When long-term planning is undertaken by short-term people
Pavlos Loizou 12:59 - 01 August 2023
A reminder of what the role of government is when it comes to housing and to providing access to education and healthcare.
“Governments establish policies to address housing affordability, offer financial assistance for housing, and support the construction of low-cost homes. In education, governments fund public schools and universities, making education accessible to all, and provide financial aid for students. Additionally, they implement healthcare systems or programs to offer affordable medical services and insurance for citizens. By focusing on these essential aspects, governments promote equal opportunities and improve the overall well-being of their people, fostering a more equitable and prosperous society.”
There is no reference to enriching the professional classes, real estate developers, or construction companies. Unfortunately, the government, encouraged by pressure groups comprising of developers, investors, and the professionals associated with the real estate industry, e.g. agents, contractors, lawyers, accountants, etc are pushing for the wrong things such as:
● Reduction in VAT on built-to-rent properties, so that they are “encouraged” to construct more residential properties to let out at lower rents. Who will guarantee that the rents will be lower? Lower than what?
● Abolishment of the minimum size of apartments, so that they can construct/ sell smaller units which makes it more “affordable” to people. So, the answer isn’t “make a smaller profit” but “make a smaller apartment”?
● Put for development government land, to increase supply of residential property and thus address demand. I note that government prices its land at “zero”, which means that on paper it’s giving something that is worth nothing away. Why is the government giving away an asset instead of pressuring the private sector to solve the problem?
But, let’s take a closer look at the residential real estate market. The rising interest rates are dampening the mortgage market's spirits, and yet, the demand for residential property investment continues to defy gravity. It seems external factors are ruling the roost, while the good old fundamentals have taken a backseat.
The major external factors influencing the real estate demand in Cyprus are three-fold. First, the post-Ukraine war migration, bringing approximately 30,000 highly skilled individuals to Cyprus. Second, the economic downturn in Lebanon is pushing Lebanese families and businesses towards our sunny shores. And third, the political instability in Israel is leading families and companies to seek stability in Cyprus. These newcomers have caused a stir in the residential property market, especially in Limassol, Larnaca, and Paphos.
These new demand drivers are shaking up the market norms. Increasing rental values and the high values of properties are attracting capital, making us hopeful that the supply of real estate will increase to accommodate the demand. But the rising property prices are creating a struggle for locals, whose salaries can't keep pace. Although some are benefiting from the capital inflow, there's an undeniable burden on those less fortunate.
Unfortunately, the main problem with what is happening isn’t going to be the lack of affordability, but gentrification. This term describes a process where a previously low-income neighbourhood is transformed by the influx of affluent individuals, leading to an increase in property values and cost of living, which can displace the original, often less-privileged inhabitants. The provision of services can also be affected. For example, shops, restaurants, and other services that catered to the original population might get replaced by high-end establishments targeting the new, wealthier residents, e.g. Lady’s Mile beach restaurants, private schools, etc.
What should the government do in this context? A strict and transparent regulatory framework is crucial.
The Government should be considering the following:
- How do we unlock all the undeveloped land and unutilised building density across our cities? We need to develop the cities’ centres, which already have the entire infrastructure in place and which will create the necessary density of people for commercial (retail) to be able to function without people having to drive into the city. Tax idle property, much of which is in the hands of a few families, banks, funds, and the Church.
- Affordable Housing Programs: This could include policies like rent controls, housing vouchers, and inclusionary zoning (which requires a portion of new construction to be set aside for affordable housing).
- Develop Low-Cost Housing: Encouraging the construction of low-cost housing can increase the supply of affordable homes. This might involve subsidising such construction, reducing regulatory barriers, or using innovative construction methods to reduce costs.
- Urban Planning: Better urban planning can make cities more affordable by improving public transit (to make farther, cheaper areas more accessible), re-zoning areas for residential use, and planning mixed-use developments.
But sadly, government intervention seems limited, and any long-term planning appears remote. We expect the government's focus to remain on superficial issues, while significant problems such as underutilised and untaxed properties, low urban density, and unaddressed social security matters are ignored.
While the current situation in Cyprus' residential real estate market has driven up prices and rents, it is important to also view this as an opportunity for the nation to leverage these challenges in order to develop sustainable and long-term solutions.
Pavlos Loizou, CEO, Ask WiRE