The falling rate of homeownership among young adults is a phenomenon that is worrying politicians throughout the EU. It has created an absolute difference between older and younger generations. It does not bode well for the well-being of society.

A paper commissioned by the Housing Authority and researched by economists Marie Briguglio and Glen Spiteri reveals interesting information about some of the effects on younger people losing their dream of homeownership. It argues that young Maltese people leave home considerably late compared to other EU countries, primarily due to a lack of affordability.

There are other more crucial risks if this trend continues. Shutting young people out of the housing market may distort their marriage and childbearing decisions. An ECB research paper published earlier this year quotes expert opinion: “Homeownership rates relate directly to the strength of local communities, social capital and political engagement.” Some of the causes behind the declining affordability of homeownership for younger people are well known. The ECB argues that changes in earnings explain more than half of the decrease in the homeownership rate. Career-long positions have become scarcer for the younger generations, unemployment spells are longer and earnings inequality more pronounced. In the EU, earnings inequality accounts for 61 per cent of the drop in homeownership in the last 60 years.

Over the past 10 years, the price of a typical property has doubled while salaries and wages have gone up much more slowly. The government has attempted to deal with this social time bomb by introducing different policies aimed at helping younger people secure the initial capital they need to get a mortgage.

The reduction in stamp duty for first-time buyers certainly helps but is not the silver bullet that resolves this problem. Intergenerational solidarity could be enhanced if stamp duty were increased for those who want to buy a second home and reduced further for a more significant proportion of the cost of a property for first-time buyers.

Policymakers may want to deal with falling affordability by trying to calibrate the dynamics of supply and demand. Some countries with no problem of available land have restrictive planning policies that affect housing stock availability. They can reduce these restrictions to promote housing development. But this solution is not viable for Malta, where the damage that overdevelopment has caused to the urban and rural environment is already substantial and irreversible.

Policymakers need to look at other solutions that are suitable for local circumstances. Malta’s economic model is based on promoting fast economic growth sustained by the importation of labour from both EU and third countries. This is creating demand for housing for rental purposes and, in the process, crowding out many first-time buyers from the market.

In the last decade, the issuing of more building permits has increased supply but also ruined large areas of the natural environment and a lot of the traditional urban infrastructure of many towns and villages. So the approval of building permits needs to be better controlled to ensure no further irreversible damage is caused. 

The solutions to the present social challenge of falling homeownership affordability will not be painless. Trade-offs will have to be made, including abandoning the approach of boosting economic growth at high social and environmental costs.

For some young people, the bank of mum and dad will mitigate this problem. Many others will need the government’s determined involvement to ensure that intergenerational solidarity helps them realise their dream of homeownership.