Many young couples dream of being homeowners just like their parents. This dream has begun to look like a nightmare. Home and rental prices are skyrocketing, inflation is rising and wage increases are marginal at best, certainly not enough to allow people to keep up with rising house prices.

Housing affordability has a direct impact on whether the serious demographic challenges facing the country will be resolved. Malta has one of the lowest fertility rates in the EU, a fast-ageing local population and limited physical capacity for more property development. So far, policymakers have no apparent plans to resolve this slow-burning issue that threatens the prospects of prosperity for present and future generations.

Malta’s current economic model, which promoted growth through the mass importation of labour in the last decade, is the primary cause of the pricing frenzy in the housing market. Low interest rates for more than 15 years have also driven many cash-rich individuals to withdraw their money from banks and invest in residential property as demand for rental property for foreign workers boomed.

This phenomenon has crowded out many young couples from the property market, forcing many to postpone their decision to start a family. The luckier ones can rely on the ‘bank of mum and dad’ to provide the initial deposit for a home purchase and sometimes even to contribute to repayments. But wealth inequality keeps increasing, the gap between the haves and the have-nots is widening and nowhere is this more evident than in the property market.

Recently, much of the focus regarding housing affordability has been on the recent decision taken by some banks to review their mortgage lending practices. Interest rate rises no longer depend on decision taken by the Central Bank of Malta. When the European Central Bank decides to increase interest rates to tackle fast-rising inflation, banks in the eurozone have no option but to raise lending rates and, hopefully, also deposit rates. It is fallacious to expect banks to buffer the effect of interest rate rises on hard-pressed home buyers.

Banks adopt a number of criteria to support their policies on what prudent and affordable borrowing should look like. Perhaps the most critical rule for mortgage lending is that borrowers should not have to pay more than 30 per cent of their gross monthly income in housing costs, including mortgage repayments, utilities such as water, electricity and gas, and home insurance expenses. While banks may adopt slightly different criteria for repayment affordability, an increase in ECB interest rates cannot realistically be borne by lenders.

The challenge of affordable housing will not be eliminated overnight, especially as the government seems to have no appetite for a recalibration of its economic model.

While fiscal schemes to help first-time buyers are an essential measure to ease the burden of young couples, more must be done to ensure that the shortage of affordable housing does not complicate even further our critical demographic threats.

Subsidising public-private partnerships to invest in affordable housing development schemes may help but it will never be a silver bullet.

Another option is the redistribution of wealth through the introduction of a property tax for those who invest in property not as homeowners but for business income.

But it is more than likely that this will be unpalatable for an administration that likes to define itself as “business friendly”.

Ultimately, housing affordability can only improve through more robust “socially friendly” measures.