Apartments cost 11 times the annual income of single buyers

The best time to buy a property in Malta since the turn of the millennium was between 2000 and 2003 when housing affordability was at its peak, with home ownership within easy reach for many first-time buyers.

But a comprehensive study by the Housing Authority finds that things took a turn for the worse from 2004 onwards, when rising property prices outpaced income growth, making it increasingly difficult for new buyers to enter the housing market.

This trend, which started with a sharp drop in affordability between 2004 and 2008, has now persisted over the next two decades.

The study, authored by the Housing Authority’s policy unit’ head Brian Micallef, was published in a special edition of Xjenza Online, focusing on economic issues and edited by Prof. Lino Briguglio.

Documenting the changes in the Housing Affordability Index over two decades, the study shows that the early 2000s were characterised by relatively affordable housing.

Between 2000-2003, the Housing Affordability Index – where an index exceeding 100 implies that incomes of first-time buyers exceed the income required for a mortgage –  averaged around 109.

In this period, property prices were modest compared to incomes despite the prevailing high-interest rates. Moreover, the average property price for a two-bedroom finished apartment was just under four times the annual salary for a typical couple. For single individuals, the ratio was higher at 7.2 times their income​.

The mid-2000s crisis

The period from 2004 to 2008 marked a downturn in affordability, with the HAI dropping to an average of 90, signaling that homes became less accessible.

This decline was primarily driven by a significant rise in property prices, which outpaced income growth.

The study notes that during these years, the property price-to-income ratio for couples increased noticeably, making it harder for new buyers to enter the market without substantial financial resources or assistance​. The price of property in this period stood at about 5.2 times the average annual salary of a couple and to almost 10 times for a single individual.

The global financial crisis of 2008-2009 further strained housing affordability as the economic downturn exacerbated pre-existing affordability issues.

As Malta began to recover in the early 2010s, there was a gradual improvement in economic conditions, but housing prices continued to rise, albeit at a slower pace compared to the mid-2000s spike​.

Things get worse until COVID comes

After 2018, housing affordability took another hit, with the HAI averaging around 106 between 2017 and 2022, but declining to 100 in 2018 before recovering to 108 in 2021-2022 following the pandemic.

Moreover the HAI during this period averaged below 100 for single buyers, with property prices soaring to nearly 11 times their annual income, compared to 7 times in the early 2000s. For couples, the ratio increased from 3.7 to 5.7 times their annual income. ​

During the COVID-19 period, house prices increased at a slower pace compared to incomes, which explains the slight pick-up in the HAI index after 2020

But the study also shows that affordability differs significantly by locality.

The results indicate that in 2021 the HAI stood below 100 in four regional clusters and above 100 in five clusters. Housing affordability was lowest in cluster A – Sliema, St Julian’s and Valletta – where the HAI stood at just 62.3.

Also below the 100 point threshold were cluster B (Gzira, Msida and Ta Xbiex), cluster C (Swieqi, Ibragg, Madliena and Pembroke) and cluster D (Attard, Balzan, Lija, Mosta and Naxxar). Taken together, these four clusters account for around 28% of the Maltese population.

On the other hand, housing was mostly affordable in Gozo which recorded an HAI of 152 and cluster G (Fgura, Zabbar, Paola, Zejtun, Marsascala, Marsaxlokk and Cottonera) which recorded an HAI of 121.

Cluster F (Birkirkara, Floriana, Hamrun, Pieta, Qormi and San Gwann) and cluster E (St Paul’s Bay and Mellieha) also recorded an HAI of 117 and 106 respectively while Cluster H (Zurrieq, Dingli, Qrendi, Rabat, Mgarr, Siggiewi, Zebbug) recorded an HAI of 103.

The average price for a two-bedroom finished apartment ranged from €378,344 in Cluster A (Sliema, St Julian’s, Valletta) and €154,796 in Gozo.

Hike in prices offset lower interest rates

The study also shows that that from 2000 to 2022, mortgage interest rates in Malta fell from 6.5% to 2.8%, theoretically easing the cost of borrowing.

However, this reduction in rates did not sufficiently offset the rapid increase in property prices, leading to a net decline in affordability​.

The study lists different factors driving property prices up. These include economic growth, population increases, and foreign investment in Malta’s real estate market. Meanwhile, income growth has not kept pace with these rising costs.

One factor overlooked in HAI calculations is the availability of sufficient funds for a down-payment. The HAI assumes prospective borrowers have these savings, but this can be challenging without parental support. For instance, a 10% deposit on a €217,375 property is €21,737, more than a year's salary for many. This doesn't include other expenses like stamp duty and fees. The study notes that in 2020, the Maltese Government launched a scheme to assist eligible homebuyers lacking the necessary liquidity.

The study suggests that future assessments of housing affordability should consider the distribution of housing costs and incomes more closely, rather than relying solely on median or average values.