Although we tend to think of ourselves as pretty unique, many of the characteristics of Maltese life, such as the huge boom in house prices in recent years, are in fact shared by most of the world’s developed economies.
A recent report in The Economist (10/6/06) called News on the Home Front, explained that according to its estimates at least, “the total value of residential property in developed economies has risen by three quarters since 2000, to almost 75 trillion dollars. The increase is equivalent to more than 100 per cent of those countries’ combined national incomes. In countries where house prices have gone up, most have tended to enjoy the strongest growth in consumer spending as homeowners, finding themselves wealthier, have treated themselves. But how much fuel is left in the global housing engine?”
And indeed, more pertinent to us, how much fuel is left in the Maltese housing engine? Are we heading for another boom, boom and bust, a bumpy ride, or just a soft landing? Can we at least ensure that the fuel used by these global housing engines is a bit cleaner via more incentives to use up existing stock? On 15 June, a report in The Malta Independent quoted property price inflation at an amazing 16.28 per cent in March. More interestingly, the inflation rate for flats and maisonettes was a staggering 19.42 per cent and 13.8 per cent, while the rate in respect of terraced houses was a more modest 8.62 per cent.
Empty houses and bringing more land into the building scheme don’t seem to lower house prices here. In other words, we don’t follow the usual laws of supply and demand where oversupply lowers prices. But there really are two housing worlds here – the housing market of the new apartment (and less so maisonette,) where boxes of concrete are bought and sold, and bought and sold at an amazing rate before they are even occupied (and sometimes never occupied), and much of the existing stock in which there is very little mobility and movement. Empty properties stay empty and families in older properties tend to, so far at least, stay there till they die; in fact we have one of the lowest rates of house mobility (i.e. moving house) in Europe.
This partly explains our mania for buying a three-bedroomed property and fitting it out as luxuriously as our budgets and bank loans will allow, because there is still the mentality that this will be our home for life, so you might as well put all your effort into it, both sweat and financial resources.
Yet although the market in so called houses of character and town houses in nice areas is as healthy as the apartment market (but not anything like the same sale and resale frenzy going on), much of our housing stock here stays dormant for years, waiting it seems to become developable. The newly built flat has become the icon of Maltese life. We all, at least most of us want this new thing, or box or flat, where we can put in our gypsum plastering, our state-of-the-art bathrooms, or whatever takes our fancy on the home front. We want new, and new is coming at an incredible premium.
Some foreign observers of our housing market have commented that many flats appear overpriced, while houses (if you consider that the land is owned by one owner) are in comparison almost undervalued. Yet despite this, flat prices are still increasing at an amazing rate, and most observers were sure a year ago that a plateau in prices was inevitable. Still, last year, prices, especially trading prices on flats, has clearly risen again, most particularly in certain upmarket developments, where the hundreds of thousands of liri being asked for boxes of concrete with a view, particularly if they are this desirable penthouse type box of concrete, is nothing short of breathtaking.
How can we incentivise couples and new families to try and buy more of our existing stock? Not just the 100-year-old town house or the 200-year-old house of character, but even the properties that are 25 to 50 years old, which are increasingly shunned because we feel we need to totally refurbish them, so you might as well buy new for all the hassle. There isn’t accurate data on the age of all our housing stock by locality here, but it seems that the housing market is only healthy, (or unhealthily inflated, depending on whether you’re trying to buy or are already an owner!) or healthiest in new developments.
Can the tax system be brought into play here to encourage more purchase of existing stock? Is enough existing stock on the market? Is it in the right localities? Is it what people want? Is it sufficiently affordable for people to see a real advantage in buying it?
So far the only answer to the above questions except the first is no. In order to have more yesses we do need to think long and hard, and think long term with intelligence, foresight and caution so that this booming market does not do the opposite of what it should do – create too much of a difference between the haves and the have nots. There needs to be more ownership, more use of our existing stock and more affordable ownership for the successes of the past to translate into a robust housing economy of the future.
Our housing engine is still running at full steam, but it may need a service cum major overhaul soon...