Malta’s size sets the limit

A report in the press earlier this week quoted the director general of the Malta Employers’ Association saying that property and rent costs were among the drivers of wage inflation. He explained that the rocketing prices of property and rent are putting employers under extreme pressure to upgrade wages.

With our economic boom showing no signs of cooling down, employers are also facing labour shortages – despite a heavy influx of foreign employees that currently amount to 30% of the labour force in the private sector.

Wages in the private sector are also subject to market forces and the law of supply and demand – something that people tend to forget, accustomed as they are to government decisions about the annual increase for the cost of living (COLA).

Farrugia’s comments followed a pastoral letter issued on September 8 by the bishops of Malta and Gozo in which they expressed their growing concerns about an escalating housing crisis, with property prices spiralling upwards beyond the reach of most ordinary citizens.

The bishops warned that “families and the elderly cannot meet the rapidly escalating rent crisis and consequently are ending up on the streets” and referred also to young people who cannot buy where to live as they do not qualify for a bank loan. The bishops said politicians could not play partisan politics with the issue, and called for rent regulation.

However, I dare say that what the bishops and Farrugia are ascribing as a cause – the skyrocketing property market – is, in fact, an effect rather than the cause itself: the effect of a booming economy in a small island where space is very limited and therefore at a premium.

This begs the obvious question: what is the optimum size of the Maltese population? At what point does the increase in population upset the economic applecart that the same foreign influx of people has so beneficially adorned?

Malta’s size is what it is. Ideas about expanding this area towards the sea by land reclamation seem to have died out when people realised the complex problems facing such proposals. We have also decided (and rightly so) that we want to preserve areas of countryside where development should not be allowed – the ODZ (Outside Developent Zone) line has almost assumed sacred status.

The area of Malta that is actually available for development is therefore a fraction of the country’s overall area. With more and more people needing accommodation and services, the pressure for space is enormous. The price of land – as a component of the price of any property – has gone berserk. This includes the price of an air space where an apartment can be accommodated – more so after height limitations were increased by the Planning Authority.

This has, of course, led to the impression that all Malta is one big building site as more floors are being added to existing buildings while other buildings are being pulled down with the resulting site being completely redeveloped.

Yet supply is still not satisfying demand.

Those who were lucky to be property owners saw the value of their assets increase to never-expected heights. These are not just the so-called ‘greedy’ developers who buy property, redevelop and sell, but every Tom, Dick and Harry who owns a house or a flat.

Up to the time when Malta joined the UE, the percentage of residents who owned their home was very high – even by EU standards. I need not go into the reasons how this came about, but one of them was the absence of a rental market, especially in residential units.

The liberation of our old rental laws and the sudden unforeseen increase in our population has dented this economic factor. Now the big number of foreigners who need accommodation and are not interested in buying property – at least initially – have boosted the rental market. Many Maltese who do not own any property and who are not tenants that are still protected by the law have found they cannot afford to rent or to buy property.

This situation, in itself, is creating a very serious social problem with people sleeping in the open or living in places that are not meant to be used for residential purposes: garages, basement stores, stables and whatnot. Landlords are even renting different rooms in the same flat to different tenants who share the bathroom and the kitchen.

I am not one to champion state intervention as a matter of principle, but this situation is so precarious that some prudent state intervention is certainly indicated.

Such state intervention would be a case of desperately needed fire-fighting as a result of a lack of clear policies. However, such steps would not affect the big picture.

The big picture cries for a serious demographic study to establish the optimum size of our population and what policies are needed to push the country in that direction. Malta’s size must set a limit somewhere.

I know that this is a tall order that would not earn any brownie points for the current administration.

But unless we start thinking in earnest on these lines, the problem will remain with us for decades to come.

Danish pastry anyone?

Danske Bank’s chief executive Thomas Borgen resigned on Wednesday after an investigation revealed payments totalling 200 billion euros through its Estonian branch, many of which were suspicious, as the bank itself has admitted. Danske Bank’s money-laundering scandal is one of the largest the world has ever seen.

At its peak in 2013, Danske’s branch held 44 per cent of all Estonian banks’ deposits from non-residents. That same year, when more than €30bn flowed through Danske’s branch from non-residents, the portfolio generated 99 per cent of the branch’s stated profits before credit losses.

The Danish bank detailed compliance and control failings were revealed amid growing calls for a new European Union watchdog to crack down on financial crime after a series of money laundering scandals.

Borgen, who will stay on until a new CEO is appointed, told a press conference: “Even though I was personally cleared from a legal point of view, I hold the ultimate responsibility. There is no doubt that we as an organisation have failed in this situation and did not live up to expectations.”