Housing prices rising but affordability remains the same, study shows

According to a recent study, housing has become more expensive for first-time buyers over the past two decades… but it’s still pretty affordable.

Over the past 20 years, house prices have increasingly outstripped household incomes, with couples spending almost four times their combined income on property in the early 2000s and approaching six times their income by 2022.

Meanwhile, home prices for single buyers have risen from around seven times their wages to nearly 11 times their annual income over the same period. Housing affordability for first-time homebuyers in Malta Research paper.

But despite the price increases, housing affordability has remained stable, according to Brian Micallef, the paper’s author and a policy maker at the housing authority.

Micallef developed the Housing Affordability Index (HAI), a metric real estate agents use to measure how affordable an average household is to buy an average home, “specifically for first-time homebuyers between 2000 and 2022.”

Housing affordability index for first-time homebuyers.

His index shows that despite sharp increases in house prices, housing affordability has remained largely the same over two decades – if anything, it has become slightly more affordable.

Micallef attributes static affordability – despite some peaks and valleys, such as a sharp drop in affordability after the 2008 financial crisis – to low inflation.

“The price-to-income ratio does not take into account financing costs, which have been trending downward over the past two decades until 2022. Therefore, despite the increase in the price-to-income ratio, the HAI remains above the 100 threshold,” he wrote.

The index does not include deposits, notary fees

However, Micallef’s HAI does not take into account other costs such as deposits and notary fees because it assumes that the buyer has saved enough for a down payment.

KPMG data Figures released in November showed that the average price of an apartment had soared from €142,000 in 2013 to €280,000 last year, while the average deposit size had also risen from €14,000 to €28,000.

Micallef acknowledged that building up that kind of savings “takes time and isn’t easy, especially without parental support”.

Using the example of a property worth around €217,000 – which would require a €21,000 deposit – he stressed that this was “equivalent to more than a year’s salary… and more than half of the minimum income required to qualify for a loan”.

However, despite the sharp rise in deposits and house price-to-income ratios, Micallef does not seem to think housing has become more unaffordable.

He described the country as a “nation of homeowners,” noting that the homeownership rate has remained around 80 percent.

He said that while there was a “growing and more widespread concern that housing in Malta was too expensive”, differences in house prices between different regions and “trade-offs” between property types and sizes could distort the overall picture.

“These trade-offs can exacerbate perceptions of an affordability crisis, especially when borrowers assess affordability based on certain reference groups or historical experiences, such as their parents or friends.”

Mr Micallef said it was time to move away from “economy-wide averages” when measuring housing affordability and focus on first-time buyers, “particularly those on lower to moderate incomes”, who he said were “quite different” from median-income households.

And, at least for now, the period of historically low inflation appears to be over, which Micallef warned “will put additional pressure on housing affordability”, suggesting that “looking forward, assessments of affordability should move away from looking at medians or averages alone and emphasise the distribution of housing and income”.

Micallef’s study was recently published, and just a few months ago, local Construction Company Another agency, HAI, said housing is more affordable today than it was in the 1980s.