Enigma of social housing
Social and economic risks are growing with every day that passes. This also points to the affordability problem of families wishing to upgrade to larger premises
by George M. Mangion
The issue of housing affordability and the rise in the cost of living are arguably the biggest two concerns at national level. Quick on this social problem is a reply by the Minister for Social and Affordable Accommodation Roderick Galdes.
He asserts that the State invested €60million over the past decade helping 8,000 people gain access to ownership of their own homes. Later, in this article, one reads about a portfolio of schemes administered by the Housing Authority intended to help solve the affordability problem. Over the past decade, Malta has undergone a rapid economic and population growth resulting in a shift in the country’s demographic and housing needs. Foreign workers, mostly of prime working age, have different housing preferences from Maltese households, mainly seeking the private rental market while an increasing share of tourists are opting to stay in short-let accommodation.
In tandem to this, the Maltese population is ageing, driven by a low fertility rate and a higher life expectancy, while the size of the Maltese household is getting smaller. Whilst housing construction remained steadfast, the demographic shift in the Maltese population has brought an undisputed need to cater to ever-evolving housing needs. The government has announced plans to collaborate with the Church to build at least 260 new housing units that will be on sale to eligible members of the public at 30 per cent below the market price.
The project was announced by the Foundation for Affordable Housing, a joint venture between the government and the Archdiocese of Malta. The homes will be developed on four sites in Kirkop, Fgura, Ta’ Giorni in St Julian’s and Marsascala. The sites were transferred to the Foundation by the Housing Authority under a perpetual emphyteusis. Some of the land had been passed from the Church to the state in 1993. The problem of social housing is not unique to Malta. Many European countries suffer from this phenomenon. When considering the annual deficits registered since the start of the pandemic in 2020, one asks, can the State allocate more millions to seriously solve this chronic social malaise.
The myth that enough is being allocated by Castille sounds palatable for the party faithful yet noting the plague of core inflation and higher cost of living - all these factors pose acute social challenges. To what degree is this impacting on lifetime decisions of young couples? Considering that Malta registers the lowest fertility rate in Europe of 1.08 and has an aging work force, one must try to solve the dilemma of couples who postpone marriage and childbirth to save for the property loan deposit. Many delay entering a relationship to increase one’s prospects of qualifying for a loan.
This conundrum poses several social questions such as - is there a risk of young couples moving into employment rather than furthering their studies to start moving onto the property ladder at an earlier stage before they are priced out? Sad statistics show that 17% of students are early school leavers while 40% of those sitting for “O” levels fail. Are ageing parents being pressured to remain in employment beyond retirement to give financial support to their children who would otherwise fail to enter the property market? What is the risk of homelessness for borrowers who have no additional streams of revenue to tap? Another reality is that the working poor may have enough money to put food on the table but cannot afford the monthly loan payments.
Social and economic risks are growing with every day that passes. This also points to the affordability problem of families wishing to upgrade to larger premises. The Housing Authority comes to the rescue and has issued several schemes to help mitigate the affordability problem. One such scheme talks about offering help to individuals aged 40 or less who cannot afford the 10% initial bank deposit. It acts as a guarantor in a personal loan for this amount, thereby enabling beneficiaries to purchase properties worth up to €225,000. Interest on this personal loan is paid by the Housing Authority. Then there is the Private Rent Housing Benefit Scheme.
This provides financial assistance for rent payments. It ensures that nobody would have to pay more than 25% of their income in rent; if rent paid does not exceed €400/month for singles and couples without children; €500/month for families with one child and €600/month for families with two or more children. A grant of up to €167/month is given to finance part of the repayment of a loan for the purchase of a property worth up to €140,000.
The annual income minimum threshold is €18,536.64 for single persons, €19,536.64 for single parents and €20,536.64 for couples. Additionally, one meets with the “New Hope” scheme aimed at individuals who cannot take a life insurance due to a medical condition to purchase their residence. In this case, the Housing Authority acts as a guarantor in lieu of the life insurance policy to enable the purchase of properties worth up to €250,000. At this stage, one asks what are the typical parameters for a house loan? Let us view some statistics published by Bank of Valletta, which recently reported bumper profits for mid term 2025.
BOV (a government majority bank) can approve a loan of €250,000, at a preferential low fixed interest rate of 0.25% p.a. for the first 18 months and a variable interest rate of 2.80% p.a. for the remaining 282 months. The APRC will be 2.53% p.a. The loan will be repayable in 18 equal monthly instalments of €860.10 and 282 equal monthly instalments of €1,145.09 over a term of 25 years. Such repayments although partly subsidised by BOV, are still a millstone for some families. One hopes that more financial assistance is in store for first time buyers and provided in next month’s budget document.
