A report in this week’s Economist, “What’s that hissing sound?” on the slowly deflating house price boom in the US could well (except we have no such deflation in sight) be describing our local situation.

Excerpts like “... the housing boom has been the main engine of America’s economic growth...” and “... the economic consequences of a bust could be more severe because the economy has become so addicted to rising prices...” and perhaps most significantly, “since 2000, the real wages of most Americans have barely budged, yet soaring house prices have allowed consumers to keep spending...” could all be applied here, if not factually at least perception wise.

And we all know, or at least we should by now, that in this Internet and media driven society, perceptions speak much, much louder than facts and need to be addressed with far more vigour than is currently the case.

Looking more closely at the figures, one sees that America’s house price boom has in reality been far more modest than ours. Average house prices have doubled since 1997, while in the UK there has been a gain of almost 180 per cent. Here, with our notoriously tricky tendency to under-declare (though perhaps admittedly on a smaller scale than previously), house prices have more than doubled in a far shorter period so the consequences could be more severe.

However, it looks like the impending introduction of the euro (whether in 2008 or 2009) could keep house prices fairly buoyant for a bit longer. There is an unknown but necessarily huge amount of hidden cash in this country, which is slowly being converted and used, probably in property deals and possibly elsewhere, as people finally do have to bring out their hidden stashes of cash and use it (as good a reason as any to change currencies from time to time!).

It is almost incredible though that even with the scale of increases we are witnessing, so many first time buyers particularly are keeping up with house prices. Expectations are being downsized certainly (people may not be able to buy in the first or even in the second locality of their choice), but not in any way to the extent they are abroad, when any new couple would only ever be able to start with a one bed property and then move up later, as hopefully incomes rise.

Flats are certainly smaller than 10 years ago, both partners usually work in order to afford buying property and of course the banks, by extending the length of loans, have made monthly payments more affordable than they would otherwise have been. Of course a 40-year loan is a massive commitment, and if you tot up what you actually pay it seems very expensive (though to be more realistic you would have to offset this against what you would pay in rent over the same period, as well as how you would pay the rent when you are a pensioner when at least as an owner your loan would normally be paid off by then!).

This is a growing problem and those who only advocate renting should spell out how tenants will be able to pay for commercial rents when they reach pensionable age, as many who did not buy, or were not lucky enough to obtain a low rent government apartment, are simply unable to stop working because otherwise they can’t pay the rent.

There really is no choice but try to get on the housing ladder if you can, and nobody should be promising that one change could bring down prices or costs. If you rent, you pay almost as much in monthly outgoings as with a loan and none of it is yours. So people are still opting to buy if they can. However, this ability to buy is also being aided by home owning parents who provide guarantees using their generally loan free, cash rich homes as security.

Many young people live on very basic low wages. Many have insecure jobs or one-year contracts so banks are demanding security which parents are able to give right now

I was interested to read a report by Herman Grech in The Times last Friday where the headline, quoting the Chamber of Commerce and Enterprise, was that the “ job for life attitude must go.” This is very easy to say, but in this new and not so nice world of short contracts (and employees can’t get a house loan without parents putting up guarantees), a sense of frustration and insecurity is developing, which does not always translate into something positive either. After all, many of the reps of this very respectable chamber come from businesses people inherit, where the family takes all the plum jobs, and there are hardly any top posts available or equal opportunities for outsiders. The private sector employs people educated with our taxes, whose health is usually looked after by our taxes, who travel on roads built with our taxes and so much more, which they get for free! So do let’s stop childish public sector bashing. It’s too easy and the private sector is not always the paragon of good, putting business interests first before family dynamics either.

We should also stop saying once and for all that changing rent laws will bring down prices. I personally think the right of inheritance must be phased out soon, and the old rent laws apply ONLY to properties that are occupied. All the others that are empty today could be rented out tomorrow. The trouble is that even if they were, the rent levels that would make it worthwhile for landlords are not affordable for that part of the population on a minimum wage or pension. Eventually, landlords will start renting out though, as the culture is slowly changing, and successive governments via our taxes will have to fund the shortfall between what landlords have to get as a return, and what ordinary, real people (yes there are many among this massive culture of those who under-declare, or take benefits they shouldn’t) who cannot pay commercial rents when they only live on the real average Maltese wage.

And what else can we all do? Listen very carefully. The hiss will come, and governments will have to take action to address it.

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