Gibraltar has historically suffered from a shortage of rental properties, and “affordable” rentals on the Rock have been a rarity as far back as we can recall.
Often people think it is down to greedy landlords, but in reality, it is simply down to the mechanics of supply and demand.
There clearly has been an increase in demand for rental properties following the Brexit referendum as prospective tenants seek to secure housing in Gibraltar, and although this has been a major driving force behind increasing rental prices, there are other factors that play a pivotal role in the direction in which rental prices are heading.
With the rise in rental demand, investors have been incentivised to increase their property portfolios in recent years, whilst at the same time, existing owners have opted to retain their properties for the solid rental return and capital growth they have consistently provided.
That has had a corresponding effect on the resale market, whereby prices are rising on the back of rising rental yields resulting from the shortage of readily available properties, and all the while rental prices and resale prices are edging further away from the reach of middle wage earners.
With construction cranes once again proliferating Gibraltar, one could be mistaken for thinking that the rental pricing issues we face will be solved when the new developments are completed. If history is anything to go by, that will not be the case though, especially so nowadays, as developers are increasingly focusing on the construction of studio and one bedroom units.
Developers opt to construct smaller units because their potential high rental return is attractive to investors and guarantees off-plan sales. That focus on small units however pushes-up prices for entry level properties across the market, with a knock-on effect especially felt in the 2 & 3+ bedroom unit sector of the market, leading to a corresponding rise in rental prices for families.
Interestingly, whilst much is often made of the number of units being constructed in any given new development, the actual number of family housing (i.e. 3+ bedrooms) in Gibraltar’s private housing sector is actually decreasing as a percentage of the total available private housing, and that is a cause for concern in the long-term.
So, with demand for rental properties continuing to be strong, how can Gibraltar avoid the risk of potentially outpricing its population and foreign workers from living here?
There is no straightforward answer to that, but from the private sector’s perspective, planning regulations could be amended to ensure that new residential developments include a minimum certain percentage of 3 & 4 bedroom units as a pre-requisite of planning consent. That would ensure the percentage of family housing kept abreast with the pace of construction and go some way to stabilising the rise in prices for families.
Historically, the main developer of affordable local housing has been the Government of Gibraltar, and Government policy since the 80’s has been to restrict resale prices for a limited number of years after purchase, after which, owners can sell them at the prevailing market price. That system does however have some major pitfalls, as prices rise dramatically each time the restrictions come to an end, and in the process there is a drop in the availability of truly affordable housing, which in turn leads to a rise in prices across the resale and rental market.
From the Government’s standpoint, there are measures they could look at adopting which could assist the rental market indirectly, such as considering the idea of introducing means testing as a way to ensure those who require it most, are first in line for affordable housing.
Likewise, the Government could also look at alternative housing models which could replace or sit alongside the current housing policy.
One such system has been introduced in the UK, whereby people can buy an affordable home from the Government, but the price at which they can sell on is always restricted to the rise of the cost of living. Some may argue this deprives purchasers in those developments from ever climbing the property ladder, but another view is that it offers people a way to escape the rental market. It could also be said that it is an affordable and sustainable way of maintaining property prices within reach of average families, whilst at the same time giving people the opportunity to own a home that they otherwise would not have had.
Although many other countries could only wish to have a booming property market like ours, our own unique situation means that Gibraltar will require more affordable housing in the very near future, and there is no better time like the present to have a discussion on how we can best accomplish that.