The cost of housing in Malta has reached a critical point, rendering a significant portion of the population ineligible for loans or short of available supply with the loan values they are offered.
In the current local discussion about housing, there has been an increasing concern about affordability, particularly since the onset of the property boom that has seen house prices double over just 10 years.
However, a closer look at the socio-economic landscape reveals that the issue extends beyond first-time buyers, necessitating a comprehensive approach to housing policy.
The conventional focus on young, first-time buyers overlooks other demographics facing distinct challenges, such as renters and individuals experiencing separation or divorce.
Our recent study clearly shows that the situation of the past years has exacerbated what we refer to as the ‘stretched class’, composed of persons who are not welfare dependents but whose income from work is not sufficient for them to find adequate housing arrangements at an affordable price.
The discussion on housing affordability should not be restricted to price affordability. If we are to elevate the discussion to truly account for the well-being of individuals, it should also consider the quality of housing, including the physical adequacy of the housing unit, and overcrowding.
Tailoring government policies and initiatives by non-profit organisations, such as the Foundation for Affordable Housing is crucial to addressing the diverse needs of these groups and alleviating overarching housing affordability issues.
Over 8,000 households grapple with housing costs surpassing 40% of their disposable income
Consider a 40-year-old individual aiming to purchase a home. With a maximum loan term of 25 years, an annual income exceeding €35,000 is required, rising to €40,000 if interest rates increase. Given that a significant percentage of those aged between 35 and 45 earn below this threshold, the potential pool of homebuyers diminishes considerably.
While Malta’s average housing cost-to-income ratio is currently the lowest in the EU at 10%, indicating a situation far from a crisis, it conceals a nuanced reality. Over 8,000 households grapple with housing costs surpassing 40% of their disposable income. This underscores the need to address affordability challenges beyond averages.
Among renters at market rates, the burden disproportionately affects the young, foreign, low-income earners, and one-person households, with over one-fifth facing a housing cost-to-income ratio exceeding 40%. Similarly, for homeowners with a mortgage, only 3% experience a ratio above 40%, primarily concentrated among those earning less than €12,000 annually.
The stretched class is a by-product of a long-term situation whereby the private sector provided supply for the highest attainable profit while the State focused almost exclusively on social housing provision aimed at welfare dependents. This mirrors challenges faced by other European countries, prompting a debate on the state’s role in ensuring housing for those whom the market neglects.
The Foundation for Affordable Housing, as a third player in the housing market, can play a pivotal role. As a matter of principle, we believe that those who work and contribute should rightfully expect that they derive benefit from the goods they create.
We aim to realise such values in our ethical approach toward making business in the property market.
With access to stable, long-term resources, we can alleviate affordability issues, particularly for the middle-income segment and those not supported by the State. Different models should lead to the creation of adequate supply specifically targeting the stretched class – those who are in work but who are not currently being served by the private market.
The Foundation for Affordable Housing operates within this space, utilising a model that combines private and public resources, governed in a financially sustainable manner.
This approach empowers tenants and would-be owners as active consumers, moving away from passive assistance.
The solution therefore lies in the creation of a social market which supplies either financial products enabling access to the property market or actual physical accommodation to prospective owners or tenants from the stretched classes.
By building bridges between present market actors such as financiers and builders, leveraging our social purpose to facilitate favourable terms within the context of innovative housing models and unlocking land potential, we have the capacity to make sure that mainstream solutions are also made available to income categories who are currently priced out, enabling the latter to fully participate socially and economically.
Jake Azzopardi is chief executive, Foundation for Affordable Housing