Development cannot fuel economic growth forever

Recent statistics, showing that PA issued a record number of permits for new dwellings in 2018, confirm that Malta is going through a building boom.  

Of the 119,886 new dwellings approved since 2000, 24.5% were approved in just three years between 2016 and 2018. These do not include permits for non-residential uses like offices, farm buildings and retail development.

The number of new dwellings has now reached the same level as that approved in the property boom between 2005 and 2007, when 30,833 dwellings were approved in three years.

The surge in planning approvals between 2005 and 2007 had coincided with a relaxation of building heights in urban areas, and also with Malta gearing up for adoption of the single European currency, when more people started channelling their undeclared money into property development, fuelling a property boom.

The post-2015 surge also coincides with an increase in population due to the influx of foreign workers, as well as higher rates of economic growth which contrast with the economic downturn between 2008 and 2013.  

This suggests that, in both cases, more liberal planning policies, amplified by a favourable economic environment, contributed to a surge of permits. But this comes at a cost of quality of life, especially in those areas which have been transformed into permanent construction sites.  

There are also wider social and economic considerations. The property market absorbs investment which could go into other sectors of the economy. Malta’s over-dependence on this sector even raises concerns on long-term sustainability of a sector which may hold the rest of the economy to ransom. For while the market may well correct itself with the number of permits decreasing again – as happened between 2008 and 2013 – a sudden drop in prices, generated by an oversupply, may have a domino impact on the rest of the economy.  

At present, prices are still being kept high due to increased demand from highly-paid foreigners who have more disposable income to spend on rent. But this comes at a social cost, with property becoming less affordable for others.

Distortions in the property market through the sudden availability of luxury apartments, built on cheap public land, have already raised the alarm of the developers’ lobby, which fears a knock-down effect on other high-end properties.

In an interview published last year, PA chairman Johann Buttigieg dispelled these fears: “As long as foreign investment keeps coming into the country, yes, it is sustainable. The minute there is a slowdown or decline in this regard, then that’s when we would need to stop issuing the current number of permits. But as long as that foreign investment is sustained, then we have to sustain permits. If we do not sustain that amount, we would see rental rates and prices go higher due to foreigners competing with the locals.”   

While there is a logic to his reasoning, the flipside is that of becoming even more dependent on the daily fix of permits given by the PA.  
Nonetheless, the statistics also leave some room for optimism. For example, only 1% of permits for dwellings in 2018 were approved in ODZ areas, down from 1.5% last year, and 3.8% in 2016. Despite the percentage decrease, the actual number of new ODZ dwellings (139) remains higher than that approved in any single year since 2010, except for 2016.

This somewhat dispels the perception of a free for all, and suggests that the rate of ODZ residential development is lower than it was 10 years ago. But these statistics do not take into consideration applications for stores and other agricultural structures, which are often nothing but thinly disguised country villas. Not to mention the new tendency of transforming approved ODZ residences into small hotels.  

Another encouraging factor is that 2,409 new dwellings were the result of the conversion of existing properties. The number of conversions in 2018 was the highest ever, but so was the number of units replacing demolished buildings. Unfortunately, demolitions (6,166) still outnumber conversions by a ratio of more than 2 to 1. Demolitions entail a greater waste of building resources, and in some cases also result in a loss of urban charm and character.

Moreover, most dwellings are now being developed on previously developed land. Only 13% of new buildings were developed on virgin land, compared to 35% in 2017. Yet this statistic must be seen in the context of the 2006 extension of building boundaries, which saw vast tracts of virgin land becoming available for development over the next decade. In fact, the PA is currently assessing a number of large tracts also included in the 2006 rationalisation, but on which developers only presented an application in the past year.  

Moreover, if virgin land within development boundaries is exhausted and the building boom persists, pressures may increase to extend boundaries once again, or to encourage more high-rise development, or land-reclamation.

Ultimately, however, what these statistics indicate is that the Maltese economy remains overwhelmingly reliant on development; and the supply of ‘developable land’, by definition, can only ever get smaller.

Unless new avenues are explored to finance Malta’s future economic growth, today’s successes can easily become tomorrow’s catastrophes.