Housing a myth
In our collective imagination, Malta is bursting at the seams with people, housing them is a problem, there is not enough land for us all and this is what justifies the extraordinary price of property. A host of elements conspire to fuel the myth and they all seem real enough.
Starting backwards, since so many people appear to put their money where their mouth is and embark on a lifetime of debt to secure a roof over their heads, then it must be true that property is scarce and that unending demand drives prices every higher. What else could explain why young couples take out 40-year mortgages?
Since 1947, government after government has struggled to provide housing. Freezing rents to 1939 rates seemed a necessary expedient but that meant that nobody would build housing for rent.
In 1959, the law was amended to allow rent decontrol for properties built after that date and for properties that were split into smaller units. It barely nudged the situation, since renting to Maltese citizens would effectively bring about an expropriation with rent almost frozen and tenants given security of tenure generation after generation.
A further amendment in 1995, liberalising rents contracted after that date, did not have the desired effect because the rents had since been notched up by a culture renting only to foreigners and holiday makers. It still made better sense to buy rather than rent.
This created a situation in which one built to occupy or to sell, never to rent. It was left to the government alone to provide housing for those who could not afford to buy.
Throughout this time, the government has had a construction programme of its own. The demand for government housing has never abated because, in parallel with the extension of emergency and wartime expedients into the third millennium, building boom has succeeded building boom in the private sector with prices always climbing higher and higher. Low-income earners have never been able to catch up with property prices while the rental market remained either non-existent or out of reach. Indeed, an ever-larger swathe of the population comes in need of government support in the housing sector every year.
At every census taken in the last 60 years, the amount of vacant property has continued to grow.
In 2005, another census was taken. Straddling that historic event, Alternattiva Demokratika carried out a campaign pointing out the absurdity of skyrocketing property prices in the face of a massive surplus with a cherry on top of controlled rents in a market, where one should be begging for tenants and not finding them.
The government has gone on record first claiming that the 1995 amendments were enough, then accusing the Greens of wanting families thrown out in the streets, finally it promised a White Paper on rent reform which never materialised year after year and promise after promise.
The census data on housing, published a few days ago, documents a government in deep denial. It is, in fact, a census of our political situation.
This government is the heir of a culture of public administration which handed out public land and private property to its supplicants while being a single-party government almost wholly dependent on party finances obtained from the construction lobby.
Those who hold power are reluctant to relinquish the power to grant homes to their clients and have no idea how they will finance their party empires if they lose favour with the party financiers.
Meanwhile, the proportion of vacant properties in Gozo has reached an unbelievable 48 per cent. The national average of vacant properties is 28 per cent, spiking higher in the old towns in the harbour area. That makes it more than one in every four homes across the country, 53,000 of them.
Why on earth should anybody have to be crucified paying a bank loan for 40 years in such a situation? Why should anybody have to beg for a home, whether to a government agency or to anybody else? How could a government so blessed fail so miserably? By allowing supply to meet demand in gentle stages it could satisfy every need. What happened to the neo-liberalism of the PN credo?
It is now clear that our governments have failed us spectacularly by remaining paralysed in the face of this situation. It is altogether undeniable that the next government must take some action. Promising 20 new projects in Grand Harbour seems like absolute folly when a crisis of such magnitude is depicted in the smallest detail in the Census 2005 data. How on earth could it be missed altogether in the 2007 budget? The subsidies to new homemakers are another handout to speculators and only make things worse by encouraging them to build tiny, expensive apartments priced under Lm50,000.
AD has been proposing solutions throughout the years when the government denied that a problem existed. Has it not always been this way throughout our existence?
As far back as 1995, Mepa, in its Housing Topic Paper, identified the problems and proposed a vacant property tax to repress hoarding, which must be the main cause of this extraordinary mismatch of supply and demand, between general belief and the hard facts of the matter. It seems to be the only possible solution.
While the other parties keep mum, knowing that this is the way they will have to go after the election, AD has moved ahead. With so much vacant property available there is no need to impact it all: Second homes can easily be exempted, properties caught up in litigation cannot be considered to be vacant and other cases of exemption can be made.
The tax should be a mere token: We have proposed a flat tax of 15 per cent on deemed rental income estimated at three per cent of the value to be declared by the owners, a gentle nudge to address an astronomic anomaly.
A property declared to be worth Lm20,000 would have a deemed rental value of Lm1,500 per annum on which a 15 per cent tax should be paid amounting to Lm180. All the tax can be avoided if the property is rented, creating an incentive to rent the property of Lm360 per annum less tax on actual income also at 15 per cent. The alternative is to leave things as they stand until this immense bubble bursts.
Of course, there are other things to be done if our government were to act rationally: It should immediately make a complete U-turn on the extension of development zones illegally made in 2006. It should take a close look at the permits for high-rise development which is unnecessary, unjustified and promising to create intolerable impacts on the surrounding areas.
Of course, it is quite possible that the government will say and do nothing of the sort. It has been in denial for years and in perfect comfort. When it all hits the fan, as it inevitably will, we will have brave smiles to comfort us and declarations of innocent ignorance. The opposition does nothing at all because it originated the myth and developed the dual system of creating political clients by housing them while raking in the finance from speculators. Which of the other parties can think of freeing citizens or of encouraging the market to function freely? Why is it that only the Greens are appalled that the lifeblood of thousands has been so extravagantly drained out of them to pay for their homes?
Dr Vassallo is chairman of Alternattiva Demokratika - the Green party.