One of the mistakes we make when speaking Maltese and we refer to construction is that we refer to it as ‘żvilupp’. The word żvilupp actually means development and so by connotation, construction is associated with economic development. Nothing can be further from the truth.
The contribution of construction to our value added is small, under five per cent of the total value added. After agriculture and fisheries, it is the lowest contributor to gross value added. Next in line is the speculative arm of construction – real estate activities. They contribute just over six per cent to gross value added. According to official data, the contribution of construction to total employment is around six per cent and the contribution of the real estate sector is around two per cent.
In addition, it needs to be stated that construction also has a number of negative economic externalities. Students of economics know that “an externality is a cost or a benefit that is caused by a producer that is not incurred or received by that producer”. When one refers to a negative externality, then one is referring to a cost to society and a cost to individuals that are caused in the production of a good or service.
Construction has a number of such negative economic externalities.
One such externality is the impact on our health, both physical and mental health. Construction sites generate and emit many different kinds of pollution which impact both workers and residents. Public health studies in Malta will eventually show an increase in respiratory illnesses caused by such pollution. They will also show a link between an increase in such illnesses and the increase in construction activity.
Moreover, the increased level of noise, inadequate sleep and increased anxiety, caused by the fear of damage to one’s own property, and other factors, are likely to lead to a deterioration of mental wellness. This is a cost to the individual but also a cost to society as a greater burden will be placed on our health services.
Another cost to the public purse and, therefore, a cost to us all, is the damage to the infrastructure. We are very happy building or widening or enhancing arterial roads, but we seem to ignore the damage that the construction sector causes to roads in a locality.
It is about time we refer to construction and real estate activities by their real name and refrain from using a euphemism such as development
Driving though most towns and villages in Malta has become impossible because of the deterioration that has been caused to roads by trucks, concrete mixers and other construction equipment. Needless to say that such a deterioration in roads comes at a cost to the individual. With regard to infrastructure, we will also have to eventually reckon with electricity generation and distribution, water production and distribution, drainage and disposal of building waste.
A third negative externality is the impact on the environment. As more and more of our countryside and coastal areas get eaten up irrevocably by construction, we have less open spaces for our leisure activities.
We are living in this paradox that after we have allowed gardens in our towns and villages to be destroyed to be replaced by buildings, we now have to spend money to create what are being referred to as “green lungs”.
Another aspect related to the environment is renewable energy. We have spent millions encouraging households to install solar panels, but we have not bothered to protect their investment, with the risk that such solar panels will become useless thanks to the development of adjacent buildings and high-rise buildings. This is yet another cost to society and the individual.
We could go on and on. The result of all this is a lower quality of life for the many, while the few gain at their expense.
On top of all this, one also needs to state that with property we clearly have a market failure in this country. An editorial published this week in this newspaper referred to housing unaffordability and the shutting of young people out of the housing market. This editorial, which was based on a study commissioned by the Housing Authority, confirms the point I made in a recent contribution that the increase in property prices has significantly outstripped the increase in wages and salaries.
It is about time we refer to construction and real estate activities by their real name and refrain from using a euphemism such as development. It also about time that we obtain a full understanding of the actual contribution these two sectors make to the economy and start to address the negative economic externalities they cause.