The global financial crisis, which saw interest rates plunge to historic lows, has contributed to making housing in Malta the most affordable in decades, a report has concluded.

The study, carried out by architectural firm DHI Periti, says that average Maltese households only started to afford their own three-bedroom residence in 2009 (see table below).

This coincided with the peak of the global financial meltdown which wreaked havoc in the world property market.

“This was a good period for buyers, as property had never been so affordable over the past 32 years, thanks to the global crunch,” report author Denis Camilleri told Times of Malta.

The study looks at the Housing Affordability Index between 1982 and 2014, which compares the monthly mortgage payments required for two and three-bedroom properties with the median monthly family income.

The report notes that another major factor, apart from interest rates, which made houses more affordable was a decrease in the accommodation floor area. While in 1982 a three-bedroom residence had an average area of 135 square metres, by 2014 this had shrunk to 105 square metres.

In this respect, the study warns that a planning authority draft proposal seeking to increase minimum floor area for dwellings could have negative consequences on affordability.

The important thing, it says, is to have a mix of properties and let the people choose what suits them best according to their pockets and tastes.

“Why should there be restrictions in place if this might exclude potential buyers who would no longer afford to buy their own property?” Mr Camilleri questioned.

“It would also be interesting to know what mechanism was adopted to establish these minimum standards, in the wake of the fact that European studies give significantly lower thresholds than the ones being proposed,” he added.

While in Malta it is being proposed that a single-bedroom apartment should be no smaller than 55 square metres, in Europe it is as low as 41 square metres.

On a positive note, the report says the Budget measure that exempted buyers from paying the 3.5 per cent stamp duty on properties worth less than €150,000 mitigated the initial cost of purchasing a first property, cutting expenses by 20 per cent. However, it warns that this measure will have to be retracted or it will stimulate a price increase and nullify the desired effect.

In terms of recommended prices for buyers, the report bases its estimates on the price-earnings ratio – value of the property in relation to yearly household income.

According to this model, prospective buyers should look for a price-earnings ratio of 4:5. This would mean that a family whose yearly income is €22,225 should look at properties with a €100,000 price tag.

In this manner, there would be no fear of defaulting on the monthly mortgage payments if interest rates increase, as is widely expected to happen in the next five to 10 years.

The study also shows that, in the past two years, prices of affordable housing have gone up by three per cent annually, well below the 6.87 per cent annual increase for the 32-year period. Meanwhile, global house price increases are on the rebound again, with countries in Europe seeing an annual six per cent rise, the US three per cent and Australia 6.75 per cent.

If these increases were to revisit Malta, they would play havoc with the index, the study says.

In view of this, it calls for measures to ensure a sufficient supply of affordable housing on the market. One idea could be to introduce the concept of affordable housing as a form of planning gain, whereby a developer compensates in this way in exchange for permission to construct a commercially promising but potentially unacceptable development.

“This should not create a ghetto, but improves on inclusive living, with a sustainable percentage allocated under this scheme,” the author said.

*Source: DHI Periti 2014

How affordable is housing? (1982-2014)*

The table illustrates housing affordability for a family with an average household income, through a 32-year period.

The most notable development was in 2009, when for the first time the index for a three-bedroom residence rose above 100, meaning that such property became affordable without the need of doing a second job.

This type of dwelling was least affordable in 1997, when the index dropped to 65. This coincided with the introduction of VAT in 1995.

As expected, two-bedroom homes have always been more affordable, with the peak being reached last year when the index stood at 200.

Just like three-bedroom residences, these were least affordable in 1997.