James Debono explores how government policies fuelled a building boom which not only changed the country’s landscape, but also its economy
Between January 1998 and May 2008, the Malta Environment and Planning Authority (MEPA) approved 65,737 new dwellings, despite a corresponding increase of 17,000 vacant properties between 1995 and 2005.
Moreover, 34,146 new dwellings were approved between 2005 and 2008, after building heights were increased and new local plans and development boundaries introduced. The number of permits for new dwellings shot up from just 2,994 in 1998, to 11,343 in 2007 – an increase of 293%.
The greatest increase was registered in the number of apartments approved by MEPA, which increased from 1,651 in 1998 to 10,252 in 2007: an increase of 521%.
On the other hand, the number of maisonettes declined slightly from 755 to 696 over the same period. The most significant decrease was registered in the number of terraced houses approved by MEPA, which declined from 406 to 257.
While there was a steady increase in the number of apartments approved by MEPA, permits for maisonettes and terraced houses peaked in 2003 when 1,499 larger dwellings were approved.
This was the result of government policies encouraging the redevelopment and conversion of old buildings. But although this policy was aimed at ensuring more efficient land use, it ended up changing the townscape of towns and villages.
The number of apartments rose from just over 60% of all approved dwellings in 2001 to over 80% in 2005. On the other hand the percentage for maisonettes continued to drop from just under 19% in 2001 to just below 12% in 2005. The percentage of approved applications for terraced houses peaked in 2003 at just below 7% declining to 4% in 2004 and 2005.
Prices and property
As Malta geared towards the Euro, more people started channelling their undeclared monies into property development fuelling a spiral in property development between 2005 and 2008.
In fact the year 2005 represented a turning point for the property market as the property market became flooded by new applications.
In that year alone the number of housing units constructed increased by 35%, from 6,700 to 9,000, and despite the increase, prices skyrocketed by 40% since 2003 for apartments, and by 35% for two-bedroom maisonettes.
The figures, featured in the Building Consultative Council’s annual report, also revealed that the number of apartments had jumped from 5,265 in 2004 to 7,539 in 2005 – an increase of 4%.
Overall, the increase of over 2,300 units in just one year is comparable to the gradual increase between 2000 and 2004 of 2,500 units.
Social housing comprised a small part of the demand for new housing. During the period 2001–2005, only 4.5% of the approved housing units were developed as social housing..
During 2005 prices for flats were on average estimated to have increased by 20.34% when compared to 2004; prices for maisonettes were on average estimated to have increased by 15.32% while prices for terraced houses were on average estimated to have increased by 9.3%.
Data released by real estate agents Dhalia indicated that the rate of increase in prices for flats over the two-year period 2003/2005 has varied depending on the number of bedrooms of the property. This data indicated that over this period, the price of one-bedroomed flats increased by 48%, two-bedroomed flats increased by 7% while the price of three-bedroomed flats remained stable at 2003 figures. This indicated a growing demand for high quality property for single inhabitants as opposed to a stabilized demand for flats to house families.
The dramatic increase in the number of apartments, accompanied by skyrocketing prices, confirmed claims by economist Edward Scicluna in 2006 that black money was being washed in the Maltese property market in the wake of Euro adoption.
Edward Scicluna had warned that the property inflationary explosion was like “a fire”.
“In the present context, what is fuelling the present property inflationary spiral is the excess liquidity of Maltese currency in circulation seeking back-door conversion into Euro,” he told MaltaToday back then.
Moreover, new policies introduced by the government at the time were encouraging property speculation.
State encouragement New guidelines that came into effect back in April 2005 encouraged more high-rise development, allowing penthouses to be built on third storeys and ‘setback’ third floors on small houses in towns’ inner cores.
Writing a few days before he died in 2005, journalist and environmentalist Julian Manduca prophetically warned that “the construction industry is in for a field day: more construction in urban areas, more dust, noise and disturbance that assures Malta remains in a ‘not ready’ state.”
The regulations issued in 2005 covered a wide range of planning and design issues and among them MEPA decided that: people who own or live in small houses in Urban Conservation Areas (historic town centres) were allowed apply to build a third floor setback from the street; high-rise buildings that were previously permitted only on land measuring 3,000 square metres were permitted in land measuring 2,000 square metres; and any building of three storeys could apply for a permit for a penthouse.
When announcing the new measures MEPA’s planning director Ing. Christopher Borg said that one of the reasons for the setback second floors in urban conservation areas was “to relieve the pressure from building in the countryside,” and environment minister George Pullicino explained that some houses were often too small for the modern needs of families and that the new guidelines would discourage them from leaving small old houses vacant and looking to build elsewhere.
Urban centres, also known as Urban Conservation Areas, were among the most affected by the new guidelines as small houses were able to build a ‘setback’ third floor. Back then, the Ministry said that the time required for a crane – and other disturbances – in the UCAs would be limited. Back then the ministry spokesperson told MaltaToday that reducing the price of property was not the reason for allowing development where it previously was not possible, but surmised that prices may indeed fall: “There are innumerable factors which affect property prices. Units available for sale are one of them. My guess is that the penthouses on the third floor will slow down the rate of increase in property prices, although I should say that these changes were made for reasons other than property prices.”
In 2006 the government also announced an extension of development boundaries which opened a stretch of land the size of Siggiewi to the onslaught of development. On that occasion Prime Minister Lawrence Gonzi claimed during a media briefing that government wanted to ensure an adequate supply of dwellings for couples to have more affordable homes.
“This was a fundamental reason why the boundaries would be extended,” the Prime Minister said about the ‘rationalisation’ of existing building zones.
He lambasted environmentalists for ignoring the social argument.
“Property prices are sky-high, and there had been calls for government to tackle this problem for hundreds of young couples who are getting married. It’s a very important point and we have a duty to respond to this issue,” Gonzi said.
In total contrast, Pullicino insisted that government had not carried out the rationalisation exercise to reduce the property prices, but to redress anomalies and injustices.
Excluding a decrease in property prices, the minister claimed the new zones would ensure “the rate of increase of prices would not remain so steep”.
The ministry had sought technical advice on the likely effects of “a very limited release of land for development would have.”
It was advised that a short-term stabilising effect “cannot be excluded but a decrease in property prices is not foreseen.”
A report on the macro economic impact of the extension of building boundaries, prepared by government consultants KPMG, is being kept under lock and key by Environment Minister George Pullicino.
The report could provide a valuable insight of what impact increased construction activity would have on the country’s Gross Domestic Product, as well as on property prices.
In fact a report on the macro economic impact of the extension of building boundaries, had cost the government Lm 2,360, prepared by government consultants KPMG, was never published by the government.
The report was part of a dossier which helped the cabinet to reach a decision on this issue. It is understood that the report considered the inclusion of a far greater land area, especially in Gozo, than was subsequently approved by the cabinet.
Vacant and empty Despite the massive increase in new apartments, the latest census shows that 43,108 properties are completely vacant all year round – excluding the 10,028 holiday homes which are occupied for some time of the year. 23,076 (43%) of all vacant properties are in a good state and a further 11,343 (21%) of the vacant property stock only need minor repairs.
One in every five dwellings in Malta and more than one in every three in Gozo are empty all year round. This is the picture of a Maltese housing market where empty homes have shot up by a staggering 17,403 since 1995.
The number of vacant dwellings in Malta is far larger than most other EU states except Portugal and Greece. Even with a landmass almost eight times as large as Malta’s and 100,000 more residents, Luxembourg has only 4,000 empty dwellings and 20,000 fewer properties. Ireland’s total stock of 1.4 million dwellings only has around 7,000 vacant properties.
Over the past decade, empty properties have increased from 35,723 to 53,126. Ironically most of this potential housing stock can be utilised without any major restoration cost.
With 36% of dwellings vacant all year round, St Julian’s emerges as the locality with the greatest amount of vacant properties, but still MEPA issued 1,870 new permits between 2000 and 2006 – 1,002 of which were issued between 2004 and 2006.
More than 35% of Gozitan dwellings are also vacant all year round. Another 12% are holiday homes, empty for most of the year. Despite the very high vacancy rate, in the past seven years MEPA issued 6,035 new permits in Gozo between 2000 and 2006.
And in Malta it is not just old localities like Valletta, Sliema, and Floriana that register a high rate of empty dwellings: 61% of St Paul’s Bay is vacant for most of the year.
Even when excluding the 4,467 holiday homes in the locality, one is still left with 4,295 properties vacant all year round. It is also the locality which saw most planning permits for new dwellings between 2000 and 2006 – 4,249.
Marsaskala, demographically one of Malta’s youngest towns, still has 26% of its dwellings vacant all year round. And yet, MEPA issued 2,251 new permits between 2000 and 2006.
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