Forty thousand reasons for change

British Prime Minister Gordon Brown presently faces two particular problems. The first is that the price of property in the UK, particularly around the major town and city centres, has increased to such an extent that now even the middle class is finding it difficult to get on the property ladder.

The second problem (perhaps the cause of the first) is that there are simply not enough homes to meet demand. Mr Brown has proposed measures to allow the building of some three million new properties over the next ten years. Sadly his proposal, if implemented, will involve more construction in the British countryside.

Like Mr Brown, Prime Minister Lawrence Gonzi also faces the first of these two problems. The price of property in Malta has increased to such an extent that more people have to give up on the idea of owning property - others are just stretching themselves further and further. I meet people who have had to alter their life plans because of this situation. One friend has even withdrawn his marriage proposal; others will simply never propose.

Unlike Mr Brown however, Dr Gonzi does not face the second problem; there is no shortage of property in Malta. Quite the opposite. In Malta there is, to our environmental detriment, a vast stock of unused property - 40,000 units, to be precise - twice as many properties as there are in Gozo. This figure does not include holiday homes, another 12,000 properties.

So why is it, you may be asking, that property prices in Malta always seem to continue rising, way above inflation? Some of the not so well thought-out answers to this question are that Malta is tiny and that land is scarce. These answers, however, are far too simplistic. Let me explain.

Even a city the size of London is tiny, considering the millions who already live there and the millions who would like to move there. When comparing demand to supply, property in London is even more scarce than it is in Malta. So why do prices in Malta consistently seem to defy the basic laws of economics?

Property hoarding

There are two reasons. The first is that we are represented by two political parties that depend on the financial support of the building industry. The second is that property hoarding in Malta costs nothing.

Property hoarding in Malta is indeed a very long free ride. Ironically, while it is not possible to own a Lm50 TV without paying a licence, it is possible to own dozens (or hundreds, for that matter) of properties and leave them idle and dilapidated without incurring one cent. Malta is a property hoarder's paradise.

Think for one moment; isn't this madness? Isn't this what has triggered the environmental destruction of these once-beautiful islands? Isn't this what has led property prices to reach levels that many, even those earning well above average wages, cannot meet; unless, of course, they get a second or third job? Isn't this rotten political paralysis contributing to turning so many marriages and relationships into couple-of-hours-a-day-together affairs?

What use is it for people to make herculean efforts to own a property when their well-intentioned efforts result in the destruction of what they are presumably working so hard for, i.e. their family? Why is it that when faced with this problem all Government has to offer is paltry assistance to a handful of us, or some hare-brained scheme like fractional (or more aptly, fractured) ownership? Why is it that Labour's response to this is to offer assistance only to first-time buyers through subsidies that will, most likely, lead to more inflation in the property market?

Why can't Government and Opposition accept that the most efficient and effective solution is to introduce a fiscal and legal mechanism to encourage the placing on the market of these 40,000 vacant properties? I believe that this impasse from our political adversaries exists because of the fact (no longer denied) that they are committed to the building industry. If not, then I must conclude that they are either daft, or simply enjoying seeing an increasing number of us work two or three jobs to repay 40-year loans on 80 square-metre flatlets at Lm75,000 apiece.

AD's proposals

The Greens don't have a magical solution to the problem of property prices. We have a common sense approach to it. First of all we have proposed that Government imposes basic standards of maintenance on vacant property. It is a shame that so much of our urban environment is scarred with the sight of rotting façades and balconies.

In addition we have proposed a tax system for property that will not apply to primary or holiday residences, but only from the third property upwards. I can explain the mechanics of our proposals in a few words. Every owner of a third property (or more) will be obliged to register it, declare its value and pay an annual charge of 15% on the rental value of the property, determined to be 3% of the capital value.

To take a simple example, a third property worth Lm50,000 will be subject to a charge of 15% of 3% of Lm50,000 - Lm225 per annum. However if that third property is rented out, the rental income with thereafter be tax-free.

This system will do two things. The first is to reward those renting their properties by charging a lower rate of income tax on residential letting. The second is to discourage property hoarding by imposing this same tax on properties that lie vacant. It is, to some extent, a voluntary tax.

If you choose to rent your property, then you pay a very advantageous flat rate of 15%. If you choose to leave it vacant then you pay the 15% anyhow. If you can't get the rent you are asking for, then perhaps you may want to consider taking in the market rate. The good news is that with our proposal you will pay 15% rather than the current 35%.

The benefits of our proposals are numerous. The less obvious benefit is that owners of dilapidated vacant properties would have to carry out some maintenance, at least on the property's façade. This will not only improve the state of our neighbourhoods, but will also encourage some owners to place these vacant properties on the market for rent or sale.

Naturally, those who do not wish to rent or sell their properties should be free to decide; in any case however, the tax must be paid.

The second benefit is that more properties are likely to come onto the market for sale. This will act to contain any further unsustainable increases in property prices.

Thirdly, our proposals will increase the amount of properties available for rent, thus benefiting those who wish to rent rather than purchase. Finally our proposals will increase revenue for the government. This money should be used, not to assist first-time buyers to the exclusion of the rest of us, but to give assistance more widely, but particularly to people at difficult times of their lives. A rethink of children's allowance and a serious extension of paid parental leave are what spring to mind.

I believe that our proposals are rational, workable and effective. The aim is to bring some sense back to a market that has lost touch with the reality of ordinary people, as well as to prevent more unnecessary destruction of our countryside.

While we believe in our proposals, we do not profess some superior wisdom or insight into the matter. If anybody can propose something more effective then we will gladly substitute it for our policy. In politics, pig-headed pride is a weakness. I welcome any comments, criticism or suggestions.

Edward Fenech is finance and economy spokesman of Alternattiva Demokratika - The Green Party

eddiefenech@hotmail.com