Housing & Poverty In Malta With A Focus On The Southern Harbour Region

Publication Date: 30/1/2004

Housing & Poverty In Malta With A Focus On The Southern Harbour Region

Author: Mr. Bernard Mallia Reviewers: IRISS Working Group on Poverty

Publisher: Equinox Advisory Ltd. in collaboration with the IRISS

19/14, Equinox Advisory,

Vincenti Buildings,

Strait Street,

Valletta VLT1432,

Malta

Date of Issuance: 30 January 2004

Date of Publication: 17 July 2013 (Published as originally produced

without amendments)

ISBN

1. Index

1. Index ............................................................................................................................ 2

2. Abstract ........................................................................................................................ 3

3. Introduction & Literature Survey ................................................................................ 4

4. Housing and Poverty ................................................................................................. 12

5. The General Picture: Putting Vacant Housing in Perspective ................................... 15

6. Vacant Housing In The Southern Harbour Region ................................................... 17

7. The Potential Links Between Poverty and Housing .................................................. 22

8. Policy Suggestions ..................................................................................................... 25

9. References ................................................................................................................. 27

Appendix 1: HBS Calculations ......................................................................................... 29

Appendix 2: Chart 1 – Reasons For Internal Migration ................................................... 30

Appendix 3: Map 1 – Percentage Vacant and Occupied Dwelling Stock in Malta .......... 31

Appendix 4: Map 2 – Dwelling Units Per Hectare in Malta ............................................. 32

2. Abstract This paper analyses the causes and the nature of the voluminous vacant housing stock in the Maltese Islands, focusing particularly on the Southern Harbour Region while investigating the links that there might be between such vacant housing and the incidence of poverty. Affordability analyses are carried out and the link between housing prices and poverty is also investigated inasmuch as the data allows it. In doing this, definitional issues are first raised followed by some affordability calculations and considerations. The findings are quite alarming and point to a hidden but nevertheless real problem that Malta will eventually have to come to terms with. We have found evidence that 7,731 households are inadequately housed and that 16% of Malta’s population lives below the poverty line, which translates into about 19,000 people. This is only expected to get worse as time goes by, wages stagnate due to international competition and the cost of living keeps going up due to both domestic and international economic factors. The findings further point to a link between a growing stock of vacant housing, poverty and urban degeneration. Some of the channels through which this could be taking place are identified. Although the findings of this paper cannot be taken to be conclusive given that a more comprehensive and better-funded study would be required, we do set out the major policy questions that any better-funded subsequent studies in this area might want to look at, as well as policy recommendations based on our preliminary findings in this area.

3. Introduction & Literature Survey

Housing is in many respects sui generis, and this is more so in Malta where several unstudied, ill-understood and understudied conundrums still exist. Although the strong domestic construction industry lobby is well-positioned to ensure that several issues of national importance that pose a threat to the represented interests never make it to the policy discussions that matter, it is a well-known and widely-acknowledged fact that housing and its various constituent parts have an intimate and inextricable relationship with several factors affecting the well-being of the population at large. These issues include, but are not limited to, issues such as the inexistence of a link between demand and supply on the one hand, and prices on the other (and therefore the possible competition policy and anticompetitive collusion implications thereof), the future effect that this might have on health, tourism and the urban fabric of villages, towns and cities, as well as the link between housing prices and modern-day poverty. It is generally acknowledged, in this regard, that decent housing is a basic necessity for the healthy psychosomatic development of an individual and yet, notwithstanding the lofty proclamations of the Human Rights Charter, the universal right to housing is nowhere to be found. The term housing is itself ambiguous, despite the fact that its frequency in colloquial usage might give a different impression. Housing could be thought of as an asset in terms of the land space occupied and of which the value generally increases with time, unless a prolonged recession is experienced (this happened, for instance, in the UK in the early 90’s and ended up with many households’ being doubly squeezed first through the recession itself and secondly through negative equity). It is, at times, thought of as a

depreciating consumer durable good needing maintenance and associated works. It is sometimes conceived as an essential social good worthy of being included in with the state’s list of public or merit goods, and at others something to be left entirely to the market’s invisible hand. Since the definitional issue of housing will determine, in part, the policy recommendations that an analysis is likely to come up with, it is usually important to define housing meticulously. However, since for the purposes of this paper, the issue merits treatment holistically, the generic term housing shall be adopted and will take on all the attributes ascribed to it in everyday, colloquial usage. More specific definitions will be employed wherever the need to do so is identified within this paper. At the outset, it might be in order to define what constitutes vacant housing and, by implication, occupied housing 1. Even defining vacant and occupied housing has its problems. The Maltese National Statistics Office (NSO), for example, classifies summer and holiday accommodations under the heading of vacant housing units 2, whereas the International Monetary fund (IMF) 3 classifies summer and holiday accommodations under the heading occupied housing units. The definition that has been found to be most appropriate for this paper is that used by the European Central Bank (ECB). The ECB defines a vacant dwelling in terms of the fact that it is not occupied or let by its owners: “Dwellings regularly used during some seasons or during holiday periods are considered as non-vacant. New dwellings not yet let / occupied are considered vacant. All non-vacant dwellings are, by definition, occupied. The vacancy rate is calculated by taking the share of vacant dwellings in the total stock of dwellings” 4. However, because the data that is required for this paper comes from the NSO, it does not make sense to adopt one definition and be compelled to use another, so the definitions of the NSO haveto be adopted for practical reasons, even though this is not ideal. The literature surveyed in coming up with this paper identifies two kinds of homelessness, these being visible homelessness and invisible homelessness. The former is defined as that type of homelessness whereby people have literally no roof above their heads and often end up roaming the streets frittering away their time and hoping that providence will be favourable enough to supply them with yet another day’s essentials. The latter type of homelessness, despite being, as its name suggests, less conspicuous, is still highly problematic and it takes account of a host of housing-related aspects. Such aspects usually cover the realms of affordability, adequacy, protection, security of tenure, suitability, independent living, privacy and community-related issues. This study covers only two of these housing aspects: affordability and adequacy.

1 Occupied housing may be defined as the total stock of housing minus the vacant stock of housing.

Symbolically, if we let C denote occupied housing and V stand for the vacant stock, V = 1 - C . 2 “National Accounts: Sources and Methods” by the NSO (2000) 3 “Compilation Guide on Financial Soundness Indicators Draft” by the IMF Chapter 9 (March 2003) 4 “Statistics on EU Housing Markets” by the WGGES: ECB (July 2003).

Affordability relates to the ability to meet the expense of housing without impairing the ability to meet other ordinary and extraordinary 5 expenses as may be expected to arise during the time period within which the rent or loan repayment falls due, this usually being monthly, quarterly, bi-annually or annually. For the ends of coming to terms with affordability, we could think of a hierarchy of essentials, similar in nature to that proposed by Maslow but adapted to housing, with nutrition being the top priority and housing being the bottom one. This is illustrated in descending order of priority from bottom to top in the diagram below. Housing is affordable if, and only if, its rent value may be paid from the current revenue sources after the other expenses higher up in the pyramid-like priority listing have already been paid for.

In order for affordability to be measurable, a benchmark against which to gauge affordability has to be established. Banks consider a fixed percentage of total income to be such a benchmark 6. However, there is nothing scientific about such a benchmark, which was established discretionarily and eventually petrified with the elapse of time. Another approach could be that of establishing a secondary poverty benchmark excluding housing expenses and to calculate housing affordability thereon. As per the calculations of the present author, it is estimated that such a benchmark should be at around LM 3,026.3 per annum for males and LM 2,212.4 per annum for females 7. Housing adequacy refers to the state or quality of the particular housing unit’s sufficiency for the requirement for which the same housing unit was bought. For this reason, because housing units are bought or rented either with the intention of reselling or sub-letting, with which we will not concern ourselves in this paper, or with the intent of establishing

5 Extraordinary Expenses, as per the accounting lexicon, are defined as those one-off expenses the

occurrence of which is haphazard and unpredictable. 6 The Bank of Valletta fixes such a percentage at 25%. For more details refer to

http://www.bov.com/pb_borrowingmoney_homelink.asp (accessed 12 January 2004) 7 Vide Appendix 1.

Housing

Medicines

Clothing

Food

a home in which to live healthily and comfortably 8, the concept of adequacy encompasses such items as the access to temperature-conditioning devices, running potable water, access to sewerage infrastructure and the like. Because, as per our prior definition, adequacy or the lack thereof may only be established in relation to requirements, adequacy takes on different meanings in special cases where persons with special needs, which term includes the elderly, are concerned 9. Homeownership is nowadays the dominant form of housing among the majority of advanced countries. However, there are still housing problems that have not been dealt with, and they are becoming somewhat worse. Some have singled out and targeted the commodification process as the culprit underlying the affordability problem. However, in a capitalist economy, commodification is the common denominator of all saleable items whatever they might be. This suggests that the analysis of the commodification process is insufficient, and the problem must lie elsewhere, namely in the peculiarities of the mechanisms of the land market. The price formation mechanism, rent and land prices are intrinsically different from those of other commodities. Firstly, they include a derived-demand component. That is to say, they are partially regulated by the profitability of the activities generated on a given site. Secondly, they include a market component regulated by the interaction of demand and supply, as is common in most other markets. Thirdly, since the available land is more or less finite 10, and since supply is restricted in land-use (e.g. supply of land within a particular distance from the city centre), the price mechanism together with the excludability principle applicable to private goods, such as housing is in this context, will make housing unaffordable for a number of people. In other words, there is a chargeable premium for land convenience when it comes to the housing market. Anyone wanting to take over a housing unit within a specific area which registers full occupancy will have to do so by displacing someone else. It follows that rent and land prices in private housing are established in a ‘hierarchical’ market and they are fundamentally different from the prices of other, more conventional goods, which may be supplied on a vaster scale by increasing the employment of the basic factors of production. This has been called the use-monopoly of land ownership. What is more, land ownership disrupts the free market mechanism in another fundamental way, namely that when it comes to the supply of land, such supply depends on the willingness of land owners to rent or sell their land. Continuous supply is incompatible with land ownership and the land market is essentially supply-restrictive. This has been called the ownership-monopoly of land.

8 Technically speaking this statement is not right since housing units are also bought with the intent of

holding them as assets. However, since this need not concern us in the context of adequacy, we will assume

speculative house purchasing and holding away. 9 This draws upon paragraph 60 of the Habitat Agenda, which reads “adequacy should be determined

together with the people concerned, bearing in mind the prospect for gradual development …” 10 Even if account of land reclamation is taken, the earth’s surface is finite and land space is, by

implication, finite too.

Under such ‘double monopolistic’ circumstances, the land market is individualistically stratified on the one hand, and is characterised by rising land prices, on the other, given that demand for land increases in consonance with good economic times, even if for speculative reasons alone. During such times, rises in purchasing power perpetually lag behind. Furthermore, prices of other goods, like, say, computers, are falling constantly in absolute terms due to technological improvements, whereas the price of land continuously rises inasmuch as commercial banks accommodate the increase in liquidity that this persistent rise depends on. Additionally, land is not subject to obsolescence, wear and tear and depletion, except in a very few remote cases (such as in a quarry). This makes land one of the most ideal types of asset. In contrast to land, a housing unit is essentially a commodity not unlike any other commodity commonly found in an economy. Therefore, the supply and demand for housing constitutes a ‘normal’ market exhibiting no peculiarities. Notwithstanding this, a building is normally spatially fixed (i.e. it cannot be moved away from the land it was originally built on) and this explains the ambiguous character of property preference.

“Property ownership, not house ownership, has the mysterious character of land ownership…

Property ownership includes land ownership. The general rule that the price of a commodity is a

compound of various costs which often fluctuate separately holds true for property.” 11 Many scholars believe that because of the aforementioned double monopoly of land ownership, the increasing problem of housing affordability is inevitable in a free market until a time comes when this is no longer sustainable and a great correction needs to occur. According to several studies relating to the British housing market (Yoshiharu Y., 1999; Burnett J., 1986; Saunders P.,1990), which may be imported, advertently, to explain the Maltese scenario, as the bourgeoise class expanded, the idea of homeownership became more popular. In Malta, this was encouraged further by the provision of subsidised mortgage interest rates and subsidies, together with the granting of tracts of land by Government to private individuals. Building societies, with particular reference to Lohombus Bank in Malta, buttressed bourgeoise purchasing power even further.

“[T]he development of home ownership goes hand in hand with stagnation or even decline of the rental housing. As the capital asset market grows, land (or property) is also integrated into the asset market. People come to prefer owning to renting, because not just using land but owning it has a special meaning. If rents continue to remain stable, people may want to remain as renters. However,

the rise in land prices results in rent rises.” 12

11 Yoshiharu Y. (1999) Affordability Crises in Housing in Britain and Japan: The Journal of Housing

Studies Volume 14 p. 101. 12 Ibid. pp. 104 - 105.

The faltering of Keynesian economics and the failure to attain full employment, was succeeded by privatisation and liberalisation policies. Deregulation expanded the scope for the capital and money markets, which enabled the provision of long-term consumer credits on a vast scale. Simultaneously, this accelerated the phenomenon of land and property integration into the capital market.

“The integration of the land and property market into the capital and money market accelerates the

instability of the land and property markets, which in turn gives rise to negative equity, mortgage

arrears, possessions and financial failures.”13 Property and land prices have already fallen dramatically in the beginning of the 1990’s in a host of European countries including England, before they soared again in the late 1990’s 14. In an in-depth local study covering 1980 to 1994 and relating to the multi-faceted Maltese housing market, Demarco (1995) found that housing prices did respond to government measures and policies. Such policies, locally, included rent control legislation and subsidised interest rates, with the local scenario being characterised by a lack of alternative investment opportunities. Since at the time of the commissioning of the study, no official data on housing market prices were published, the author resorted to price data compiled from asking prices as advertised in a leading local newspaper and supplemented by data on prices of residential property published by the Ministry of Finance. According to Demarco, the data thus collected at least give reliable information on price movements. To-date, no better indicator of housing price movements exists and the indicator pioneered by Mr. Demarco, despite not being the most ideal measure to go by, is published in the Central Bank of Malta’s Annual Report. Due to the introduction of a Capital Gains Tax in 1993, there is the possibility of under-reporting of declared sales values, which could prove to be an insurmountable statistical challenge biasing figures for 1993 and 1994. However, some inferences, bearing in mind this pitfall have been attempted by Demarco (1995). From: The Asking Price Of: Rose By: 1980 to 1994 Flats 186% 1980 to 1994 Terraced Houses 193% 1980 to 1994 Property Sold To Foreigners 200% Since 1983, the rate of increase in house prices was substantially higher than the inflationary rate yielded by the Retail Price Index (RPI). Real estate prices do not feature in the RPI. However, apart from possibly being a leading indicator of RPI inflation, since rising asset prices, as mentioned above, may encourage

13 Ibid. p. 106. 14 “Castles in hot air” The Economist (May 29th, 2003).

consumers to splurge, also affect inflation. Indeed, the RPI is a flawed measure of inflation.

“Ideally, an effective measure should include not only the prices of goods and services consumed today, but also of those to be consumed tomorrow, since they, too, affect the value of money. Assets are claims on future services, so assets are a proxy for the prices of future consumption.”15

The RPI seems to have underestimated true inflation repeatedly in the past, and this inevitably adversely affects housing affordability. What is more, it also adversely affected landlords renting property under the rent laws’ restrictions, since the allowable increases were RPI-based (Mallia, 2003). What is more, the price level of both houses and flats was consistently higher in the Sliema/ St. Julian’s area, with the difference widening progressively with time. The difference in prices of terraced houses over space narrowed slightly between 1980 and 1993, but widened again thereafter. In 1990, the price of a flat in the Sliema/ St. Julian’s area was estimated to be 50% the price of a terraced house, whereas that for a flat in the Southern Area was estimated at 40%. The Sliema/ St. Julian’s area was also found to be strongly preferred by foreign buyers, who perhaps end up crowding out the lower-earning Maltese workers. House prices also rose in absolute terms and in relation to incomes. According to Demarco (1995), this is due to the fact that in 1987 a wage freeze which was then in force was abolished, with the result that unemployment declined and incomes rose. These factors, in turn, paved the way for an unrelenting rise in house pricing. A very sharp rise was registered in 1994. We found such an analysis to be very suspect though, since the abolition of the wage freeze should, in theory, have resulted in increased unemployment levels. To the contrary of Mr. Demarco, we believe that the fall in unemployment, the rise in the general level of wages and, by implication, the soaring house prices lie in institutional factors that reinvigorated the Maltese economy and that fuelled a wave of speculation that will only last when such speculation can no longer be sustained by real economic activity and the market will have no option but to correct itself. In other words, while agreeing with Demarco’s analysis of effects, we disagree with his causal analysis. By the end of 1994, flats siphoned off 370% of average disposable income, which means that the average Maltese worker had to work for 3.7 years and allocate all his earnings to paying off his loan in order to pay back a housing loan. Terraced houses siphoned off 810% of average disposable income, which by the same token, translates into an individual working for 8.1 years exclusively for the house loan needed to finance the purchasing of the house. The key factors affecting the Maltese housing market (Demarco, 1995) are:

15 “Hubble, bubble, asset-price trouble” : The Economist (Sep 23rd 1999).

1. The change in the number of households, which is given by net immigration and the number of marriages16;

2. The demand for summer residences, which has tended to increase in consonance with the amelioration in the standard of living;

3. Tourism in that letting property to tourists is lucrative and turns housing units into a kind of operating capital;

4. The provision of subsidised housing, which has been reduced after 1992, but which is still substantial;

5. A lack of safe, alternative, inflation-proof investments; 6. The availability of developable land or the perception thereof 17; and 7. The Rent Laws, which have been repealed in 1995, but are still in force on older

contracts and the experience of which has made developers overly-cautious. Affordability is a key factor to be taken into account in the local scenario. According to Paul Camilleri, the Maltese Chamber of Architects believes that the housing problems in Malta may be ascribed to affordability rather than housing supply or availability (Business Times, Jan 23, 2002). The Housing Authority builds and sells some 150 – 200 properties for 33 % less than the commercial price annually, with over 1,000 units having been issued over the past 5 years. Such units are allocated as follows: 55 % go to families with children; 30 % to engaged couples; 5 % to singles over 30 and singles over 18 who have experienced institutionalised care; and 10 % to persons with disability. Applicants are means-tested, with the maximum allowable income and capital being LM 9,000 and LM 15,000 respectively in the case of married or engaged couples and LM 6,500 and LM 9,000 for single persons, also in that order. A point system is employed in the allocation of the Housing Authority’s housing units18. This, conceivably, does mitigate the local affordability problem for a subset of the population, though for the other subset affordability problems will still be insurmountable.

16 In this respect, a 10% levy on property sales to foreigners was introduced in 1990, with the intent of

denting foreign demand for Maltese land. 17 In this respect, the 1988 Building Permits (Temporary Provisions) Act provided extensive land for the

development of residential units well in excess of needs. But in 1992, with the enactment of the

Development Planning Act, the power to extend building development areas was devolved to the Planning

Authority and the extension of development boundaries, subsequently, became more difficult. This might

have given rise to expectations of shortage. 18 Refer to The Times of Malta of Sunday, November 23, 2003 “More affordable housing for sale” and

Tuesday, November 25, 2003, “Housing Authority issues 143 units for sale”. Both articles are available and

have been accessed to on “http://www.timesofmalta.com”.

4. Housing and Poverty Social housing has long been an important element in the Maltese safety net. During the past decade, the number of social housing applicants has increased by over 20% per annum. A fundamental conundrum, however, still remains. Some of the applicants for social housing are not considered to be poor, whereas others who are poor, and therefore eligible, for some reason fail to apply. Some indicators, such as those for substandard accommodation, income distribution and social development suggest that the actual number of social housing units may fall short of the true need for social housing provision. Out of the outstanding housing applicants in the year 2000, 379 lived in dangerous dwellings, whereas another 542 lived in substandard accommodation, giving a total of 921 inadequately housed applicants. However, the numbers of occupied substandard and inadequate accommodations, respectively, were 6,792 (as per the 1995 census) and 939, yielding a total of 7,731 inadequately housed households. This figure contrasts markedly with the 921 yielded by summating the inadequately-housed housing applicants. Potentially housing applications could go up by at least 6,810. The poverty line, by all means an extreme measure of poverty, in Malta given by taking 50% of the mean disposable income stood at LM 2,000 per annum. By this measure, 16% of Malta’s population lives below the poverty line, which translates into 19,000 people circa. Outstanding housing applications, however, are just over 3,000. The Maltese affordability crisis is also mirrored in the fact that at the time of Camilleri’s study (2000) 360 persons were separated but still living under the same roof and another

1,100 persons were residing in institutional facilities and would have liked to have their own home. Furthermore, the deterioration in the social fabric and the ever-growing drug abuse problem both point to an inflating homelessness problem. It was found that, of the 3,309 housing applicants in the year 2000, 2,815 had a yearly income of less than 4,000, whereas 494 had a yearly income exceeding the same cipher. Moreover, of the 2,815 whose income is below LM 4,000 per annum, 300 are single persons and 700 are single persons with children. According to Camilleri (2000), another alternative to using the poverty line benchmark is to gauge the extent of family expenditure excluding rent and mortgage payments, which system is similar to the one advocated in this paper earlier on. The difference between household income and this sum is equal to the need for subsidy for that particular household. Tabone (1995) found such an expenditure to be LM 200 per month for a 4/5 person family. By this measure, the number of households needing assistance would rise well above that indicated by the poverty line yardstick. In this regard, roughly 25 to 30 percent of income above family expenditure should suffice to make housing affordable. Subjection to social hardships (e.g. medical conditions) does not justify the meting out of a household subsidy, but a specific subsidy tackling the exact nature of the problem if the solution is to be both fair and equitable. Camilleri also voices a concern that social housing schemes might not be reaching the target population. He suggests a modified valuation model distinguishing between real and capricious affordability problems. To this end, he turns to the Housing Affordability Index (HAI). A HAI of 100 means that the median family earning the median income just qualifies for the median residence. When the HAI drops below 100, it means that the median family earning the median income has to do away with other necessities in order to support housing. HAI For: Stood at: In (Year): 3-bedroom median apartment 77 1982 3-bedroom median apartment 65 1997 2-bedroom median apartment 110 1982 2-bedroom median apartment 101 1997 What is more, the international standard for affordable housing, this being 3.5 times the median income is then determined. In Malta, the affordability benchmark was roughly LM 18,000. Additionally, the average accommodation size is then measured, this being roughly 110 metres squared, which is relatively high by international standards. And thereafter a benchmark for a 100 metres squared of affordable property is established,

this having been estimated by Camilleri at roughly LM 22,000. This figure exceeds the LM 18,000 affordability benchmark considerably. Camilleri also found out that on small-sized properties, small being defined as occupying less than 40 metres squared of space, a premium of LM 6,000 was applicable. To some extent, this dispels the myth that smaller property translates proportionately into higher affordability. The author then goes on to suggest policy changes. In his opinion, capricious affordability subsidisation should be done away with. He further suggests that only part of the rent should be subsidised in order to give an incentive to subsidy recipients to shop around, negotiate lower rents and utilise land more efficiently. Reference is also made to the social housing scheme in Germany, which allegedly takes into consideration a variable referred to as optimal accommodation space serving households. Thus, one person requires 45 square metres of space, with each additional person requiring an additional 15 square metres and with the rooms provided excluding the kitchen being dependent on the number of persons in the household. Because limited funds call for a distinction between real and capricious housing affordability problems, Camilleri suggests that the public should be guided into acquiring affordable housing and that the recipients of housing subsidies should contribute to society by being assigned ‘voluntary work’ as is done in Canada or to provide a loan rather than a grant. The regeneration of housing units in urban cores, where the Housing Authority could enter into a ‘partnership’ with private developers could also be considered. Any units generated from this scheme should then be sold partly at commercial rates, and partly assigned on ‘shared-ownership schemes’. The regeneration of inner city cores, and later outer ones, could also be candidates for the eventual acquisition of EU funding.

5. The General Picture: Putting Vacant Housing in Perspective

For a full understanding of the problem, it might be useful to provide, in limited detail, Malta’s post-1945 pertinent 19 housing policies and the incentives they disseminated. Ever since the Knights of Saint John came to Malta in 1530, and probably even earlier, the construction sector has always been regarded as a prime spurrer of the economy, most notably because of its relatively labour-intensive nature. In the aftermath of the Second World War, the U.K. Colonial Office asked a committee headed by Sir Wilfred Woods to estimate the amount of war damage Malta had suffered, which was to be compensated by the government of the United Kingdom, to suggest how to improve social standards in Malta, and thereupon to proceed by suggesting how the government of Malta could increase its revenue to cover ordinary expenditure. The result was the Woods Report 20, and it clearly postulated that it was not reasonable “to expect industrial development of sufficient magnitude to add materially to Malta’s national income” 21. Thus, manufacturing and tourism came in the limelight. With the exception of a short interlude in 1956, when British military expenditure soared again because of Malta’s strategic value and the attack on Egypt over the Suez Canal dispute, the Maltese people had to look elsewhere for employment. Nevertheless, tourism and manufacturing, together with emigration, did not yield the expected results, so construction and quarrying had to be resorted to. Construction became even more important with the advent of the rundown of the British military base, which began in 1962. By 1969, quarrying and construction had

19 Pertinent, in this context, refers to the policy’s relevance towards giving the reader an understanding of

the reasons underpinning the extant stock of vacant housing. 20 “Report on the Finances of the Government of Malta” by Sir Wilfred Woods: London, HMSO (1946) 21 ibid.

become central to the sustainment of the Maltese economy and to the absorption of blue collar labour 22. The objective of upheaving an otherwise stagnant labour market through employment in the construction sector was pronounced in many an official document 23. Statistically, this may easily be seen in the computed occupancy ratios. As per the 1957 census, such a ratio was estimated to be 1.3 persons per room. Since 1957 the average housing unit has slightly grown in size whereas the average family size has shrunk. As a result, the 1995 census indicates that the occupancy ratio for the census year had plummeted to 0.54 persons per room. These two figures speak volumes about the construction spree that has been taking place in Malta during the 38 years covered by the two indicated censuses. It would not be unreasonable to speculate that the next census, due to start in 2005, will show a partial reversal of this trend as previously large dwellings are now being demolished to make space for smaller housing units. However, this is not something that can be confirmed before the results of the next census are published. The last four decades, pithily characterised by the said policy-induced residential development boom, have been conducive to the present situation, whereby about a third of the total housing stock is estimated to be vacant permanently or in wintertime. Moreover, whereas 60% of the housing stock is of an acceptable standard, 30% is in need of substantial repairs and 10% is outright derelict. These statistics clearly underscore the problems of vacant housing, the problems with the Rent Law Act and further problems with lack of financial means to be able to maintain housing units in a habitable condition. What is more, they seem to indicate that there has been a policy-induced overinvestment in the housing sector with the consequences adumbrated in section 7 of this paper. The major challenge ahead, as a corollary, lies in the reutilisation of the currently-vacant housing stock in lieu of the development of other rural tracts of land at the expense of the natural environment, as well as the ascertainment that ghettos are prevented from forming in certain areas of the Island, where a culture of poverty is promoted becoming socially acceptable in the short run and where it fossilises into a way of life in the long run. This could further end up reinforcing a social caste that is both unemployed and unemployable due to the unfortunate mixture of stigmatisation and the lack of opportunities that this way of life brings along with it.

22 Official government statistics in this area tend to underestimate total monies generated and circulated in

the construction industry because of the method of data collection (refer to the NSO’s “National Accounts:

Sources and Methods” for more information about the methods used in estimating the employment and

earnings ciphers) and Malta’s prolific underground economy. 23 These include, but are not limited to, the “Structure Plan for the Maltese Islands” by the Ministry for

Development of Infrastructure (1999), “Report for the Year 1998-1999 and Estimates for the 1999-2000”

by the Housing Authority (1999), “The Land and Housing Markets in Malta: The Economic, Social and

Environmental Dimensions” by The Planning Authority (1996).

6. Vacant Housing In The Southern Harbour Region

In this section of the paper, the macro approach adopted in sections 0 and 5 is momentarily abandoned and attention is turned to the analysis of the reasons and the causes for the existence of a voluminous vacant housing stock in the Southern Harbour Region and its possible relationship with poverty, adopting a micro perspective. In the opinion of the present author, the Southern Harbour Region deserves to be analysed independently. The Southern Harbour Region is one of the Regions designated in the Malta Geographic Codes (MGC). The latter have been developed by the NSO according to international standards, and they comprise the Southern Harbour Region, the Northern Harbour Region, the South Eastern Region, the Western Region, the Northern Region, and Gozo and Comino. The Southern Harbour Region, which will be the focus of the present section is made up of Żabbar, Xgħajra, Valletta, Tarxien, Santa Luċija, Paola, Marsa, Luqa, Kalkara, Senglea, Floriana, Fgura, Cospicua and Vittoriosa. It is also a region where the IRISS’s other current studies (still in pre-publication phase) are clearly showing a concentration of people who are at risk of material poverty. A summary of these findings has been made available in this paper for the sake of completeness. The region in question, despite Malta’s relative smallness, has some distinguishing characteristics that differentiate it from the rest of the Maltese Islands. What is more, each individual town or city comprising the Southern Harbour Region is, in its own way, unique. On the one hand, various sociological studies indicate that Valletta, Senglea, Floriana, Cospicua and Vittoriosa are socially deprived areas. On the other hand, one can

identify localities, such as Żabbar, Xgħajra, Tarxien, Santa Luċija, Paola, Marsa, Luqa, Kalkara and Fgura, that are not as badly afflicted by social depravity as the former seem to be. This statement can only be made at the level of averages as individual-level data or statistics that give an indication of the second, third, and fourth moments of the data, which would help us understand its distribution, are not publicly available. Notwithstanding these contrasts between localities, the labour market income of this Region’s population is still below average, although this could be masking even greater disparities in particular localities as already mentioned. In dealing with the Southern Harbour Region in its totality, therefore, we have to be aware that we are averaging the outcomes of distinct and complex social units and we are losing the deep insight that comes with granularity to generalisations that we must necessarily make in the absence of the required data. Because of this, the usual caveat pertaining to the use of averages, namely that averaging may distort the overview of the whole picture in that the relevance of observations deviating significantly from the mean is diluted, applies. In view of the fact that the Southern Harbour Region includes some acutely destitute areas, it is no wonder that households endeavouring to climb up the so-called social pyramid begin this endeavour by trying to leave the area, thus generating internal migratory patterns in the process 24. According to the Household Budgetary survey, 52.7% of the Southern Harbour Region population falls within the LM 0 – 6000 income bracket. Similar statistics for the Northern Harbour Region, the South Eastern Region, the Western Region, the Northern Region, and Gozo & Comino show that 45.9%, 40.9%, 35.4%, 37.6% and 47% of the populations thereof, respectively, fall within the LM 0 – 6000 income bracket 25. What is more, the Southern Harbour Region has the highest percentage population – 20.5% –earning between LM 0 and LM 3,000. Similar statistics for the other regions suggest that 13.5%, 11.9%, 9.4%, 10.7% and 12.5% of the regional populations thereof, listed in the same order as per their earlier designation, fall within the same income bracket 26. The difference between the South Harbour Region’s population eking out LM 0 – LM 3,000 and that of the next-highest region is statistically significant. Meanwhile, annual incomes falling short of LM 4,915 and LM 2,900 are considered to be below both the relative and absolute poverty lines respectively. On the basis of extrapolated trends, this situation is only expected to get worse over time as wages remain stagnant and the cost of living increases thereby squeezing social groups that are at risk of poverty even further. A pertinent question to be asked here is whether poverty provides sufficient reason to ascribe vacant housing in this region to this phenomenon. For one thing, there is nothing in the whole of epistemology that tells us that explanations should be monocausal; and for another, the phenomenon in question does not necessarily result in a decline in the number of households per dwelling available. Had destitution been the only factor

24 When using the term internal migration, in this context, I am taking the Maltese Islands as the benchmark

unit, rather than the Southern Harbour Region. This means that internal migration is occurring within the

Maltese Islands rather than within the southern Harbour Region. 25 Statistics extracted from the NSO’s Household Budgetary Survey 2000 page 68. 26 Ibid.

affecting vacant housing, it might have been the case that the region being analysed could have managed to attract a greater number of destitute households from the other parts of the Island than the number leaving the region. In fact, at times, poverty patterns end up trailing government policy in relation to housing. Wherever large social housing projects undertaken by Government happen to be located, concentrations of destitution tend to follow. The 2002 Malta Environment and Planning Authority (MEPA) Housing Topic Paper 27 sheds light on the major variables underpinning internal migration within the Island, which implicitly are of direct relevance to vacant housing stock and poverty patterns. Marriage, a change in household size, the attractiveness of the neighbourhood and improvement in the type of home are highlighted as being the major variables. Chart 1 in Appendix 1 ascribes different percentages to the different variables spurring internal migration. These variables and the percentage weights thereof have been estimated by the MEPA by use of surveys. Further to this, “[t]he current trend is for most of Malta’s residential development to take place in the greenfield land allocated in the Temporary Provisions Schemes … While to a large extent this pattern was dictated by the land allocations in the Schemes, it has nevertheless resulted in a suburbanisation trend that has left the Malta’s older urban areas with a declining population” 28. If this conclusion is correct, it might well be the case that those households with enough money to move out of the Southern Harbour Region (particularly the locations with more destitution) are moving out while the others who don’t have enough money to move out get stuck there. This could suppress or depress house prices in the area relative to other areas in Malta and could also attract more destitute people who can afford to buy housing only in such areas to the Southern Harbour Region, thereby reinforcing this poverty concentration effect. The stronger this effect is, the likelier the associated location-based stigma is apt to become and the more concentrated poverty will be in this area as time goes by unless policies to address this urban degeneration are enacted and implemented. It is our view that since marriage by people from the Southern Harbour Region has no direct bearing – marriage could conceptually attract, as well as repel population – on the stock of vacant housing units, the variable in question must be discarded and the causes for the extant stock of vacant housing must be looked for elsewhere. While this study acknowledges that changes in household sizes and endeavours to improve the type of residence do play an important role in the determination of the permanently vacant housing stock, a greater emphasis is made on neighbourhood attractiveness. A neighbourhood may be attractive for a host of reasons. It may be economically attractive in terms of its close proximity to work-centres thereby making living there more convenient. It may be aesthetically attractive: the availability of amenities, low population density (with reference to available space and quiet) and cleanliness of the region play an important role here. Lastly, it may be socially attractive.

27 “Housing Topic Paper Draft 2.3” by the Malta Environment and Planning Authority (Feb 2002) 28 Op. Cit.: MEPA (Feb 2002) Executive Summary

As the old saying goes, “birds of a feather flock together”, and sociological agents might be attracted by neighbourhoods that are conceivably populated by people of the social class that one introspectively associates oneself with. Economically, the Southern Harbour Region has been bearing testimony to declining work forces in the dockyards and related industries. The economic attractiveness in terms of close-proximity to work-centres has therefore been on the wane. The Southern Harbour Region, notwithstanding the latter, is still in close proximity to the Bulebel and Rinella industrial estates. This could very well explain part of the reason behind the social depravity of the region being studied since the blue collar work force tends to earn low wages relative to the white collar workforce. Higher-paying jobs, particularly those in the services industry, have moved away from the Southern Harbour Region, though it may be surmised that this could also be an important factor underpinning the growing share of vacant housing, urban decay and destitution. Map 2 in Appendix 4 gives an indication of the high population densities in the harbour area. Despite the fact that the MEPA does not deal with the Southern Harbour Region as a single unit, but identifies, rather, sub-units thereof, this map could still be important in shedding light on the causes of the voluminous, and growing, vacant housing stock in the relevant region. In the context of the ever-growing aspirations of the Maltese people, population density and related factors, like, say, the noisy environments existing in high-population-density areas and the relatively smaller sizes of the housing units might be acting as push factors when it comes to internal migratory patterns. However, this is not clear from anecdotal evidence as several individuals exhibit the opposite tendencies. Withal, a significant chunk of the housing stock in the Southern Harbour Region consists of old housing units, many of which have been rebuilt after World War 2. Such housing units are not always ideal in meeting today’s housing needs and wants without substantial investment, and that could further add to the impetus of the same push-factor. At this stage, in the absence of a scientifically-designed interview-based study, all these hypotheses remain conjectural in nature. This is not to say, nevertheless, that they are not important, as further, better-funded studies on these lines are sorely needed and these conjectures might provide a good basis for the furtherance of the understanding of this phenomenon. Though the Geographic codes used by the MEPA are different from those being used here, the Harbour Area pie chart is still fairly representative of the Southern Harbour Region. Map 1 in Appendix 3 shows that the Harbour area has the largest stock of vacant housing in the whole of the Maltese Islands and this difference is also statistically significant, thus indicating that this is not due to a chance occurrence. Lastly, apropos of social attractiveness, the Southern Harbour Region scores lowly. This is so because of its being a relatively socially deprived region (despite the fact that this may not hold for each and every individual area comprising the Southern Harbour Region). What is more, several housing estates built therein have resulted in the relocation of relatively worse-off individuals in society to the area, thereby worsening the social stigma

associated with the same region. Since sociological agents usually strive to climb up higher in the social ladder, the region being perused might not be the ideal region in which to set up a family with any modest aspirations for the children that that family might eventually bear. This could also be fuelling the vicious circle made up of a growing number of vacant units and a growing proportion of destitute people in the Southern Harbour Region.

7. The Potential Links Between Poverty and Housing

Notwithstanding the fact that poverty and housing, prima facie, seem to have nothing to do with one another, a deeper look at the issues is likely to suggest a totally different story. Before looking at the links between poverty and housing, it would be in order to point out that housing has several relevant stages to it. There is the identification of a parcel of land, the loss of use of that parcel of land (e.g. in agriculture or in industry) to housing construction, the construction activity itself and the final product that can either be used for habitation throughout the entire or just part of the year or that is left to lie in disuse until the established asking price is met. Given these phases, there are several channels through which housing and employment might potentially be linked. In losing the productive usability of land, for instance, employment opportunities that the productive use of that land could have led to will be lost. This will be replaced, for some time, by the creation of potential employment in construction that mitigates poverty. Even though such employment is transitory, it is apt to be more labour intensive, as an activity than agriculture, though this does not necessarily apply to industrial activity that could have taken place on the same land. The second channel through which there is a link between housing and poverty is in that phase in which the housing construction is completed. Vacant housing that is just lying idle waiting to be sold represents a stock of deadlocked capital that could be generating

productive economic activity and which instead is lying idle while gradually diminishing the potential of revenue-generating activities such as pro-poor tourism. The third channel through which a link between housing and poverty exists relates to the relationship between the price of housing and salaries and wages. If Malta is to remain competitive as a destination in a context where international competition by other economically-emerging destinations is increasingly harsher, it is paramount to keep the cost of living (not that represented by the RPI or the HICP, but the real one which includes payments for housing) in check and clearly allowing housing prices to go up unchecked undermines the preservation of prices as well as the stability of the financial markets given that most housing loans are financed through bank loans. There could also be the potential fall in value (though thus far not in price due to market imperfections probably relating to anti-competitive collusion by the construction industry lobby) of existing housing due to construction. This is clearly a concern for poverty as following the issuance of loans for housing, households are likely to be needing to borrow money using that housing as a collateral at some stage in their lifecycle. If house prices had to fall, indebted households might end up being unable to meet their financial commitments and some might even end up being homeless. This is in addition to the issues that have already been raised in this paper relating to inhabited housing of sub-standard quality posing a hazard for people living therein, to lack of investment in housing units already owned to maintain them in a serviceable condition and to the affordability of households with low income that gives them access only to ill-maintained housing, the purchasing price of which is likely to be suppressed relative to housing units that are in good shape.

8. Policy Suggestions

In the light of the findings of the foregoing sections, it is very clear that the current trends are not going to be sustainable in the long run and are going to create problems of regional depression, poverty and squalor, lack of opportunities for social mobility and ultimately increasing crime. Vacant housing units represent dead and deteriorating capital, whereas the land on which they are built is appreciating only because of “economic bubble” conditions. This is evident from informal debt statistics that the IRISS has access to, although no official data exists therefor. Allocating more rural space for residential development is therefore a perverse policy, and this is even more evident when the statistics pertaining to the increasing stock of vacant housing is perused. Policies addressing the revamping and re-use of vacant housing as well as the regeneration of traditional village cores should, in this milieu, be formulated, and the necessary actions to see to their implementation should be taken. This is a responsibility that invariably falls on the central governing authorities, their agencies and authorities. A coherent set of objectives has never been formulated by the Maltese Government in this respect. First, a ranking of objectives taking into account the wider socio-economic and political background has to be set. Focusing narrowly on the sociological, political or economic aspect alone is a precept that bodes ill and is, in all probability, conducive to policies that are doomed to fail.

Incentives to shift to the use of the currently-vacant housing stock should also be put in place. The policy options in this area are quite numerous. They range from taxing residential developments using specific mechanisms (e.g. taxing the third house owned by a family onwards) and using the money thus collected to subsidise the upgrading costs of old-housing stock, all the way to withholding building permits in rural areas altogether. Such policies need to make sure that they are perceived as being as neutral as possible to the interests of the majority of the electorate. This should be ensured because Malta’s adversarial politics will result in the defeat of the good policies envisaged by the party in Government at the next elections. Such has often been the case, and will probably continue to be in the coming years. Furthermore, the political, sociological and economic aspects have to be interweaved and taken into account as though they constituted a single, unified discipline. The Southern Harbour Region’s decline is multicausal. Some causes are economic, some are political and others are sociological. This is paramount in determining the policy mix. Incentives to relocate part of the services industry closer to the Southern Region Harbour could prove effective in halting the social decline in the said region, and by implication this would stop the stock of vacant housing from progressing on its upward trend and would also slow down or halt entirely the transformation of the same Region into a ghetto. Incentives, here, should not necessarily be pecuniary. If the historical sites available in the indicated area are availed of more prolifically, the private sector could be goaded to relocate some of its operations there of its own accord, without actually having to be enticed by the provision of subsidies in cash or in kind. What is more, the vacant housing stock pre-dating a benchmark year could be demolished with new housing units being erected in their stead. Such new housing units should be planned in such a way as to satisfy the needs and wants of the new generation of Maltese people while keeping the authentic look and feel of the Region. Vacant housing in the Southern Harbour Region could also be purchased by government and rented under the category of social housing. The supply of government housing, however, should not be seen as a potential for the eventual emergence of a ghetto or a slum area as this would be self-defeating. Lastly, the overall macroeconomic policy package should be devised in such a way so as to improve the earnings potential of households in gainful employment in the region and also encourage self-help and education programmes for those out of gainful occupation. A mismanagement of economic policies does not maximise wealth creation and accretion and it militates against the positive effects that decent homes could generate on the healthy development of the individual.

9. References “Structure Plan for the Maltese Islands” by the Ministry for Development of Infrastructure (1999) “Castles in hot air” The Economist (May 29th, 2003). “Compilation Guide on Financial Soundness Indicators Draft” by the IMF Chapter 9 (March 2003) “Household Budgetary Survey 2000” by the NSO (2000) “Housing Topic Paper Draft 2.3” by the Malta Environment and Planning Authority (Feb 2002) “Hubble, bubble, asset-price trouble”: The Economist (Sep 23rd, 1999). “Malta Human Development Report” by the UNDP: Malta, Media Centre (1996) “National Accounts: Sources and Methods” by the NSO (2000) “Report for the Year 1998-1999 and Estimates for the 1999-2000” by the Housing Authority (1999) “Report on the Finances of the Government of Malta” by Sir Wilfred Woods: London, HMSO (1946) “Statistics on EU Housing Markets” by the WGGES: ECB (July 2003) “The Land and Housing Markets in Malta: The Economic, Social and Environmental Dimensions” by The Planning Authority (1996) Burnett J. (1986) A Social History of Housing 1815 – 1985 (Routledge Kegan & Paul) Business Times, Jan 23, 2002: http://www.businesstimes.com.mt/2002/0123/interview.html Camilleri D. H. (Autumn 2000) Bank Of Valletta Review No. 22 pp. 17 - 27 Demarco A. (December 1995) Aspects of the Housing Market in Malta: 1980 – 1994: Quarterly Review (The Central Bank Of Malta) pp. 54 – 56. http://www.bov.com/pb_borrowingmoney_homelink.asp

http://www.feantsa.org/keydocs.htm http://www.hakikazi.org/tcdd/newpage9.htm http://www.unhabitat.org/unchs/english/hagenda/ Mallia B. (December 2003) Housing Legislation: Objectives and Actual Outcomes. Saunders P. (1990) A Nation of Homeowners (Allen and Unwin). The Times of Malta (November 23, 2003) More affordable housing for sale. The Times of Malta (November 25, 2003) Housing Authority issues 143 units for sale. Yoshiharu Y. (1999) Affordability Crises in Housing in Britain and Japan (The Journal of Housing Studies Volume 14) pp. 99-110

Appendix 1: HBS Calculations LM LM Male Female Food and Beverage Items29 1,757.5 1,357.7 Footwear30 161.8 119.0 Clothing31 524.0 301.3 Medicines and Pharmaceuticals32 111.4 94.0 Medical Services33 132.5 67.9 Water and Electricity34 160.3 110.6 Gas and Other Fuels35 21.6 28.9 Telephone36 184.2 133.0 3,026.3 2,212.4 The items featured above have been extracted from the Household Budgetary Survey 2000 Table 112 pp. 117 – 120 passim. Where appropriate, additions and/or subtractions have been made to two or more figures in order to arrive at the above-quoted ciphers.

29 Includes ‘bread and cereals’, ‘meat and meat products’, ‘fish and seafood’, ‘eggs, milk, dairy products’,

fruit, sugar, jam, honey, chocolate and confectionery’, ‘vegetables’, ‘other food products’ and ‘beverages’. 30 This figure is quoted directly, with no computations having been made. 31 Includes ‘fabrics and clothing material bought by metre or by piece’, ‘men’s and boy’s garments’,

‘women’s and girl’s garments’, ‘babies’ garments’, ‘unisex and other garments’, ‘sewing and knitting

materials’, ‘clothing accessories and other clothing apparel’ and ‘garment related services’. 32 Includes ‘medicines’ and ‘pharmaceutical products’. 33 Includes ‘therapeutic appliances and equipment’, ‘dental services’, ‘paramedical services’, ‘hospital

services’ and ‘other medical services n.e.c.’ 34 This figure is quoted directly, with no computations having been made. 35 Includes ‘gas and liquid fuels’ and ‘solid fuels’. 36 Includes only ‘telephone and fax services’.

Appendix 2: Chart 1 – Reasons For Internal Migration

Appendix 3: Map 1 – Percentage Vacant and Occupied Dwelling Stock in Malta

Source: Planning Authority

Appendix 4: Map 2 – Dwelling Units Per Hectare in Malta

Source: Planning Authority

Housing & Poverty In Malta With A Focus On The Southern Harbour Region

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