The impact of urban conservation areas tax incentives on residential property prices

Abstract

Over the past decade, substantial activity and increasing prices in the Maltese residential property market have raised concerns about housing affordability and the destruction of architectural heritage. In response, the government has implemented regulations and policies to assist prospective homeowners through cost-effective mechanisms while simultaneously protecting the traditional urban landscapes. Among other initiatives, the Urban Conservation Area (UCA) scheme introduced on 12th October 2021 is a location-based incentive. It provides stamp duty and capital gains tax exemptions to the buyers and sellers of properties within the conservational zones to encourage homeownership in village cores. The enactment of such schemes raises the scope for identifying ‘who benefits’ from the stamp duty exemption afforded to buyers by examining whether the tax exemption accrues to these market players as intended or to the sellers in the form of higher prices (Pierzak, 2021). Based on a comprehensive review of the literature, this study attempts to answer the research question using a quasi-experimental differences-in-differences (DiD) method and a sample of 1,495 observations consisting of terraced houses, houses of character and townhouses transacted between 2013 and 2024. The analysis incorporates logarithms, year and regional fixed effects, complemented by a quantile regression approach to analyse the scheme's impact at different levels of the house price distribution. Finally, the dissertation deduces whether the buyeroriented programme achieved its objectives of making UCA properties more affordable by quantifying the causal effects on the market value of eligible residential properties. The estimated coefficient of interest reflects the proportion of tax savings conveyed to the sellers. The research findings infer a marginal percentage increase of 0.03 to 0.07% on UCA property prices relative to comparable non-UCA residences. The scheme had a more pronounced effect in the lower quartile of the property price distribution, evidenced by the statistically significant result at the 25th percentile, which denoted a greater coefficient than its higher-valued counterparts. Despite passing on some of the tax savings to the sellers through the marginal price increase, the policy largely attains its buyer-oriented targets, as the immaterial monetary loss indicates that the prospective proprietors still reaped substantial benefits when purchasing UCA properties.