MySay: Reworking the national housing policy

This article first appeared in Forum, The Edge Malaysia Weekly, on August 27, 2018 - September 02, 2018.

A holistic approach would dictate that new housing supply is tailored towards the income and demographic profile of households in different locations. Photo by Kenny Yap

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Alarm bells were sounded when Institute for Democracy and Economic Affairs Senior Fellow Dr Carmelo Ferlito warned of a property bubble waiting to burst in a policy paper published last month, Affordable Housing and Cyclical Fluctuations: The Malaysian Property Market.

Property bubbles occur when demand increases, driving more development activity, and burst when demand plummets, leading to a sudden drop in prices. Apparently, there are no signs to indicate such a trend, at least for now.

Still, the fact remains that our property market has not been in the best of health for some time now. Various government-initiated surveys have validated long-held suspicions that home prices have spiralled beyond the reach of ordinary folk in recent years.

Earlier this year, data from Bank Negara Malaysia showed that houses here were “seriously unaffordable” compared with global standards. From 2012 to 2014, house prices grew 26.5%, more than double the 12.4% growth in income in the same period.

Based on the housing cost burden approach, the maximum affordable price for houses was RM282,000, the central bank said.

Using the World Bank’s median multiple methodology used to evaluate urban housing markets, a house is considered affordable if it can be financed by less than three times a household’s median annual income. In 2016, the median house price was RM313,000, which was beyond the means of many households as the median national household income was only RM5,228 per month.

However, the Real Estate and Housing Developers Association (Rehda) disagrees with the central bank’s affordable housing threshold, saying that affordability should depend on the salary of the people living in a particular area. Rehda Institute, the association’s research arm, proposed that the affordability threshold for Urban 1 areas, comprising Kuala Lumpur and the Klang Valley, be set at RM500,000.

Herein lies the problem. If the policy makers and developers cannot even see eye to eye on the affordable housing threshold, how can we expect the housing policy, if there is one, to work?

The good news is that the housing and local government minister has promised to come up with a revised National Housing Policy (NHP) by September.

Needless to say, we have high hopes that the policy will ease, if not clear, the property market gridlock.

To do that, the ministry must first engage with Bank Negara, National Property Information Centre, Rehda, National House Buyers Association and other stakeholders.

In fact, discussions among the relevant parties should be institutionalised via the setting up of a proper permanent structure such as a National Housing Consultative Council, and not be held on an ad hoc basis as in the past. This is crucial as the lack of an integrated structure has meant that the stakeholders, for far too long, have been working in silos without understanding the challenges or issues faced by others, resulting in the waste of precious resources.

Arguably, one of the easiest ways for the government to improve efficiency and cut wastage is to streamline the existing affordable housing administration. Hence, the establishment of a single entity to oversee the provision of affordable homes is long overdue. For a start, six agencies should be streamlined and put under the supervision of one single entity — 1Malaysia People’s Housing Programme, UDA Holdings Bhd, Syarikat Perumahan Negara Bhd, Federal Territories Affordable Housing, Housing Project for the Hardcore Poor and the 1Malaysia Housing Project for Civil Servants.

Realising that the Achilles heel of the previous housing policy was the lack of relevant big data for the stakeholders to consider before making any public policy or private investment decision, setting up an integrated housing supply and demand database should be a top priority under the NHP. This is vital given the challenges in identifying the right price points in the right location for new housing supply.

If the stakeholders have access to such data and hold an honest, meaningful and substantive consultation, a more holistic and integrated approach can be adopted in the NHP. For example, the policy should not overemphasise on stimulating demand when our household debt stood at 88.4% of gross domestic product (GDP) as at December 2016, which is among the highest in the region.

Instead, the government should look at ways and means to bring down the cost of housing supply by lowering or waiving development charges and the premium for conversion of land as well as various unnecessary construction and compliance costs. Other matters to look into are reducing red tape and speeding up the planning process, extra density allowance, tax incentives, public-private partnership for land release as well as transparent and supportive planning.

A holistic approach would dictate that new housing supply is tailored towards the income and demographic profile of households in different locations. Beyond the prices of new launches, equally important are factors such as connectivity to centres of employment and sufficient living space.

More importantly, the NHP should acknow-

ledge that the mismatch between demand and supply — due to price versus income, the location and the products — requires long-term correction in the market and in the economy as a whole.

Thus, it is time to think out of the box and look at renting — not in the traditional sense, but in the context of the sharing economy and the subscription-based business model that the millennial generation are accustomed to. There is a good case that this could be the way forward.

Rising household debt — whether it is mortgages, or car, credit card or student loans — make it hard to see a clear path to big-ticket purchases for the millennial generation. Simply put, it is extremely difficult for a fresh graduate to service a student loan, car loan and home mortgage at the same time.

The sharing economy unlocks the value dormant in people’s assets and allows the “haves” (owners) to share with the “have nots” (renters), to the point where nobody is really an owner or a renter, but rather, all become participants in a collective pool.

For subscribers who rent, take Grab, watch Netflix or listen to Spotify, it is an agile lifestyle. No ownership means no maintenance costs and upkeep. Subscriptions can be upgraded, downgraded or cancelled easily and flexibly. It frees people to spend money on pursuits rather than saving up to buy nice things. Could this be one of the items on the NHP agenda?

Needless to say, the subscription and pay-as-you go business models are undermining an idea entrenched in our collective psyche since the foundation of capitalism: that you have to own something to use it and enjoy it. In fact, it goes directly against the Asian mindset on home ownership. However, necessity is the mother of invention. Under current circumstances, the priority is to have a shelter over one’s head, be it rented or owned.

The challenge of providing basic, sufficient and affordable housing for the people requires a holistic and long-term solution and not a quick fix. A piecemeal and short-sighted prescription can not only increase the risks in the housing market but could have far-reaching consequences on the country’s financial and political stability.

Dare we hope that the forthcoming NHP is going to be different from those of the past and offer a holistic and long-term solution that not only caters for the present but also the future, as envisioned in the sharing and subscription economies?

Khaw Veon Szu, a former executive director of a local think tank, is a practising lawyer. Opinions expressed in this article are his own.

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