House price growth

House prices have been growing at a slower rate than they did in the four years leading to 2019. In part, this can be attributed to a growing supply of housing and slower population growth in the years impacted by the COVID-19 pandemic.

This was one of the insights I shared during a recently held event on the Maltese property market and is based on the transacted house price indices produced jointly by Grant Thornton and Dhalia.

Similar trends are observed in the advertised property price index published by the Central Bank of Malta. Since 2020, the bank’s index grew by an annual average of 1.5 per cent. This is significantly lower than the average growth of 10 per cent recorded in the four years leading to 2019 and also lower than the average historical house price growth of five per cent.

In part, these developments reflect changes in the patterns of housing demand and supply. In both 2018 and 2019, the Planning Authority approved the development of more than 12,000 housing units – the highest number in the last 20 years. Since these typically come onto the market with a lag of two to three years, they have been adding to the housing stock in 2020 and 2022. This happened to be a period when growth in housing demand by foreign workers was at its lowest due to restrictions related to COVID-19.

Such developments are likely to have put downward pressure on house prices such that they have grown at a slower rate than what we were used to in the recent past (see chart).

Based on current expectations for housing demand and supply, such downward pressure on prices may persist over the next two years.

While the number of housing units approved for development between 2020 and 2022 is lower than the highs of 2018 and 2019, the numbers remain high at an average 8,000 units per annum. By comparison, between 2008 and 2017, the number of approved housing units averaged less than 5,000 per annum. Thus, we should expect significant additions to our housing stock in the years to come.

On the demand side, the Central Bank of Malta is forecasting slow growth in employment. For several years, this has been primarily driven by foreign workers moving to Malta from abroad – many of whom stay in rented housing units. Specifically, between 2014 and 2019, employment grew by an average of 12,000 workers per year.

In contrast, the Central Bank’s projected employment growth for 2024 and 2025 is two per cent – which translates into around 6,000 workers each year. While foreign workers are not the only source of housing demand, in the years leading to 2019 they were likely its biggest source.

With a steady supply of housing units coming through, and slower expected growth in the employment of foreign workers, the downward pressure on house prices could persist over the next two years.

Some have misinterpreted this to mean that house prices are expected to decline. It does not. It simply means that house prices are unlikely to grow at the rates that we were used to pre-COVID-19.

And there are two qualifications. First, the downward pressure on house prices would ease if employment grows at higher rates than forecasted by the Central Bank. 

Second, other forces affecting the housing market – such as interest rates, construction costs, landlords’ degree of indebtedness and other factors – may reinforce or outweigh this downward pressure on prices. In case of the latter, house prices may well continue to increase.

DANIEL GRAVINO – resident academic, Faculty of Economics, Management and Accountancy, University of Malta, Msida