The Housing Crunch

One of the big challenges in Aruba is affordable housing. Some of my friends, among them well established professionals are unable to afford housing for their kids, who are still living home past 30!

A recent report written by a UA professor, one destined to government drawers was recently made public, and it stated what we know, that houses are unaffordable, prices-to-income ratio is out of whack, vulnerable groups can continue to dream, the gentrification of Aruba means that original owner are displaced by new owners. Sure the local are willing to sell, but then they have nowhere to go.

Consolation: It’s a global phenomenon and countries around the world are fighting the crisis in many different ways. But we are small, and we are running out of space.

It is good to remember that there was an affordable housing crunch on the island before the rise in foreign real estate investments and the rapid growth of the vacation home rental market. But we did not feel it was much and did not talk about it much.

Social housing are built in a super slow pace, moreover, there is no structural adequate housing supply strategy/policy/plan.

Thirty years ago, land was at Awg 20 per square meter and you could easily get 1,500 for a large house and ample garden.

Now a 300M2, privately owned terrain, in a god-forsaken hood, goes for Awg 500 to Awg 600M2. You could end up paying Awg 160.000 for the terrain and at a bare minimum, Awg 2,250-3,000M2 construction cost, up to $2,500M2 depending on specs, and quality of finish.

Again, we did not feel the crunch so much before because mom and pop sat on a large property and pushed their children to build small units, and apartments, in the backyard, to remain within the family compounds. But now grandchildren are added to the mix, and living arrangements are cramped.

Apparently, there is a house price-to-income ratio, that’s recognized internationally. It measures housing affordability.

From the report: As a rule of thumb, the cost of a house should equal roughly 2.6 years to 3.0 years of gross household income. According to the report, the median combined household income in Aruba is between Awg 104K in San Nicolas to Awg 226K in Noord.

At an ample affordable rate, a house would go for between Awg 208K to Awg 452K (two years of income)

At an affordable rate, a house would go for between Awg 312K and 678K (three years of income)

At a moderately unaffordable rate, a house would go for Awg 416K to 904K (four years of income)

At a seriously unaffordable rate, a house would go for Awg 520K to 1,130K (five years of income)

Any house above Awg 530.4K to 1,152.6K, would be considered severely unaffordable for a median income family in Aruba bringing home a combine income of between Awg 104k and 226k/year.

And I am not sure that indeed the median household income is that, and it’s important to mention that the prices of houses are more expensive in Noord and Tanki Leendert, and just a little bit more reasonable, south of the bridge.

According to the study, median house prices went up 19.5%, seven times faster than they median household income growth rate.

Conclusion: Housing is increasingly unaffordable, and it is out of reach for low and middle income households (bottom 40% of household income distribution.)

Middle to high and high income household, might still make it at a great effort.

….and our population is growing, not by much, but growing, and housing mortgage interest rates are still high, and the band only takes taxable income into consideration, and even if your income is higher, tips etc., there is a limit to the mortgage you can get!!

I just saw a listing of a house in San Barbola, the house had an apartment, which proves my point that even on small lots, 453M2, owners manage to cram a 4 bedroom/3bath house plus an apartment. With closing fees this will amount to more than Awg 600K in the severely unaffordable, category, for a family from St  Nicolas. And San Barbola was designed, correct me if wrong, for middle class families.

(To buy that, one would probably need Awg 100.000 in savings or equity, and be burdened by a 4 figure mortgage for 20 years.)



Share on:

December 11, 2023
Rona Coster