Is our economy in for a crash?

In the coming years, will Bermuda's economy crash due to over development?  As the saying goes, what goes up must come down and right now our economy is booming, perhaps too much so.  Will a limited supply of housing combined with a raft of new projects commencing at once and an increasing difficulty of attracting foreign workers add up to disaster for Bermuda's economy?

One of the core issues with housing in Bermuda is that demand heavily outstretches supply due to legislative, zoning and planning restrictions which impede the market from supplying the homes necessary to balance prices naturally in the local economy.

If demand outstretches supply, prices rise to compensate and rents and homes become less affordable.   Why do we have so much demand?  Well, there are likely still 583 people on the emergency housing list.  Less than 10% of the 739 jobs added to the Bermuda economy last year were filled by Bermudians which suggests 90% of those jobs were filled by non-Bermudians requiring housing of whom many were likely brought in on work permit.  This when there were 584 new jobs last year, likely at similar ratios of Bermudians to non-Bermudians and 677 the year before. 

What happens when the raft of new hotels come online?  Southland's alone is slated to require 590 new jobs.  The Ritz Carlton on par-la-ville in Hamilton?  330.  The Grand Atlantic development of some 706 beds for who knows how many jobs.  Let alone the additions to Tucker’s Point, Belmont Hills and Newstead, while Ariel Sands and the Wyndham are also being renovated.

This when it is becoming harder to attract ex-pats due to the low value of the American dollar, Bermuda's ridiculously high cost of living, incredible work-permit delays and the many attacks on freedom of speech of non-Bermudians.  Bermuda just isn't an attractive place to work anymore.

The hard questions you need to ask yourself are:

• Where are all the people to fill these jobs going to come from?
  
• If they do come, where are these people going to live? 
  
• What will this do to our infrastructure and will you be able to cope with prices of homes and apartments continuing to skyrocket due to ridiculous demand?
  
• What happens when there are so many construction projects going on at once that projects begin costing over $500 a square foot just to build something and demand plummets.
  
• What happens when all of these new hotels go online and we cannot find anyone to work in them?   When they suddenly become unprofitable and investors pull out? 
  
• What happens when it becomes more and more difficult for international businesses to replace those whose term limits run out?
  
• What happens when more places spring up to compete with Bermuda on the tax exempt scene and Bermuda is so expensive that it just isn't competitive anymore?

 

Bermuda cannot sustain it's present growth.  We are overheating and need to slow down. 

• We should be saying no to new international business until we can get a handle on the business we have. 
  
• Housing should be the number one priority and a large part of that comes from building proper housing for ex-pats (read: apartment buildings) so that we can free up the homes they presently occupy as house-shares for Bermudians.
  
• We should be cutting out cruise ships and improving the quality of our tourism product through exclusivity, not volume.
  
• With record revenues we should be cutting taxes not spending more so we can make living easier for every Bermudian.  Bermuda is already too expensive.

 

Bermuda is a business, plain and simple.  To the larger international community we offer only services and nothing tangible.  In comparison to the many other players entering the same markets we serve, we need to be vastly increasing the quality of our service if we hope to compete.  If we don't do this, will we be due for a collapse of our economy?

Comments

[De Onion]

We're just going to see house prices rise and affordability fall as a consequence. These new projects and the "revival" of tourism is probably going to cause a decline in standards of living for most people.

You hit it fairly well - although I don't think a crash is in the works.

Not only that, but you're committing the physical fallacy in economics.

[Denis Pitcher]

De Onion,

Having a limited understanding of economics (wishing I'd taken it instead of psychology as my elective back in school), I fail to understand what you mean by "the physical fallacy in economics".

Can you provide a definition or be more clear as I'm having trouble googling it.

Thanks,

Denis

[sal]

Stuart Hayward of BEST says in the last 20 years ,this tiny 19 sq. miles island has added 20,000 vehicles and 10,000 people. Plus theres the billions of dollars PLP taxes removed from taxpayers .
http://www.nypost.com/
Oil $100 a barrel in coming months. Wall Street's smart money is running after oil for its new riches, driving up prices to new records that could push crude past a stunning $100 a barrel in coming months. Energy analysts say many investors - burned by the junk mortgage meltdown - are suddenly bullish about crude oil.

[sal]

Are We Headed for Another Economic Meltdown-Depression?
the real estate market, the falling dollar, the massive current account deficit, or the shaky hedge fund industry are likely to cause major meltdown?
http://www.marketoracle.co.uk/Article968.html

[vanz]

Stuart Hayward of BEST says in the last 20 years ,this tiny 19 sq. miles island has added 20,000 vehicles and 10,000 people. Plus theres the billions of dollars that the UBP stole in the 80s and 90s from taxpayers .
http://www.nypostubptheft.com/

[Denis Pitcher]

Vanz,

I cannot speak to whether or not the UBP or the PLP have stolen specific money from our people, though allegations have insued.

One severe fault I do have with the PLP however is any allegations they make of UBP wrongdoing.

This is specifically because if the PLP truly believed this was the case, why did they not launch investigations into the allegations and audits to track down the perpetrators right when they first got into office. On top of that, why did they not update our legislation to close the door on future corruption?

[De Onion]

I think you're mostly on the right track.

Physical Fallacy is reflected in your final comment that we offer nothing tangible. The fallacy is that somehow services are less "real" in an economy than manufacturing and such, and that business services are somehow less valuable than tourism.

I do think you're off base in the suggestion that we should create ghettos for expats in the city. Those are expensive to build, and desirable by locals - a decent housing policy would take into account land use, construction cost, immigration, and sensible subsidy for the otherwise homeless... just as immigration policy needs to take into account marginal cost of foreign employees if they are going to raise low-end wages.

[Denis Pitcher]

I have never suggested building ghettos.

Simply, non-executive apartment buildings in town. Possibly small apartments to make up for high costs.