Housing has become significantly more expensive for first-time buyers over the past two decades... while remaining just as affordable, according to a recent study.

Over the last 20 years, house prices increasingly outstripped household income, with couples in the early 2000s spending almost four times their combined income on property, and nearly six times their earnings by 2022.

Meanwhile, single buyers saw property prices rise from around seven times their salary to almost 11 times their annual income over the same period, according to the House purchase affordability for first time buyers in Malta research paper.

But according to the paper’s author and Housing Authority policymaker, Brian Micallef, despite the increase in prices, housing affordability remained stable.

Micallef has developed a Housing Affordability Index (HAI) – a metric used by estate agents to measure to what extent an average household can afford a typical home – “specifically targeted for first-time buyers for the period 2000 to 2022”.

Housing Affordability Index for first-time buyers.

His index shows that despite house prices going up considerably, housing affordability stayed largely unchanged by the end of the two decades – if anything, becoming slightly more affordable.

Micallef attributes the static affordability – albeit with some peaks and troughs such as the radically lower affordability following the 2008 financial crash – to low interest rates.

“Price-to-income ratios do not take into consideration financing costs which, until 2022, have been trending downwards over the past two decades. Hence, despite the rise in the price-to-income ratios, the HAI has remained above the threshold value of 100,” he writes.

Deposits, notary fees excluded from index

But Micallef’s HAI does not take deposits and other costs such as notary fees into account, assuming buyers have already saved enough for a downpayment.

KPMG data published in November showed the median price of apartments had shot up from around €142,000 in 2013 to €280,000 last year – pushing median deposits up from €14,000 to €28,000.

And Micallef acknowledges that accumulating such deposits “takes time and is no easy feat, especially in the absence of parental support”.

Taking the example of a property worth around €217,000 – requiring a deposit of €21,000 – he stresses this “represents more than a year’s salary... and more than half of the minimum income required to qualify for a loan”.

But despite the radical rise in deposits and price-to-income ratios, Micallef does not seem to believe housing has become less affordable.

Describing the country as a “nation of homeowners”, he notes home ownership has stayed constant at around 80 per cent.

He says that while there is an “increasingly widespread preoccupation that housing in Malta is not affordable”, variability of house prices in different areas and “trade-offs” in property type and size could skew the overall picture.

“These trade-offs could exacerbate perceptions of an affordability crisis especially if borrowers evaluate affordability in relation to some reference group or historical experience, such as their parents or friends.”

Micallef argues that when looking at housing affordability, one should move away from “economy-wide averages” and instead focus on first-time buyers, “especially those with low-to-medium levels of income” – who, he argues, “differ significantly” from median households.

And with historically low inflation seemingly at an end, at least for now, something Micallef warns “will exert additional pressure on housing affordability”, he suggests that “going forward, assessments of affordability should move away from simply considering median or averages and instead emphasise the distribution of housing and incomes”.

Micallef’s study, published recently, comes just a few months after a local architecture firm said a different HAI showed property was more affordable today than it was in the 1980s.