Affordable housing: meet Malta’s first social enterprise

With 3 out of every 4 individuals aged 20 to 30 having incomes below the threshold that makes them eligible for a bank loan to buy an averagely priced housing unit, the Foundation for Affordable Housing is addressing growing concerns on housing affordability.

Malta now has its own social enterprise.

A social enterprise is a business entity that operates with a primary goal of addressing social or environmental issues while also generating revenue. Unlike traditional for-profit businesses that primarily aim to maximise profits for shareholders, social enterprises exist to achieve a positive impact on society or the environment. Examples of international social enterprises are Fairtrade International, an enterprise that focuses on ensuring fair wages for workers, and TOMS Shoes, that operate a business model where for every pair of shoes sold, they donate another pair to a child in need.

Malta’s first social enterprise operates within the local housing market: the Foundation for Affordable Housing. It is jointly owned by the Maltese State and the Maltese Archdiocese, and was established in January 2022, with operations starting in June 2023. As the Foundation’s name might suggest, its primary objective is to develop affordable housing solutions.

As a social enterprise, the Foundation is dedicated to a social mission, specifically addressing a gap in the current housing market which exists for those individuals who, despite being self-sufficient and not relying on social benefits, find it difficult to purchase or rent property independently.

The work of the Foundation is novel as it must reach its social aims using contemporary market dynamics. This is what is known as the third sector, a concept that has been making waves in Europe for quite some time. Its validity and necessity were proven in the Foundation’s first study, which was presented to the public a few months ago. Entitled ‘Housing Affordability In Post-Boom Malta – the case for the third sector’, it presents an overview of housing affordability by using a set of indicators primarily derived from data compiled and gathered by the National Statistics Office (NSO). The Foundation’s research group also examines the evolving role of the state in housing policy across Europe and sheds light on the contributions of non-profit organisations in addressing the issue of unaffordability.

The document brings to light the recent boom in house prices that has continually elevated the income threshold at which individuals become ineligible for a loan. As of early 2023, an individual earning an annual income of less than €25,000 would be deemed ineligible for a loan for an averagely priced housing unit (approximately €225,000).

With three out of every four individuals aged between 20 and 30 having incomes below this threshold, there is growing concern about housing affordability in Malta. For those who already own or rent a housing unit, the average housing cost-to-income ratio* stands at 10%. This figure is notably the lowest in the EU and well below the generally accepted affordability threshold of 30-40%, indicating that Malta is currently far from experiencing a housing crisis in relation to its EU counterparts.

Nevertheless, Malta’s average housing cost-to-income ratio is skewed by a substantial portion of households categorised as either ‘owning a housing unit with a home loan’ or ‘renting at below market rates’. Households outside these groups are more prone to facing housing affordability challenges. In fact, more than 13,000 households have housing costs that exceed 30% of their disposable income.

For those who rent at market rates, the weight of housing costs seems to disproportionately affect the young, foreign individuals, those with low incomes, and one-person households. Specifically, the housing cost-to-income ratio surpasses 30% for:

(i) 63% of individuals aged less than 35 years;

(ii) 69% of non-Maltese citizens; and

(iii) 63% of those earning less than €12,000 per annum.

In general, more than one in every three households renting at market rates faces a housing cost-to-income ratio surpassing 30%. For households that own their homes but have a home loan, the average housing cost-to-income ratio is 15%, with only 8% of households exceeding the 30% threshold.

The Foundation for Affordable Housing’s paper observes that these challenges in housing affordability stem from several factors that have shaped the socio-economic landscape in Malta. Key among these are the prevalence of low-wage employment, rapid population growth, and various policies implemented by successive government administrations. These policies have shifted the primary responsibility for housing provision from the state to the private market, with the state maintaining a role in supporting those marginalised by market forces.

The Foundation clearly states that, in this context, the accelerated growth in house prices has created a demographic of middle-income individuals whose housing requirements are unmet by both the private market and the state.

Drawing insights from the experiences of other European nations, social housing enterprises emerge as a viable solution. Their dual nature, combining a social dimension that positions them as the “acceptable face of social housing” and a commercial aspect aligning with the “private market obsession of the neoliberal ascendancy”, makes them a pragmatic option.

In Malta, such enterprises would play a role like that undertaken by the Church in the 1970s. During that period, the Church implemented parallel initiatives to the government, offering over 2,000 plots to Maltese households. Remarkably, the Church remains the sole non-private (for-profit) and non-public landlord in Malta to this day.

Anticipation for the launch of the first product

The Foundation is positioned to operate within this historical context, and many are eyeing it with anticipation, as work is undergoing behind the scenes to plan the launch of its first product. The medium-to-long-term objective is to facilitate and provide affordable housing, gradually reducing dependence on public resources.

Whilst it is premature to lay down the terms of a product that is in the works, we know that the Foundation adopts a model that combines private and public funding, managed in a manner aligned with managerial principles to enable and provide affordable housing.

While the housing units are not limited to rental arrangements and can also be sold, tenants are viewed as active consumers rather than passive aid recipients. Any surplus generated by this initiative will be reinvested into the social enterprise to sustain its overarching goals.

The Foundation’s first product is expected to align with CEO Jake Azzopardi’s ethos: “The idea to introduce the third sector concept to the property market is rooted in the belief that those who contribute so largely to the advantage of society, especially through their work, should themselves share from the benefits which they create.”

* The cost-to-income ratio is a financial metric that compares an individual or household’s expenses related to a specific aspect (such as housing costs) to their income. In this context, it specifically measures the proportion of a person’s or household’s income that goes toward housing expenses.

Main photo: cottonbro studio

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