Affordable housing and the ‘S’ in ESG

Last Updated on Thursday, 23 November, 2023 at 10:25 am by Andre Camilleri

Last week, the Foundation for Affordable Housing published a compelling scientific study introducing an economic parsimonious model. For the first time, the study establishes new tools to examine the housing affordability, providing additional granular information about the truths concealed by medians.

Plainly, the results that came out of the study are worrying. The study outlines the way prices varied over the years. It transpired that in Malta house prices increased at rates faster than the historical average. Hence, the free-market solution to own a residential property started to decline, especially for single persons and first-time buyers. Alas, those who were designated as prospective homeowners were pushed out of the market due to the astronomical increase in prices. Others had no option but to acquire expensive rental housing accommodation. Also, there is a group within the lower middle-income bracket that suffered housing costs and left them with insufficient financial resources to match the monthly expenditure, including  certain basic needs.

Obviously, global inflation did not help. Actually, it made matters worse. It did not just hit the lower income brackets, but also the lower middle-income brackets. Citing the figures from the study, it appears that in 2022 more than 13,000 households experienced housing costs which exceeded 30% of their disposable income. Normally, the amount required from the bank to provide credit, hovers around 30% of gross income. Seemingly, the number of households that experienced housing costs of around 30% of their disposable income was just half the figure in 2018. This means that while we are promoting housing ownerships, prices spiralled out of control. The study explains that it’s become difficult to find a property, and affordability is at times coming at the expense of good quality estate. Notwithstanding, that the government is promoting the schemes for first-time buyers, especially the removal of the stamp duty around certain thresholds, prices spiked to a point where affordability might have come at a cost of lower quality accommodation.

The reason of such unaffordability relates to the unfettered free market system. Perhaps, we require additional transparency in prices through additional flexible regulation. However, we must admit that the biggest problem that pushed prospective buyers out of the market in the past two years, is the global inflationary pressures resulting from the war in Ukraine. The longer the time horizon to reach a peace agreement, the worse it will get for prices to settle. We have a situation where the prices of property in Malta rose much faster than the wage increase. And the current level of inflationary figures made it even more difficult. Seeing the level of income strictly required to afford a property as a first-time buyer and for a bank to provide credit, it is truly appalling. True, the Maltese government is giving a sum of 10,000 over a period of 10 years to help homeowners to acquire a property. Surely, it is a good step in the right direction. However, we need bolder policies, as outlined in the study, by involving the third sector. Also, the EU must bear in mind that a one-size-fits-all framework does not work.

As we are experiencing global inflationary pressures, which are also reflected in the housing market, simultaneously, the European Commission is pushing for the climate transition. It’s become the obsession of President Ursula von der Leyen before the end of her term. Actually, the inflationary pressures are the doing of the miscalculations of the European Commission under the tenure of President von der Leyen. Well, you all remember the State of the Union speech in 2022. It was a complete charade. Furthermore, the President of the ECB, Christine Lagarde who also happened to be a former French politician, is pushing the agenda of climate change. Nonetheless, the ECB’s mandate is price stability. Essentially, the government must be in charge for implementing the changes relating to the climate transition.

Global inflation is already making it difficult to afford housing let alone with the introduction of supplementary costs. Certainly, once the costs of the green transition are passed on to consumers, and after all the regulations come into force, it is going to be even more difficult to purchase a property. Regulations within the perimeter of the green transition will surely hurt people’s pockets to the point of pushing additional prospective buyers out of the market. The costs involved to transit to greener properties, including the renovations, might impinge on the “S” of ESG. Notwithstanding, that the attention is entirely on the “E” of ESG, the “S” is being left orphan.

The transition to cleaner and energy efficient properties must not come at the cost of affordable housing, under the “S” of ESG. Else, we are contradicting the UNSDGs, specifically inequalities of income, for the haves and have nots, thereby leaving those behind without proper shelter and decent accommodation. My appeal is to prioritise people’s lives. What is actually happening with the geopolitical world of accelerating the green transition is surely hurting households. The green transition was meant to be different and in an orderly manner. So, when you listen to Eurocrats and politicians speaking about the green transition, as well as the requirement of greener properties, remember, that it will come at a higher cost, always. 

At the current political juncture, I personally believe that when Council starts negotiating the mid-term review of the MFF, they might wish to take into consideration such provisions. The subsidies to transit must be implemented across all sectors. The assumptions that the green transition would not come at a cost is a misconception. Those on the lower income bracket will be the ones that will have to bear the cost of such decisions, irrespective of the provisions introduced in the Just Transition Fund. The negotiations of such a fund were executed in a different context. Clearly, a context devoid of a war in Eastern Europe, and with lower inflationary pressures on European households.

When I was posted to Brussels, I experienced the panic of the Greek crisis in Council’s corridors. Frankly, I remember Christine Lagarde in the Eurogroup and the Ecofin Council meetings, as head of IMF. Back then, the austerity measures imposed on Greece to reform and get the IMF bail, were painful. And I am anticipating that the same level of painful decisions is being imposed on the rest of Europe, albeit for a different reason. Personally, I augur the Foundation for Affordable Housing to carry on with their good work. Finally, we have a bit of visibility, on who and which groups can afford housing in Malta. And now I understand why demand for social housing and monetary assistance increased.

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