Where does Robert Abela get this idea, that ‘more housing = lower property prices’?

... the price of Maltese property will continue to remain just as ‘high and unaffordable’, as it is today: no matter how many ‘social housing units’ the Prime Minister decides to flood the market with, this time round

Prime Minister Robert Abela
Prime Minister Robert Abela

There is a famous quote – often erroneously attributed to Albert Einstein – that goes something like: “Insanity is doing the same thing over and over, and expecting different results.” And much as I hate to say it... by that definition, Malta must be one of the ‘nuttiest’ goddamn nations, on the entire planet!

Take, for instance, the government’s current plan to address the issue of ‘property affordability’ (especially, where first-time buyers are concerned), by ‘flooding the market with newly-built housing units’.

If you’ll remember, the Prime Minister made the announcement during his Labour Day speech two weeks ago: “The next step is to ensure that government takes initiatives to build a strong stock of apartments at affordable prices, to target those who want to become home owners but cannot irrespective of the many initiatives we have already taken...”

But if your memory stretches back as far as mine, you might recall how former Prime Minister Lawrence Gonzi had announced exactly the same sort of approach, to exactly the same sort of problem – in almost exactly the same words, too! – all the way back in October 2006.

This, for instance, is an excerpt from Gonzi’s Budget speech that year: “While Government continues to adopt a policy to encourage citizens, as far as possible, to own their own houses, Government is aware that there is a sector in society who cannot reach this aim without assistance. [...] During the course of this year, the Housing Authority offered 260 properties for sale at a subsidised price at a cost in excess of LM1.6 million. [...] The Authority is planning to offer for sale more than another 450 properties during the course of next year...”

Sounds vaguely familiar already, doesn’t it? And so it should, really: for apart from being identical to the ‘solution’ being proposed by Robert Abela, in 2023... it was also the same strategy that had previously been adopted by Eddie Fenech Adami, Karmenu Mifsud Bonnici, Dom Mintoff, and - quite possibly (because my memory doesn’t stretch back THAT far, at the end of the day) - even George Borg Olivier, all the way back in the 1960s.

Meanwhile, in an article published a few days after the 2006 Budget, former Housing Authority chair Marisa Micallef Leyson wrote: “There are a number of problems or inefficiencies in the housing market right now. Firstly, prices are high and increasingly beyond the reach of first-time buyers...”

And interestingly enough, she went on to specify exactly how ‘high’ those property prices were, back in 2006: “Average first-time buyer homes cost LM40,000 [E93,000] plus in a few localities and LM50,000 [E116,000] plus in others. I am obviously excluding luxury developments. Loans are on average at around LM10,000 less than this amount, so many are managing, but those on lower incomes, or no family help or less money saved in the bank, are having serious difficulties to get on to the property ladder...”

Once again: all that should sound at least a little ‘familiar’, all these years later. After all, it was only two weeks ago that a report by Dhalia and Grant Thornton gave us a pretty clear picture, of how those same statistics pan out in Malta’s property market today.

We were told, for instance, that: “With the average price for a finished housing unit standing at €259,000, single-person households simply do not have the borrowing capacity to buy their own property, which always requires a 10% deposit for banking finance...”

And before you all pounce on me, to argue that there is obviously going to be a HUGE disparity, between today’s property prices and those of almost two decades ago... please note that we are talking about ‘affordability’, here: so what matters is not so much the extent by which property prices have increased, since 2006; but rather, how ‘affordable’ those prices are/were, compared to the average person’s ability to actually pay them.

On that note, the Dahlia/Grant Thornton report observes that: “A single person on a median income looking to buy an average-sized property in Malta can only borrow around €160,000 from a bank to fund their purchase. This is almost €100,000 below the average price of a housing unit in Malta [...] Two people earning a minimum wage can only borrow around €145,000, rendering the average housing unit unaffordable...”

And also, that: “Despite the slow growth rate, prices still remain higher than what they were in 2019. Housing prices were going up at an average rate of 15% per year up until the pandemic. Since 2020, prices have still grown, but at slower rates...”

Got that, folks? It seems that – 17 years after the former Nationalist administration had tried ‘solving’ the housing affordability problem, by ‘increasing the stock of housing units on the market’ – oh, look! Not only are today’s housing problems entirely analogous, to what they used to be back then... but the price of property itself has simply continued to rise, inexorably, at a pace that far outstrips the corresponding salary-increases over the same time period...

... and on top of all that: the disparity between property prices, and bank mortgages, has actually increased to an all-time high, in the meantime. In other words: where, in 2006, Maltese banks would lend median-income earners enough to cover around 75/80% of the total property value (LM30,000, for a property worth LM40,000)... today’s mortgages will only extend to around 60% (i.e., E160,00, of a E260,000 price-tag.)

Effectively, this means that today’s first-time buyers – even on an average salary (let alone, the ones on minimum wage) – have considerably less purchasing power, than they’ve arguably ever had before. And this, notwithstanding all those countless ‘affordable housing projects’ that have been undertaken, by successive governments, since at least the early 1970s...

At which point, we find ourselves confronted with a couple of awkward questions. Starting with the one I asked in the headline. I mean... seriously, though. Given that the exact same approach has always enjoyed such a consistent rate of abject failure, in this country... why do Prime Ministers like Robert Abela (and all his predecessors, over the past 40 years) keep resorting to it, regardless?

If you ask me, however: the truly difficult question to answer, in all this, is... WHY, exactly, does this strategy even keep failing, at all? Why is it that no amount of ‘cheap, affordable government housing’ – unleashed onto an already over-saturated property market – has ever had the desired effect of... well, actually ‘pushing the price of property down, instead of up’?

Because - in theory, at least – that strategy SHOULD work, you know. I’m not an economist, obviously; but even I can tell you that the price of any given product/commodity – with the sole exception, it seems, of ‘Maltese property’ – depends entirely on the ‘Universal Law of Supply and Demand’....

... which, in turn, decrees that: ‘any increase to the supply side of the equation (assuming, naturally, that the demand remains constant) should always result in an automatic, DOWNWARD price-adjustment’.   

Except that... it doesn’t really, does it?  And for this, we have the word of yet another Dhalia and Grant Thornton report – issued in June last year – which found that: "house prices increased by 100 per cent [since 2013]”; but also, that “additional supply outstripped additional demand in 2020 and 2021 – a reversal of what was observed in previous years....”

... and especially, that: “26,000 housing units are estimated to have come onto the market between 2020 and 2022. This is significantly higher than the estimated incremental housing demand for the same period....”

And yet, as pointed out in a Times editorial around two years ago: “instead of having a situation where prices went down due to oversupply, property prices remained high and unaffordable...”

Now: I’ve left myself for far too little space, to try and actually answer my own question, above (and besides: I am very far from being the most qualified person to do so, in the first place); but for what it’s worth... here is my own explanation, for why Malta’s property market seems to be permanently at odds, with even the most basic, fundamental Law of Economics.

In a nutshell, I think it’s because the ‘price of property’, in this country, does not reflect the intrinsic ‘worth’ of the land/building that is actually being bought or sold... but rather, what that property MIGHT one day be worth (if it were to be, say, ‘accidentally demolished’, and rebuilt as a multi-storey apartment block instead...)

So as long as Malta’s planning regime continues to permit that sort of ‘redevelopment’ to take place, within our towns and urban centres... and as long as there is no adequate legislation, in this country, to protect the property market (not to mention, the environment) against the inflationary pressures of ‘rampant property speculation’...

... and above all: as long as government of Malta fails to come up with any viable alternative to speculation, as a means of occasionally ‘kick-starting the local economy’ (or even just so that the average Maltese family might actually be able to make a little money, WITHOUT ‘demolishing their own homes’ – and ‘ruining their own townscapes’ – in the process...)

... the price of Maltese property will continue to remain just as ‘high and unaffordable’, as it is today: no matter how many ‘social housing units’ the Prime Minister decides to flood the market with, this time round.

Just saying, that’s all....