House purchase affordability for first time buyers in Malta

Abstract

Malta is a nation of homeowners but there is increasingly widespread preoccupation that housing is no longer affordable. With a homeownership rate of around 80% that has remained stable for more than a decade, any metric of affordability should focus on the distribution of outcomes across households rather than relying on economy-wide averages. In this regard, firsttime buyers tend to be among the most affected group. Housing affordability for first-time buyers has mainly two components—the ability to access sufficient credit from a bank (purchase affordability) and, subsequently, the ability to maintain mortgage repayments (repayment affordability). This paper develops an affordability index that is specifically targeted for first-time buyers for the period 2000–2022. The focus on purchase affordability recognizes that bank lending policies and conditions play an important role for first-time buyers. In this paper, property prices refer to a two-bedroom finished apartment in selected localities across Malta using realistic assumptions about bank lending policies. The paper shows that affordability differs significantly by locality. This heterogeneity by locality could explain the subjective perceptions about the deteriorating housing affordability in Malta as firsttime buyers with low-to-medium levels of income are likely to face difficult trade-offs in this regard.