The Prime Minister made sure we all reached one conclusion from the unpublished report commissioned by the developers’ club last week: there is no property bubble – it’s just a myth.

The authors of the report were allowed to brief the press on the main highlights of their findings but did not provide details of the methods they used to gather evidence and how they reached their conclusions. It is therefore impossible to review and comment on the scientific rigour of their research so I shall have to accept it for what it is.

How do you check if there exists a pro­perty bubble or not? You measure the rate at which property prices are increasing, and assess whether the rate is in sync with the rate of growth of other sectors of the economy. If property prices increase at a faster rate, then they cannot be fuelled by the natural growth in demand from the rest of the economy. Rather, they are the result of speculation and illusion.

For what is the definition of a bubble, if not a fragile figment of collective imagination likely to be burst by the fatal prick of reality?

Property prices in Malta have been growing at a rate that matches the growth in the broader economy, the report authors conclude. And that means, the Prime Minister would have us think, there is no reason to be concerned.

We should dig deeper than that.

The Prime Minister himself has acknowledged that none of this takes into account the fact that rent prices have shot up at a rate in the double digits. For the 20 per cent of households who rent, their reality is a housing bubble. And how.

Income from rented property has exploded at rates that make the Dutch tulip craze seem like a hobbyist’s dalliance. The inflationary impact from rental to sale is naturally a slow one, but it is no less inevitable. And it would be foolish not to anticipate the pain this will cause as the rising rates in the rental market push up sale prices, and first-time buyers find they can only enter the market at a much steeper price point than they had anticipated.

There are also some present-day indicators that merit analysis to ensure that the current perception of prosperity does not lull us into a false sense of security. Construction today amounts to 15 per cent of the gross value added of our economy. (That’s a measure of the value of our eco­nomy after you strike out the unhelpful distortions of taxation and subsidies).

That makes construction one of our largest economic sectors, second only to tourism, ahead of financial services and practically double the manufacturing that still goes on in the country.

There will always be a demand for construction in an economy where people live. The demographics suggest that the demand for new households could decrease, as nuclear families become smaller and fewer children come of age and seek their own residence. But this suggestion may be misleading, because changing social behaviour is likely to create new demands. For example, it is reasonable to expect higher rates of marital separation and divorce to lead to increased demand, as would a growing trend of young people moving out of their parents’ house, years before they move into a matrimonial home of their own.

The local construction industry needs to adapt to this shift in the pattern of demand. But even as it does so the provision of housing for people born here does not amount to anywhere near the lofty heights of 15 per cent of the economy, which is the current share generated by  the construction industry. It is but a small portion of it.

The rest is and will be fuelled by the growing demand of temporary residents and absentee investors and by the speculation that this trend – that yields the construction industry a much higher return than properties developed for new families and first-time buyers – will continue to grow.

As happened with ship repair and textiles, it is an imperative of a global economy that our competitive edge will be lost some time soon

A demand for these higher yield properties is generated by our financial services and gaming sectors which attract European migrants to come to work here for high salaries. To some extent these core value-added sectors – and the money they are gene­rating – fuel the boom in all other sectors of the economy: retail, tourism, food and beverage, and even public sector revenues.

These migrants change our demographic base and increase economic activity as a consequence of the raw growth in population. They also tend to be wealthier than locals, skewing the statistical realities of the country and forcing residents who are on a lower income scale (both poorer and greater in number in absolute terms) to become a far less influential ratio of the wider community.

What we appear to be missing is the fact that an economy – particularly a small island eco­nomy like ours – must continually reinvent itself in order to have enough diversified activities to keep the engines pumping. Over the past 50 years we moved from a farming economy to a military economy, to a manufacturing economy, to a textile economy, to an offshore services economy, to a sophisticated financial services economy. But this is not Whiggish history: we have not now reached some perfect state where we no longer need to work for our future because the present will continue to sustain us.

With the exception of the short-term, low-yield sale of passports, we have not created a single new line of economic activity since 2011, when the registration of planes and activities around that business were set up. It has been a desert of ideas.

We are speculating our future on the back of an eternal extension of the success of our gaming and financial services sectors. A few things need to be brought to the very forefront of our thinking here. For a business in these sectors to relocate to a more attractive destination it takes nothing but a flight ticket home. Sure, Malta is great. But there are other alternatives out there, finding ways of beating us to our business, as we have beaten others before to attract business to us.

As happened with ship repair and textiles, it is an imperative of a global economy that our competitive edge will be lost some time soon. The first to go will be our fiscal advantage. We may scream at Merkel, Macron and Juncker that it is not true we are a tax haven. But these are semantics. We are a disruption to the European single market that, without the convenient alliance with the maverick Brits, is likely to be wiped out before we can say ‘harmonisation’.

There is no bubble in the sale prices of property. That much is granted. But our current economic boom, in all sectors of activity – construction being but one example – is in and of itself a bubble. All of it. And it is fuelled by the speculative and completely misguided notion that the fiscal exceptions we secured in 2004 will still be around in 2024 and 2034.

This is a bubble waiting to burst.

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