million, is way out of proportion to average incomes.

There are multiple reasons for the situation.

Those simply wanting to get a roof over their heads while avoiding the cash drain of being perennial renters are competing against those using housing as a source of income.

The high rewards in the letting market have encouraged would-be landlords to compete for houses to let while other investors are simply wanting to buy short-term and sell on when the price has risen sufficiently.

?Right now it seems like home ownership among seniors is over 70 percent,? said Mr. Simmons.

?The data seems to be suggesting the older generation are the ones holding property to the detriment of younger people.? Some older people own second and even third homes, he added.

He said non-Bermudians pay significantly more rent and are more popular with landlords who find investing in homes for rent a highly lucrative venture.

?I think that is the problem,? Mr. Simmons said. ?The market suggests it is easier to rent to the expat for financial and non financial reasons. A landlord can get rid of an expat a lot easier than a Bermudian.

?The invisible hand of the market is causing some kind of social problem.?

In other jurisdictions, families priced out of one area can simply move to locations where property is cheaper to buy but Bermudians face the stark choice of scrambling to stay on an increasingly expensive rock or shipping out altogether.

A further spur to the rush for housing is the tiny amount of available land.

?People feel they have to do it now or they will never be able to do it. Expectations have changed over the last ten years.

?There are a few pieces left and there is a mad dash for those few remaining pieces.

?It?s individuals out there competing against one another for this limited supply.

?We are entering into an almost frenzied state, where the expectation or the belief that the supply is shrinking and this is the last chance, is accentuating house price inflation.

?I don?t see it getting any better until such time as Bermudians start to react and say we are going to stop buying property, we are taking our money off Island. Then the housing market will pay attention.

?But as it stands now, with strong growth in the economy, market players have no reason to change their behaviour so the dysfunction will continue.?

Other factors have spurred demand and he believes it could be a simple case of too much money chasing too few goods.

The Bank of Bermuda buy-out has seen share windfalls being spent in the housing market, said Mr. Simmons.

High levels of savings ? equivalent to 20 percent of the GDP ? also provide another source of housing funds while the ease of borrowing in foreign countries has boosted available cash with the average annual growth rate of foreign currency borrowing running at 17 percent.

?There is all this money now able to enter the real estate market so you have too much money chasing a fixed supply of land and homes,? he said.

Certainly the statistics are depressing with just 57 percent of Bermuda households owning a home according to the 2000 census ? up just one percent from a decade earlier.

In the UK and US the level hovers around the 70 percent mark.

?Home ownership in Bermuda is relatively low compared to other countries,? Mr. Simmons said.

?We haven?t seen a significant rate of increase in home ownership since the 1970s.

?It seems not to be on the basis of income. One would think that richer countries would have higher ownership.?

Mauritius, with a GDP one-twelfth of wealthy Bermuda?s, has 86 percent home ownership.

Simply put the average annual household income of $106,000 is a drop in the bucket when trying to run a mortgage more than ten times that.

?If you accept that a reasonable, average house price to income ratio is about five to one but an average house is going for about $1.2 million, I think that would suggest a necessary household income typical of the top 25-30 percent of Bermuda.

?Unless you can reach that magic figure perhaps you shouldn?t be entering the real estate market.?

He questioned why more Bermudians in the 1960s and 1970s didn?t buy land when it was cheaper.

This was partly influenced by racism, believes Mr. Simmons, with blacks fearful of going to banks which they felt could hold something over them or reject them outright.

But now he says the increased investment options available mean housing is no longer the only thing for ordinary Bermudians to invest in.

In Singapore and Hong Kong, the shrinking availability of land has seen families pool resources to buy property. After a period of living in cramped conditions the families have then saved and bought more.

That pattern has also been seen in Bermuda but Mr. Simmons believes increased market options might have seen that scenario decline.

Critics might think it is high time Government built some homes to increase supply.

But too little will make no difference while too many will hurt investors, said Mr. Simmons.

He said the delayed Harbourside Village project, which promised 196 homes including 98 cut-price homes in a mixed development in Southside, would not have made much of a dent in the market even though individuals would have benefited.

?If Government is going to drop houses on the market it is going to have to be a substantial quantity. A thousand is not going to do it,? hr said.

?And it needs to be orderly, so people can form expectations on likely directions for price and rent.

?If it were known Government would be adding some quantity of homes to the market on a regular basis (it would help).

?I think we are getting mixed signals ? it?s going to be a hundred homes, it?s on again and off again type of thing.

?Government?s behaviour in the market doesn?t seem to be conducive to price stability. And now you are faced with a situation where even if Government indicated it was going to put X numbers on the market, would people believe them?

?That?s very, very important in terms of price stability. If there was a coherent plan that would help a lot.?

He is also sceptical about whether there is a shortage of homes to live in.

The real problem is their price, said Mr. Simmons.

Dumping more homes on the market would bring down prices but could lead to a surplus and switch the power from the landlord to the tenant and destabilise things.

?We could end up with a situation in five or ten years time where there is a massive surplus. The market is fickle.

?If there is a perceived threat to the expats being on the Island, that could change the climate in the rental market.

?It could lead to foreclosures ? by and large these homes are financed by borrowed funds.?

However, Government could help people buy homes by offering discount loans and picking up the tab for closing costs for buyers on lower incomes, suggested Mr. Simmons.

He said any such home ownership scheme should apply to both the middle class and working class.

?Part of the problem about why houses are rising as they are is because people are speculating. If you were to purchase under this proposed home ownership scheme you would have to hold on to the purchase for a minimum of ten years, which takes some of the pressure off the market because there won?t be all this flipping. So, you are putting an element of stability in the market.?

There are ways for people to invest if they can?t buy a house at the moment, suggested Mr. Simmons.

?I think Bermudians are exercising an option ? they are buying overseas, broadening their portfolio. I would guess in the next 20 to 30 years, Bermudians will be owning property from China to Columbia.?

But for those wanting to own here, he believes the future is far bleaker.

?I think ownership rules are fairly restrictive to ensure it will be Bermudians but it will be narrowly held by a group of Bermudians.?

@EDITRULE:? Tomorrow: Realtor Buddy Rego on why owning a piece of the rock is not beyond the ordinary family.