Economics, as a social science, studies how individuals, firms and nations make choices when allocating scarce resources to satisfy their unlimited wants. The country’s high population density clearly highlights that surface area is a scarce resource in Malta and the issue is whether current land policy is leading to its optimal use or otherwise.
Malta’s limited surface has to accommodate competing needs: residential, productive and environmental. Optimality requires that the returns – in terms of net benefits, monetary and non-monetary combined – are identical across the three possible uses. It is important to bear in mind that the maximisation of welfare requires that optimal allocation decisions should not be based solely on financial considerations. Each time a piece of virgin land is used for residential or productive purposes, we must be sure that the resulting net benefits outweigh the benefit of protecting the environment.
Judging by the current state, it is clear that over the years, residential and productive motives have largely been given prominence over the environment. This raises issues of sustainability, which Robert Solow, Nobel laureate in economics, defines as “an obligation to conduct ourselves so that we leave to the future the option or the capacity to be as well off as we are”. Interpreted along these lines, this does not mean that one should never build on green areas, but that any current use of land must pass on to the next generations something that is at least equally valuable.
Given that the destruction of the environment may entail costs which are hard to quantify and in some cases can only be assessed over a long time span, countries have tended to restrict activities in specific areas to ensure that they don’t fall into the temptation of destroying precious environment. This falls under the general precautionary principle. In Malta this takes the form of the Outside Development Zone (ODZ) policy. However, as economists have long evidenced along the lines of rules-versus-discretion debate, unless there is a robust rule-based framework, discretion will result in sub-optimal outcomes.
Naturally an effective ODZ policy also presupposes rigorous policing and zero tolerance
Translated this means that allowing for the possibility of bypassing ODZ, for whatever reason – be it for the benefit of speculators, for education, for power generation or whatever other reason – makes such a policy ineffective.
The best way to strengthen ODZ policy is to enshrine it in the constitution. Otherwise, quantifiable short-term gains will always prove to be a very easy justification for the breaching of ODZ requirements, despite the long-term (possibly unquantifiable) consequences which may be harmful.
Naturally an effective ODZ policy also presupposes rigorous policing and zero tolerance.
What is surprising in the case of Malta is the very limited amount of high-rise buildings found on the island. Hong Kong and Manhattan are clear examples that the best way to deal with population density is to build upwards. This effectively renders almost limitless the volume of building possibilities, while protecting surface area. A policy of encouraging high-rise buildings would strike the right balance between protecting the environment and ensuring that a country’s economic growth is not hampered. For example, the recent decision to allow hotels to build further floors is a step in the right direction but one should question whether a height limit should still exist. Advancement in building construction makes high-rise buildings cost effective, be it for productive or residential purposes.
Optimal land use also suggests that one should periodically re-examine the use of existing areas, in particular questioning whether it is possible to extract greater value from land use. It is hard to understand how some schools and government departments are situated in prime areas, when these areas would render a much higher value if used for alternative purposes.
An economically sound land policy is not about maintaining the status quo but about ensuring that this limited resource is used to satisfy the highest amount of wants, both for current and future generations.