Editorial: The housing affordability crunch

In the first decades of the 21st century, an increasing number of young people have struggled to afford housing, as both rents and house prices have risen faster than incomes.

There are different metrics for determining the extent of housing affordability. Some policymakers define affordable housing as “housing for which the occupants are paying no more than 30% of their income for gross housing costs, including utilities”.

Data compiled by the Central Bank of Malta indicate that, in 2021, the median loan amount for young people to finance a property purchase was €162,000. By 2024, the median loan value for that age group had risen by more than 32% to €216,000. Surely, not many young people can claim that their income rose just as fast in such a short period.

To begin addressing this socioeconomic challenge, one must understand the root causes of Malta’s housing affordability crisis. Admittedly, many EU member states face similar challenges. Major cities such as Lisbon, Dublin, Budapest and Berlin have experienced sharp increases in rents and property prices, crowding out many young people from buying or renting their first homes.

While the economic rule of supply and demand drives property prices and rents, there are important nuances that policymakers must understand to address the affordable housing crisis that threatens our future prosperity. 

The root causes of Malta’s housing affordability crunch are embedded in the country’s economic model, which, for over a decade, has promoted production growth supported by the importation of large numbers of third-country nationals. Policymakers, despite their rhetoric about quality tourism, continue to promote the mass, low-cost tourism model, ignoring the island’s finite physical infrastructure. The recent IMF warning that Malta cannot continue to rely on economic growth fuelled by imported labour has been ignored for too long.

For existing homeowners, rising house prices have been a windfall. Many homeowners benefited substantially from rising house prices, as they experienced substantial gains in wealth. The low-interest-rate environment and the aggressive marketing campaigns by some banks to attract second-home buyers or loan-to-let investors have also crowded out first-time buyers at the lower end of the property market.  

It is indeed concerning that a KPMG study found that a young couple in their late 20s earning the minimum wage, with a joint income of €23,000, could afford only 2.2% of properties on the market in 2025, a sharp drop from 5.7% in 2024. Understandably, participants in the study raised concerns about housing affordability, noting that people have become increasingly reliant on parental financial support to purchase property.

With these trends, home ownership is increasingly linked to family wealth rather than solely to income and saving capacity. How does the government honestly claim it is promoting social mobility when the income and wealth gap of the community is getting wider?

While assistance with subsidies for first-time buyers committing to a mortgage is always helpful, long-term solutions to ensure that young people can afford to buy their first homes early in life must be found by addressing the structural weaknesses of the current economic model. 

Increasing the supply of residential property is at best a short-term tactic that entails long-term environmental costs, given the scarcity of urban land.

The argument that the free market, unfettered by restrictive zoning and permitting processes, could provide greater supply, thereby reducing demand and, consequently, costs, is fallacious.

The government will do well to heed the IMF’s advice and commit to revising the economic model that has admittedly promoted rapid growth but has done little to invest in the long-term socio-economic well-being of our society.