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Housing market developments in Malta
Housing market outcomes are the result of the interaction between user demand and supply of housing. For several years, additional housing demand exceeded additional housing supply leading to exceptional growth in selling prices. However, over the past two years, house prices grew at a slower pace. Thus, understanding the historical and expected developments in the demand and supply of housing is key for anticipating likely developments in the selling price of housing units.
The main drivers of ‘user demand’ for housing stems from first-time buyers, long-term lessees and short-stay visitors. This should not be confused with ‘buyer demand’ which represents those that purchase a housing unit either for personal use or to rent it out.
The additional demand for housing units by first-time buyers remained relatively stable over several years and is estimated to average around 2,500 units per annum.
The demand driven by long-term lessees mainly stems from foreign residents working or retiring in Malta. These increased significantly since 2017 and, by 2019, 100,000 out of a 500,000 population were foreign-born living in Malta. Such was their increase, that additional demand for housing units by long-term lessees is estimated to have amounted to almost three times that of first-time buyers in 2019
A similar trend is observed for short-stay visitors. These are tourists staying in temporary accommodation that would otherwise serve as housing. Tourism numbers followed the same trend as foreign residents, whereby a total of 714,157 tourists stayed in ‘other rented accommodation’ in 2019. This meant that demand driven by this subcategory had been increasing year-on-year until the tourism sector was hit hard by COVID-19 in 2020.
Turning to housing supply, it is defined as the quantity of housing in existence. These come onto the market following a process initiated through the application for a building permit with the Planning Authority (PA), followed by its approval. Approved permits translate into additional housing stock on the market with a certain lag as it takes time to construct new housing units. In 2018 and 2019, around 20,000 permits were approved, meaning that such housing units would then come onto the market in one/two years’ time.
These developments are expected to ease, but not eliminate the downward pressure on prices as additional demand will likely not suffice to fully meet the supply of housing that would have been accumulated by 2024.
Having said that, recent international developments, such as the Russian invasion of Ukraine, compounded with the lingering effects of COVID-19, complicate the outlook for the housing market. European Union Member States report that construction costs have increased by 20 to 30 per cent due to the negative impact that such factors have had on the global economy.
Taking all these factors into account, the future of the housing market looks challenging.
