The property market is losing all sense of proportion. I know it, you know it and every estate agent on this island knows it. This ambivalent status quo is visible to all, barring the government and the opposition. It is natural that the Green Party feels very strongly about this matter because besides the economic and social effects, the quasi-artificial situation in the property market has a severe and damaging effect on this country’s environment, particularly with regard to land use.
The statistics on the property market do not lie. Let us take a closer look. In 1985 an average three-bedroomed apartment in an area such as St Julian's or Msida used to set you back about Lm13,000. At the time this was equivalent to about seven to
eight times the annual minimum wage of the day. Back to the future! In 2005 the same type and size of apartment now costs between Lm60,000 to Lm70,000. This is equivalent to about 22 times the current annual minimum wage. This situation shows that property has become simply unaffordable for those on low to medium-low earnings. Further, these people face a shortage of social housing, oftentimes rendering their
plight hopeless. The situation for the middle class has also worsened, albeit not as severely. If one compares property prices, this time to average annual earnings, statistics show that between 1985 and 2005, the price of the same three-bedroomed apartment rose from four to five times the average annual salary to eight to nine times. At the property inflation rate of the last 20 years, this apartment will cost about Lm153,000 in 2015!
These facts indicate that even the middle classes are being put under severe strain to acquire adequate housing for their families. The situation is one that is cutting across the whole fabric of Maltese society, discriminately and viciously. In effect, those who were fortunate enough to purchase their homes many years ago have been spared the hardship being faced by many who have purchased their homes in more recent times, and the prospect of even more hardship to be faced by those who aspire to become property owners. When one factors in the escalating costs of education and healthcare, it is understandable that thousands of families have very little discretionary spending power after paying their fixed monthly commitments.
The government seems pleased to see this situation continue. Why? Simple, the State coffers are swelling on the back of the property bonanza, giving our ministers the ability to maintain their spending plans, however extravagant. This attitude shows that, as stated by the Green Party repeatedly, the government is giving disproportional importance to the situation in public finances (and its drive to lower the deficit) without giving due weight to the social and economic effects of its taxation policies as well as other economic realities. The Greens consider that it is politically irresponsible and very shortsighted of the government to cash in more taxes on the property bonanza, without giving due regard to the severe consequences that ensue from the hideous situation in the property market. For crying out loud, even leading real estate agents have declared in public that the situation is both unrealistic and unsustainable! Are those in government waiting for this state of affairs to implode or is their own irrational exuberance leading them to assume that property is Malta’s economic Nirvana, a place where global economic laws can be held in suspended animation ad infinitum?
The social consequences of this situation are now obvious to all. The daily financial pressures on young families to acquire a decent sized home are becoming increasingly unbearable. The mortgage commitment they made is simply “back-breaking”. As a result of the monthly commitments we are witnessing a phenomenon of families working three jobs to feed, entertain and educate one child. Is this the long-term demographic solution to our pensions time bomb? I often wonder why government ministers look perplexed when people complain about a fall in their disposable income. Are they simply ignorant of this reality, or are they just playing stupid? Even the Church has declared that financial difficulty is the most common cause of marital breakdowns. What more evidence do the Christian Democrats need to accept that the situation is perilous and potentially explosive?
If nothing is done, it is inevitable that the Maltese are going to continue witnessing a further decline in their standard of living due to a higher portion of their income going towards meeting the commitments on bank loans, as well as a decline in quality of life due to the smaller size of new dwellings. A number of estate agents have declared that one of the solutions to this situation is the construction of smaller dwellings; in other words the expectation is that “new” families have to get used to living in 70-80 square metre dwellings. At a later stage they can move on to something larger, it is suggested. When, may I ask? When junior pops out and starts messing half a dozen (rather expensive) nappies a day? When the family loses one income to raise children at home, rather than at nanna’s? Thanks but no thanks!
The inaction by successive governments has reinforced a false presumption that the condition in the property market is inevitable and enviable – we just have to lump it! Like globalisation, I guess. The Greens are more courageous. While appreciating the practical difficulties in dealing with this phenomenon, we still endeavour to devise policy to relieve the pain being suffered by thousands. The Green attitude towards the property market is the same we have towards globalisation – we prefer shaping it rather than lumping it! We believe that there exist short-term, medium-term as well as longer-term solutions to the problem. In the short term it would be adequate for the government to acknowledge and address the situation – genuine political sensitivity towards the matter can at least show people that there is some light at the end of the tunnel. Believe me, nobody (not even the Prime Minister himself) is going to precipitate a property slump by addressing the issue seriously. I sincerely believe that property prices in this country will never fall due to the size of our country, the high savings rate of the Maltese and the love we all have for our homes. What’s more, history tells us that property prices in Malta have never fallen, not even during World War II!
What we wish to see is a return to sanity, because at this rate of property inflation, very soon extremely few will be able to meet the prices asked. At that point we all lose, even the property speculator. It’s not like foreigners are queuing to gobble up our towns and villages – surely not at these prices. At least KMB can sleep soundly!
In the short-term (perhaps by next budget) the government should consider giving some tax relief on the bank interest being paid on loans. We believe that this measure could be financed by an increase in income tax paid by the local banks, which after all are enjoying a bonanza on the related credit boom. In the medium term the government should consider the sale of agricultural land to farmers for agricultural use alone. We estimate that the government could receive between 200 to 400 million Malta liri from this. Part of these funds could be used to provide direct and indirect assistance to people to finance their homes. The rest can go to pay back our national debt.
However, the medium to long-term solution to this problem has to be structural. We have to affect some of the dynamics in the market, so that prices rise marginally above inflation not at three times inflation. Alternattiva Demokratika believes that one solution is liberating an un-used stock of more than 30,000 properties that currently do not feature in this country’s economic equation, primarily because of the absence of a fair and workable rent law. In a country with limited land and a high population density it is unacceptable that the government does not have any policy to re-activate well over one billion Malta liri sunk into property, a big chunk of which is derelict and spoiling much of our urban environment. A smart change in this country’s rent laws could not only ameliorate the situation in the property market, but could also kick-start our economy by increasing our resource base.
The longer we take to address the situation, the more difficult it will become to contain the fallout. If any of you still have the slightest doubt as to whether the situation as it is, is sustainable, ask the Japanese!
Edward Fenech is spokesperson on Finance, Economic Affairs & Tourism for Alternattiva Demokratika - The Green Party