The issue of housing affordability in Malta continues to escape all efforts at its sanitisation. Increasingly problematic are proving to be policymakers’ stances and blind beliefs that they can ride the situation with feet on both the two main sides of the problem: on the one side, would-be houseowners or renters’ interests and, on the other side, the interests of developers, speculators and financiers.
The obsession with things called “balance” and “sustainability” is simply showing the true colours of all concerned.
How many have stopped to think about the banks’ role in this conundrum? How many have asked what role the lenders have played in this rampant rise of house prices?
The latest report says that, over 10 years, house prices have at least doubled. It can be strongly argued that the banks’ and others’ freedom to lend, almost without any sense of limit or appreciation of what they are doing to society and the economy, has been one proximate cause of the rise in house prices.
A report published by UK think tank Positive Money in March 2022, titled ‘Banking on Property’, provides high profile coverage and analysis of the banks’ role in their property affordability situation. It is a valid answer to the basic question of what is driving the housing affordability crisis and how to solve it.
The banking liberalisation that followed Malta’s EU entry in the eurozone and its almost total loss of power to exercise qualitative domestic controls, as part of any totally indigenous monetary policy, has accentuated Malta’s problems on this front.
Far too many individuals in Malta, both local and non-Maltese, have been romanticised into situations of ability to purchase property even as house prices increased significantly faster than their incomes.
In pure economics terms, we have grown ourselves into a situation of relatively elastic supply of credit meeting a relatively fixed supply of housing, which, however, is also combined with increased speculative demand for home ownership.
Far too many individuals have been romanticised into situations of ability to purchase property even as house prices increased faster than their incomes- John Consiglio
A rapid growth in house prices would not have been possible with a credit rating banking and bond issues system, given the much slower growth of household incomes. But ratings, and sinking funds, seem to be things which all issuers of new bonds, plus, of course, the brokers and market makers, keep doing their best to quell at origin.
The first and unavoidable reform necessary in the housing market is to stop prices rising. That means reining in the financial institutions that have lent so profusely (not to say recklessly) on mortgages.
Can this be done? Certainly it requires politicians to stand up to the powerful lobbies of both the banks and the building industries.
Why, for example, has the topic of property taxes never been seriously taken up? Changing all stamp duty into a land tax could start a downtrend effect on house market prices.
Similarly in the case of land, which, in Malta, seems to be always going to financial vultures.
No authority, or government, should be allowed to sell its land. In Singapore, all housing land is virtually state-owned.
In Spain, Ireland, the US and the UK too, housing affordability is also a very big issue. But it is never handled as if on some side or other of the spectrum there are holy cows which nobody is ever innovative or brave enough to engage with.
A start could be made locally by tackling the banking system’s present unfettered power to lend.
John Consiglio is a senior lecturer in the University’s Department of Banking and Finance.