Social housing should not be gifted to ‘passive’ beneficiaries – Central Bank head

Central Bank Governor says beneficiaries of social housing must be empowered to work and pay market rents 

Central Bank governor Mario Vella
Central Bank governor Mario Vella

The Central Bank governor Mario Vella has said he wants social housing to no longer remain a lifetime entitlement for beneficiaries.

Vella was addressing the annual dinner of the Institute of Financial Services Practitioners, where the CBM governor’s speech is a keynote address and insight into Malta’s economic direction.

“Much of Malta’s benefit system has been changed so as to create clear incentives to shift from benefit dependence to participation in the formal labour market.

“The only area where this is not happening yet is social housing, where the tendency remains that, once allocated, social housing tends to become a lifetime entitlement.”

Housing in Malta has risen sharply since 2009, with an increase of 5.3% during the first half of 2017. Building permits until July 2017 were 62% higher than they were in the same period of 2016 and 153% higher than in 2015.

While increased supply should ease price inflation, Maltese rents have moved relatively quickly to being close to expensive European cities. Vella said the price increase reinforced the case for replenishing social housing stock.

“However, this expansion needs to be accompanied by a change in approach,” Vella said, adding that social housing schemes should “activate individuals and empower them rather than encourage passivity.”

“Instead of seeing social housing as a passive benefit, we can eventually develop projects which become to an extent self-financing, through a combination of social housing provision and programmes to enhance the employability of individuals, enabling them to eventually pay market rents.”

Vella also said the financial sector could offer social loans, or see the Housing Authority partnering with financial institutions to develop social housing projects.

Vella however cautioned against “restrictive” measures that would render the rental market dysfunctional – a reference to Maltese controlled renting laws.

“We should not shy away from reforms that facilitate a better functioning of the market.  We need more legal clarity about the rights and obligations of landlords and tenants. We also need to have this market operate in the formal economy, with rent contracts duly registered.”

The Central Bank of Malta is currently studying access to credit by the lower income groups and home equity release.

The Maltese elderly tend to be homeowners who are “asset-rich” but live on modest pensions, often creating a financing challenge for them to move into long-term caring homes.

“If, over the coming years, we manage to come up with ways of releasing part of the equity in homes, this could raise the supply of available housing, reduce the pressure on state long-term care institutions and hospitals while guaranteeing better living standards for our elderly. This, of course, needs to be done carefully, sensitively and in a well-regulated environment. Once again, we believe that financial institutions can have a key role to play here.”

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