Maltese property is still affordable – just not the property you want

Market realities showing steady home ownership rates “put to rest” the idea that housing affordability is unsustainable, but trade-offs on property location and size “could nonetheless exacerbate perceptions of an affordability crisis.”

In other words, Maltese real estate is still affordable, even for first-time buyers purchasing property on their own. However, these buyers are being forced to look at smaller properties that are further afield, away from their hometowns.

The conclusion emerges from a paper by Brian Micallef, an economist and data analyst who serves as head of policy at the Housing Authority. It was first published in Xjenza, the journal of the Malta Chamber of Scientists.

Using data collected from applicants for the Government scheme granting first-time buyers with €1,000 a year for 10 years, together with other sources, Dr Micallef delved into the “widespread preoccupation that housing is no longer affordable.”

Looking at data since 2000, Mr Micallef notes that property price-to-income ratios have been trending upwards over the past two decades. For a double-income couple, property prices rose from 3.7 times their income to 5.7 times over the time period. For single individuals, they rose from seven times their income to almost 11.

For single individuals, therefore, “it is becoming increasingly difficult to purchase property unless they can rely on external assistance.”

However, actual statistics show that around half of first-time buyers in 2022 bought property on their own, not as part of a couple – running counter to both common and academic wisdom.

So what is happening?

Mr Micallef believes that the particularities of individual situations and choices have a large bearing on housing affordability for any particular buyer – differences that can be masked when taking a broader macro-level view.

For example, the use of averaged income for the typical first-time buyer is “unlikely [to] adequately capture the extent to which some young borrowers strive to supplement their main source of income, for instance, through overtime or part-time employment.”

Additionally, “these statistics indicate that the value of property purchased by single borrowers tends to be lower than in the case of two-wage earners, reflecting the trade-offs that ultimately must be made to suit one’s budget.”

And in line with the conclusions of another (controversial) take on housing affordability earlier this year, Mr Micallef points out that “price-to-income ratios do not take into consideration financing costs, which until 2022, have been trending downwards over the past two decades.”

Cheaper mortgages have squared the circle of Malta’s housing affordability, with higher property prices counters by lower interest rates.

Therefore, despite the rise in the price-to-income ratios, housing has remained affordable for the greatest part of the Maltese population.

Mr Micallef defends the counter-intuitive argument that housing affordability remains sustainable by referring to other data sources, including those collected at European Union level. He notes that were housing really as unaffordable as many argue, it would have caused “either a decline in the homeownership rate or an increase in the share of young adults still living with their parents.”

However, “recent trends in both these indicators do not support this conclusion,” with both the homeownership rate and the share of young adults living with their parents remaining “broadly stable”.

But while housing affordability remains positive when looked at from a country-wide lens, the view changes significantly when looking at different localities.

Malta was grouped into nine clusters of localities, and Mr Micallef concludes that property prices might not have been affordable for the typical first-time buyer household in four of them – accounting for slightly more than a quarter of the Maltese population – with the least affordable cluster including Sliema, St Julian’s and Valletta.

“It is important to point out that even within the clusters included in the index, not all properties might be affordable to first-time buyers. For instance, some properties in these clusters might still be of out of reach for first-time buyers that are in certain neighbourhoods or with desirable amenities such as with views or close to the seafront. Location matters a lot when it comes to housing.”

Mr Micallef concludes by arguing that the different prices seen in different localities “could explain the subjective perceptions about the deteriorating housing affordability in Malta as first-time buyers with low-to-medium levels of income are likely to face difficult trade-offs.”

He continues: “Such trade-offs could involve, for instance, decisions about location, property type and size. Some buyers might not be able to afford purchasing a property in the same locality of their parents. These trade-offs could exacerbate perceptions of an affordability crisis especially if borrowers evaluate affordability in relation to some reference group or historical experience, such as their parents or friends.”