Complacency is not an option

Higher property prices mean that entrants into the home ownership market – mostly young couples – will find it much harder to buy, especially at a time when banks have become more cautious on loaning out money

The exorbitant rise in property prices, and the interlinked issue of higher rents, is not a problem that government can afford to ignore.
Admittedly, there are no clear-cut solutions, and government has to tread a careful path that has to balance between the competing interests of many.

From a macro-economic point of view, the benefits of a burgeoning housing market are indisputable. Higher property prices mean that home owners – accounting for almost 80% of households – have an asset that is worth much more than they bought it. To many, this increase in value represents a solid, secure lifetime investment.

Higher rental income means ordinary individuals who have invested life savings in a second or third apartment, or done up a previously unutilised family flat, are experiencing a better return.

These realities cannot be ignored, but they also have their flipside.

Higher property prices mean that entrants into the home ownership market – mostly young couples – will find it much harder to buy, especially at a time when banks have become more cautious on loaning out money.

Higher rents make it unaffordable for those who have never afforded to buy a house and lived all their life in rented accommodation.

The root cause of the sudden appreciation in property prices and thriving rental market is the rapid economic expansion that has also created a higher demand from foreigners coming to live and work in Malta.

That demand is unlikely to go away anytime soon; but tackling the social consequences of a booming economy has become an imperative.

The recent poverty statistics released by the National Statistics Office indicate an increase in the number of people who are falling behind on mortgage or rental payments. This is a direct result of the housing problem.

Hopefully, these statistics will provide the government with necessary impetus to move ahead on its proposals to reform the rental market.

Moreover, a Central Bank study has revealed that a minimum of €20,000 annual gross salary income is required for an individual or family to buy property in Malta. This wage only enables buyers to purchase property in the cheapest regions of Malta, with banks required to enforce such loan requirements.

The same study notes that the average yearly salary in Malta was €18,945.26 in 2018. Already, then, the inflationary pressures are pushing more and more people off the property ladder. The rise in property prices does not only affect low-earning families, but also households whose take-home pay would be more lucrative – a phenomenon that is impacting the middle-class.

The situation has generated a sharp increase of tenants who are not poor enough to benefit from social benefits, but not rich enough to live a comfortable life.

Yet to date, what passes for Malta’s urban planning policies – in the absence of any Master Plan – seems to encourage a construction drive that is aimed at producing more luxury (unaffordable) properties: coupled with a nosedive in government housing projects.

One does not need to be an economist to predict the long-term of effects of these policies. Malta is not only building edifices, but also laying the foundation of a future class of working poor.

Government has repeatedly claimed that it is sensitive to these concerns, yet has done little to address them since 2013. Last October it published a White Paper that has so far remained just that: a piece of white paper.

While the solutions proposed do not necessarily address the issue of rent affordability, they provide incentives to landlords that would enable them to offer more stability for tenants. But government has to move to implementation stage on this reform. This has to be coupled with a greater emphasis to curb tax evasion.

In 2014, the government introduced an advantageous tax rate on rental income, but it failed to entice property owners to come forward and pay tax on this growing source of individual income.

At a time of plenty, curbing tax evasion may appear unpopular and draconian. But tax evasion undermines social justice and more has to be done to bring order to the property market.

Having said this, the government cannot ignore the flipside of any attempt to curb evasion. Landlords may be tempted to simply further increase rents, or pull out of the market altogether. This may harm tenants caught up in this tug of war.

Within this context government has to seriously consider revisiting past policies, that have since been ditched, to put on the market a stock of affordable property for rental purposes.

This has nothing to do with social housing, which is a different kettle of fish. There are people, who work, earn a wage and do not qualify for social benefits but who are unable to buy their own house or afford monthly rental payments that would gobble up their income.

These people need to have access to a stock of property that is affordable. Government must either provide this itself, or enter into some form of partnership with developers, who have been making hay while the sun shines, to put up a percentage of affordable buildings for every lucrative investment they make.

What is definitely not an option is complacency.