I refer to the article entitled “A seriously deficient new structure plan for Malta” by Martin Scicluna (TMID, 11 April).

Mr Scicluna advocates that land within development boundary is released in a phased manner. He refers to the large number of vacant properties to justify his suggestion.

This proposal is made in isolation and without considering the wider context. The planning regulatory system should not be intervened without considering wider implications to the property market.

Broadly speaking, the property market operates like any economic system with the dynamics of supply and demand establishing prices. Government intervention in the form of planning regulation distorts the property market. Such distortions could have both positive and negative impacts on society and on the environment. In most countries, governments avoid major interventions on the property market except where is an overwhelming reason to intervene for environmental or for other reasons.

Urban development boundaries

The use of urban development boundaries in planning is one example of a major intervention on the property market. The concept was introduced in Malta in 1989 because of the rapid rate of urban sprawl that had happened in the seventies and eighties. The Nationalist government of the time realised that allowing sprawl to continue at those rates would have disastrous long-term consequences on our limited countryside. Today everybody acknowledges the benefits that this decision had on our environment.

The concept of urban development boundaries is to make a clear distinction between areas where development can take place and Outside Development Areas where no development would be allowed. This distinction is set out by means of a line on a map.

Like any major intervention on property markets, the introduction of urban development boundaries has negative impacts. Compared to an unfettered market, the drawing of a line on a map pushes up the prices of developable land, thus making property less affordable for first time buyers. Another negative impact is the high rate of re-development, which occurs within urban development boundaries and the consequences that this has on neighbouring properties. On balance, however, the positive impacts of urban development boundaries far outweigh the negative impacts.

Ill-advised interventions

on property markets

I now come to Mr Scicluna’s proposal. He wrote: “The rate of approval of development applications should be reduced by setting – and adhering to – annual threshold figures for different types of construction development until a better balance between supply and demand is achieved. The remaining unbuilt plots of land within the development zones must be allocated in a phased manner, and in the priorities already set out in the document, to slow down and stabilise development.”

No matter how well-intentioned such a proposal may be, the unintended consequences of such action might well be disastrous. Today, an owner of land within the development boundary has the right to develop subject to acquiring the permit for a development which is in accordance with the local plan. The action as suggested by M. Scicluna will remove that right, at least to some owners. A major difficulty will be how to decide which land will be issued with a permit now and which land will have the development permit deferred to a later date? What criteria should be applied? This will inevitably give rise to legal contestations, accusations of discrimination and requests for compensation. The right to develop land (subject to permit) is an acquired right which is very difficult for a public authority to take away.

What effect will such interventions have on the property market? So if I wanted to buy a plot to develop a block of flats, one seller would tell me that his plot could be developed now. The next seller would tell me that I would have to wait, say, five years to develop it. Maybe the third seller will tell me that he will know when he can develop it after submitting the development application. How will this affect price? Why should the first seller get a better price simply because some authority arbitrarily decided that he can develop his land now and not at a later date?

In short, the end result will be mayhem in the property market. Any attempt to phase development permits will add endless uncertainties. In the ensuing mayhem, it is the well-informed and the well-connected who will benefit at the expense of everybody else.

Another effect of such phasing will be the escalation of prices. Phasing will restrict supply, while demand remains the same. Hence prices will rise, making it increasingly difficult for first-time buyers to get on the property ladder.

The following is another example of a proposed intervention in the property market which could have gone horribly wrong. In 2007, there was talk of having a moratorium of new permits in the St Julian’s area. Prima facie, this proposal was attractive for those who were being negatively impacted by development of adjacent properties. The unintended consequences would have been problematic. With a moratorium, the pressures for development would build up over time, only to be released at one go when the moratorium is removed. This would result in a frenzy of development and endless inconveniences to residents.

Rationalisation revisited

Mr Scicluna is critical of the minor extensions (or as commonly referred to the rationalisation) of the development boundaries, a process that was concluded in 2006. It is not the first time he criticised the rationalisation process and each time he fails to consider the overall context within which the rationalisation process was carried out.

In 1989, the Nationalist government took the bold decision to halt the loss of countryside by drawing boundaries around established settlements. The urgency made it necessary for the exercise to be carried out quickly. Concurrent with the drawing of the boundaries, the government committed itself to review these boundaries, following the appropriate studies, to address inconsistencies that had resulted from the 1989 process. In reviewing the development boundaries in 2006, the government was honouring the commitment made years earlier.

What were these inconsistencies? The 1989 exercise had resulted in areas of land, which, although outside development zone, were surrounded by development on three out of four sides. These ‘pockets’ of land could not be considered as forming part of open countryside because their configuration and proximity to development made them almost urban in nature. The rationalisation process of 2006 addressed this.

There was also a social consideration to be taken into account. Some people had acquired a developable plot prior to 1989 but then lost the right to develop the plot in the Temporary Provisions Scheme of 1989. Some of these plots were within the ‘pockets’ referred to above and/or where immediately adjoining the development boundary. Some of these plots were eventually included as a result of the rationalisation process.

Up to 2006, Mepa had approved two local plans and issued a further five draft local plans for consultation. All seven local plans included, to varying degrees, proposals for inclusion of land within development boundaries (so much so that almost half of what was eventually approved through the rationalisation process in 2006 had already been proposed by Mepa in the draft local plans). If amending development boundaries was so detrimental to the environment, as Mr Scicluna often claims, why did neither he nor any NGO utter a word to object to the boundary changes that were being proposed by Mepa in the various draft local plans?

One should also note that a fifth of the area included through the rationalisation process was already built with a valid development permit. Mtarfa is a case in point. Although it already included extensive residential development, no development boundary was indicated for Mtarfa in the Temporary Provision Schemes of 1989. This anomaly was addressed when Mtarfa was included in the development boundaries as part of the 2006 rationalisation process.

The large number of vacant properties was used as an argument against the rationalisation process. Although the argument did carry weight, for the government this was one of several considerations. It was not by itself sufficient to justify leaving unaddressed the various anomalies resulting from the 1989 exercise, as referred to above. In any case, the percentage increase in developable land was very small – just 2.4 per cent. And this included land that was already developed, such as Mtarfa.

Urban sprawl in Malta and in Europe

Mr Scicluna describes the 2003-2008 legislature as a time of mismanagement of the environment. If he considers the rationalisation process part of that mismanagement, I suggest he takes a look at the urban sprawl of cities in the EU. I refer to a report issued by the European Environment Agency entitled “Urban Sprawl in Europe – The Ignored Challenge” (November 2006). In the 10-year period 1990-2000, the growth of urban areas throughout Europe totalled 8,000 square kilometers equivalent to a 5.4 per cent increase in ten years. The European Environment Agency expressed concern at the extent of urban sprawl in Europe stating: “Urban sprawl should rightly be regarded as one of the major common challenges facing urban Europe today.”

In Malta, the increase in developable area resulting from the rationalisation process was just 2.4 per cent. This was and will be the only change in development boundaries over a period of over three decades (1989 to 2016 and beyond). This works out to 0.8 per cent per decade. Compared to an average sprawl of 5.4 per cent per decade in the EU, Malta is not doing so badly after all, notwithstanding Mr Scicluna’s claims to the contrary.

Vacant properties

Mr Scicluna justified his proposal for phasing of release of developable land on the basis of the large number of vacant residential units. A significant part of these properties are either holiday apartments or are in need of repairs. More important, only a relatively small proportion of vacant properties are actually available on the market (for sale or for rent).

There are tens of thousands of vacant properties that are held by their owners for reasons of investment. The number of vacant properties will remain high as long as the holding of property is perceived to be a profitable form of investment.

Phasing the release of developable land will do nothing to reduce demand for property, nor does it make holding of property less attractive as an investment. It will simply restrict supply and thus push prices up.

If any future government wishes to address vacant properties, it will need to take measures to make the holding of property less attractive as an investment.

Taxing vacant property

Mr. Scicluna also suggests that the government introduces taxes on vacant properties. In terms of policy options, this is the only one of Mr Scicluna’s suggestions that makes some sense. Taxing vacant property would make the holding of property for investment purposes less attractive and thus the demand for property would fall. It would also encourage the sale or rent of vacant properties being held for investment.

This suggestion, however, needs to be approached with caution. First, neither one of the two major political parties would dare whisper, let alone propose, a tax on vacant property. It risks whipping up a political storm, the end result of which would be loss of votes. The only way a vacant property tax could ever be introduced is for the two major political parties to come to some kind of political agreement, something that is most unlikely in the foreseeable future.

Second, even if such a tax were to be introduced, implementation would need to avoid unintended consequences. A tax on vacant property that is excessive would virtually wipe out demand, with a concurrent sharp increase in supply. The price of property would collapse sending shock waves, not only through the property market and the building industry, but also through the economy in general. Any tax on vacant property would have to be minimal initially, and then adjusted over time in accordance to the reactions of the property market.

A property market that adapts itself

Left on its own, the property market adapts and changes in accordance with changing conditions. For example, between 2008 and 2009 the number of permissions issued for new dwellings declined by 23 per cent (from 6,836 permitted in 2008 to 5,298 in 2009). Over the past year or two, property prices readjusted themselves downwards, following the escalation of prices in previous years. With freedom of movement of capital across the EU, there are now new opportunities for property investments in East Europe. These changing circumstances could make investment in the holding of property in Malta a less attractive option. When proposing property market interventions, one also has to take into account the property market’s ability to adapt itself.

Property markets are highly complex and merit more careful analysis and understanding before people come up with proposals for major interventions.

Mr Ebejer is an architect and urban planner with over 20 years’ experience. He holds a Masters in Urban Planning from Sheffield University and is currently reading for a Doctorate at the University of Westminster. Between 2004 and 2008, he was adviser to the then-Ministry for Rural Affairs and the Environment, which was responsible for planning and the environment.