Property more affordable today than it was in the ’80s,’ says leading architecture firm

Property is more affordable today than it was in 1982, according to a statement published by architecture firm DHI Periti, which looked at its own data going back over 40 years to come to the conclusion.

The idea of property being more affordable in 2024 than it was in the early ’80s is certainly controversial, with housing affordability being subject to much hand-wringing in public discourse.

However, DHI Periti breaks down the argument in a logical manner that is difficult to argue against.

It acknowledges that residential property values increased 16-fold over the period, while the median wage only increased some seven times over. But the monthly mortgage payment for a three-bedroom apartment increased just six times over, and overall, housing affordability index increased from 77 in 1982 to 98 in 2022 – indicating a significant improvement.

So how can property be more affordable today than it was 40 years ago? The answer is threefold.

First, the mortgage rate decreased from around eight per cent 40 years ago to under three per cent today – making home loans much cheaper to obtain.

Second, the maximum term has been extended from 25 years to 40 years, stretching out the repayments over a longer period of time, making them more manageable

Third, most households today have more than one wage earner, with female labour market participation at record highs.

Additionally, the deposit to be paid on a house used to be 20 per cent, as compared to just 10 per cent today, and current buyers also save on stamp duty thanks to a scheme whereby first-time buyers are exempt from stamp duty on the first €200,00 of their property’s value.

All of these aspects make buyers able to take on significantly larger loans. After all, they have longer to pay them back, there’s less interest, and their partner’s contributing, too.

Not that this situation is without its own risks. A report by Grant Thornton and real estate firm Dhalia last year found that were interest rates to increase by just 1.2 per cent, even households earning a median income would be priced out of the market.

Contacted for comment, head of the policy department within the Housing Authority, Brian Micallef, asserts that the impact of bank lending policies can be “crucial” in enabling first-time buyers to secure the necessary credit.

“Factors such as decreasing mortgage rates have contributed to improved affordability by lowering borrowing expenses. Additionally, extended loan repayment periods and the inclusion of second income earners have played roles in enhancing affordability,” he says.

However, Dr Micallef argues that further research is essential “to comprehensively understand the trade-offs that first-time buyers face,” including considerations like “property type, size, and location, as well as whether their purchases align with their aspirations.”

Speaking to BusinessNow.mt, DHI Periti founder Denis H. Camilleri adds that buyers need to be more assertive and not just accept the prices given.

“We are often surprised that certain properties sell for the asking price,” he says. “Then we speak to buyers and they say they don’t have the time to shop around for the right property. So it’s the most important investment of your life, but you don’t have time for it? That’s worrying.”

Meanwhile, minimum wage earners and people who are trying to buy property alone, and not as part of a couple, face significant disadvantages.

“Real estate prices are very much based on what people can afford,” notes Perit Camilleri. “Back when having one wage earner per household was the norm, they could not raise prices. Now that dual income households are more common, developers and other sellers can raise prices accordingly – they do their homework too.”

Going back to the DHI Periti statement, the studio posited that a 25-year-old is “the perfect age” to purchase a property, since the mortgage repayment would be stretched out on the maximum possible number of years.

It points out that waiting five years would increase the monthly payments by 10 per cent, while waiting 10 years would increase the monthly commitment by 20 per cent.

“Hence, delaying the time to purchase the first property makes purchasing even more unaffordable.”

And with property values on a steady upward trend, “the earlier this Gen Z get onto the property ladder, the more property rich they will be in their pensionable age!”