The Maltese Property Market - and how not to make a bad situation worse
Since the Church's Diocesan Commission for Justice and Peace issued a report (of variable quality) in which it expressed concern at the high level of property prices on the island, there have been a number of reactions, such as that of Lawrence Zammit last Friday and those of Dr. Karl Chircop, the GRTU and Albert Cilia-Vincenti, all of which appeared in today's Times, in addition to the same newspaper's editorial on the same subject. With the exception of Lawrence Zammit's article and to some extent of the Times editorial, most of the other reactions propose solutions that would do little good, and possibly much harm, if ever implemented. Dr. Chircop and the GRTU are essentially proposing that the Government should 'flood the market' by selling the valuable land it holds for nominal prices. Prof. Cilia-Vincenti, on the other hand, proposes a property tax.
I personally have no objection to asset taxes in general. I view a combination of asset taxes and consumption taxes to be much more rational than an income tax. I believe that they are also much more socially just (is it fair for a wealthy person who simply consumes a large inheritance without producing anything to avoid tax altogether while the hard-working middle class are punished for their efforts by heavy income taxes?). If, however, we're going to have asset taxes then I don't see why these should cover only one type of asset (i.e. real estate). This would simply distort the market, artificially driving those funds into alternatives like the stock market, overseas property or even artworks and luxury items. Besides, I simply don't see why I should be taxed on my house while those who are much richer are not taxed on their yachts, for example.
If we want to deal with a situation where a scarce resource is being misused then the key is to allow the market to squeeze out this inefficiency, and if anything to help it in this task, rather than to hinder it. To the extent that we need more properties, these should be built by utilizing existing urban land more efficiently, as is in fact being done with the conversion of terraced houses into apartment blocks. This will, in the medium term, lead to an easing of the upward pressure on prices. If the government further relaxes restrictions on building height in certain areas, this would accelerate and facilitate this process - leading to lower house prices for young families and easing the pressure on Malta's remaining countryside. The rent-laws and those concerning the joint inheritance of properties, are likewise more of a priority than the Government seems to think and probably not for the reasons that Harry Vassallo routinely mentions (that it would create a functioning rental market). The current system is simply preventing the more efficient use (in some cases meaning the redevelopment and sale) of those properties. The joint office and the government, rather than artificially slashing the prices of their land or continuing to build monstrosities on it, should sell it at commercial prices to the private sector which will make more efficient use of it for the simple reason that it would have paid dearly for it. If the church-state agreements do not allow for this, then they should be amended.
Nor should the Government continue to artificially fuel demand by providing subsidies to people with low incomes who wish to rent or buy a property. People in such situations should be assisted, of course (possibly via a negative income-tax rate, among other things) but that assistance should not be tied specifically to the purchase or rent of properties, otherwise it will simply be pocketed by those who are selling or renting out such properties, in the form of higher rents and prices.
I personally have no objection to asset taxes in general. I view a combination of asset taxes and consumption taxes to be much more rational than an income tax. I believe that they are also much more socially just (is it fair for a wealthy person who simply consumes a large inheritance without producing anything to avoid tax altogether while the hard-working middle class are punished for their efforts by heavy income taxes?). If, however, we're going to have asset taxes then I don't see why these should cover only one type of asset (i.e. real estate). This would simply distort the market, artificially driving those funds into alternatives like the stock market, overseas property or even artworks and luxury items. Besides, I simply don't see why I should be taxed on my house while those who are much richer are not taxed on their yachts, for example.
If we want to deal with a situation where a scarce resource is being misused then the key is to allow the market to squeeze out this inefficiency, and if anything to help it in this task, rather than to hinder it. To the extent that we need more properties, these should be built by utilizing existing urban land more efficiently, as is in fact being done with the conversion of terraced houses into apartment blocks. This will, in the medium term, lead to an easing of the upward pressure on prices. If the government further relaxes restrictions on building height in certain areas, this would accelerate and facilitate this process - leading to lower house prices for young families and easing the pressure on Malta's remaining countryside. The rent-laws and those concerning the joint inheritance of properties, are likewise more of a priority than the Government seems to think and probably not for the reasons that Harry Vassallo routinely mentions (that it would create a functioning rental market). The current system is simply preventing the more efficient use (in some cases meaning the redevelopment and sale) of those properties. The joint office and the government, rather than artificially slashing the prices of their land or continuing to build monstrosities on it, should sell it at commercial prices to the private sector which will make more efficient use of it for the simple reason that it would have paid dearly for it. If the church-state agreements do not allow for this, then they should be amended.
Nor should the Government continue to artificially fuel demand by providing subsidies to people with low incomes who wish to rent or buy a property. People in such situations should be assisted, of course (possibly via a negative income-tax rate, among other things) but that assistance should not be tied specifically to the purchase or rent of properties, otherwise it will simply be pocketed by those who are selling or renting out such properties, in the form of higher rents and prices.
2 Comments:
Once again I thought Lawrence Zammit's article was spot on - this was not the first time he managed to merge pragmatism with authentic humanity.
Interesting that APS, a church controlled retail bank were also seen as contributing somewhat to the problem of property inflation through their ultra-long term mortgages.
Abusus non tollit usum et accusare nemo se debet nisi coram Deo.
True enough. They'd probably argue that they're doing that for social reasons although, at the end of the day, they're actually contributing to the problem.
Post a Comment
<< Home