HOW do we make housing more affordable? It is a million-dollar question that many are still searching. Housing the nation, especially providing affordable homes, is a global challenge.
Two months ago, Bank of England (BoE) governor Mark Carney said the only long-term way to effectively bring down home prices was to build more homes. This may well be one of the most practical ways to address the issue.
Before we take his suggestion as final, let’s look at some statistics to understand the root cause of why we are lacking behind in terms of affordable housing. According to National Property Information Centre (Napic), we have a total of 4.7 million homes as at the fourth quarter of 2013. As Napic does not track rural houses, the assumption is only urbanites stay in these houses. This alone accounts for 70% or 21 million people, and therefore 4.4 persons per house in the cities.
Australia, which has a population of 21.5 million in 2013, has 9.1 million occupied houses or 2.4 persons per household. In the United Kingdom, there are about 63.8 million people staying in 26.4 million homes in 2012, which also works out to about 2.4 persons per house.
What do these figures tell us? In terms of ratio of people to number of homes, we have so much to catch up with countries like Australia and the United Kingdom.
The basic economic principle says, when demand is higher than supply, prices will go up. Equilibrium is met when demand equals supply. And when supply exceeds demand, prices will go down.
Looking at the above examples, we are lacking behind in terms of number of houses available. If a mature economy such as the UK thinks that building more houses is the way to go to achieve affordable housing, should we not consider this approach as well?
To keep pace with Australia and the UK of 2.4 persons in a house, we need 8.75 million homes to house our urban population of 21 million people. This literally means that we need to build an additional 4.05 million houses in order to be on par with them. Based on our statistics for the last three years, we only managed to build and complete 73,000 residential units per year. As such, we have many years to catch up. And that is also provided that the existing number of urban population is maintained.
The Napic report also shows that, out of the 246,225 residential properties transacted in primary and secondary markets last year, only 10% was made up of RM50,000 and below, 15% was between RM50,000 to RM100,000 and 12% was between RM100,000 to RM150,000. That shows the transactions of affordable houses were limited.
So, what can we do to improve the situation?
The Housing Ministry, various local authorities and government bodies set up specially to provide affordable housing, should work and pool resources together to build more houses, especially affordable ones.
The key factor to affordable housing is affordable land. The Government should focus on opening up large tracts of government land for housing. This will assist private developers greatly as they are currently facing the challenge to lower the price of their houses due to high land cost. The expectation that developers can cross-subsidise affordable housing with the sale of other private homes has instead burdened the people. In reality they ended up paying more for their private homes.
Apart from the ability to free up state land for housing, the authority can also expedite the approval process to supply more houses to the market. Once this process is enhanced, private developers will have the incentive to launch more units as unproductive waiting time and holding cost are reduced.
On the other hand, the Government should also review the existing policy of setting the price of low-cost homes at RM42,000. The authority may revise the pricing higher to perhaps RM100,000 to RM150,000, to encourage small and medium sized developers to build more affordable houses for the market.
In Malaysia, small and medium enterprises (SMEs) constitutes 99.2% of total business establishments. However, this does not reflect the scene in the property industry as the requirement of building 30% low-cost homes at RM42,000 is a challenge for small developers to stay in business.
When we look at how to make housing more affordable, we should really scrutinise the reasons why we lag behind. With the current limited supply we have in our housing market, house prices will continue to rise due to genuine demand from urbanisation and a growing population.
This vicious cycle will only be alleviated when more land is released for affordable housing, and expedite approval process to allow both the public and private sectors to build more homes.
With ample supply in the market, people would have more choices of homes that meet their financial requirement and demand at different stages of life.
