Endless lending fueled rising house prices – John Consiglio

The issue of housing affordability in Malta continues to elude all remediation efforts. Increasingly problematic are proving to be the positions of policy makers and the blind belief that they can manage the situation with their feet on both main sides of the issue: on the one hand, the interests of potential landlords or tenants and , on the other, the interests of promoters, speculators and financiers.

The obsession with things called “balance” and “sustainability” just shows the true colors of everyone involved.

How many have stopped to think about the role of banks in this enigma? How many have asked what role lenders have played in this runaway rise in house prices?

The latest report indicates that in 10 years, real estate prices have at least doubled. It can be argued forcefully that the freedom of banks and others to lend, almost without any sense of limitation or appreciation of what they do for society and the economy, has been one of the immediate causes of the rising real estate prices.

A report published by UK think tank Positive Money in March 2022, titled ‘Banking on Property’, provides high-level coverage and analysis of the role of banks in driving their property affordability. It is a valid answer to the fundamental question of what is causing the housing affordability crisis and how to solve it.

The banking liberalization which followed Malta’s entry into the EU in the Eurozone and its virtual loss of the power to exercise qualitative domestic controls, within the framework of any totally indigenous monetary policy, has accentuated Malta’s problems on this front.

Far too many individuals in Malta, local and non-Maltese, have been romanticized into situations of being able to buy property even as property prices have risen much faster than their incomes.

In pure economic terms, we have developed in a situation of relatively elastic credit supply responding to a relatively fixed housing supply, which, however, is also combined with increased speculative demand for home ownership.

Far too many individuals have been romanticized into situations of being able to buy property even as house prices rose faster than their incomes-Jean Consiglio

Rapid growth in house prices would not have been possible with a bank rating and bond issuance system, given the much slower growth in household incomes. But ratings and sinking funds seem to be things that all new bond issuers, plus, of course, brokers and market makers, continue to do their best to originally suppress.

The first and inescapable reform needed in the housing market is to stop the rise in prices. This means reining in the financial institutions that have lent so heavily (not to say recklessly) on mortgages.

Can this be done? Of course, politicians must resist the powerful lobbies of the banks and construction industries.

Why, for example, has the subject of property taxes never been seriously addressed? Changing all stamp duties to a property tax could trigger a downward trend effect on real estate market prices.

Likewise in the case of land which, in Malta, always seems to go to the financial vultures.

No authority or government should be allowed to sell their land. In Singapore, virtually all housing land is owned by the state.

In Spain, Ireland, the United States and the United Kingdom as well, housing affordability is also a very big issue. But it’s never treated as if on one side or the other of the spectrum there are sacred cows that no one is ever innovative or brave enough to engage with.

A start could be made locally by tackling the current absolute power of the banking system to lend.

John Consiglio is a senior lecturer in the Department of Banking and Finance at the University.

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