Increase supply of affordable houses to first-time buyers, says economist


KUALA LUMPUR: The government should address the shortage of affordably-priced houses in the country before implementing schemes to enable the middle-income group to buy houses, said economist Muhammad Ridhuan Bos Abdullah.

He said while the new First Home Deposit Funding Scheme (MyDeposit) was a good initiative by the government, it would serve little purpose if the first-time house buyers could not find suitable units to buy.

“The scheme is, indeed, a good one as it will benefit those who earn lower incomes. But the main issue here is not about (financial) assistance (from the government) but the number of affordably-priced houses available for the target group. Is there enough to meet the housing needs of all the people in this group?

“I think the government should first look into increasing the supply of affordably-priced houses in view of the high demand for such units. It’s better to resolve the core issue first before introducing other (helpful) mechanisms or strategies,” Muhammad Ridhuan Bos, who is a senior lecturer at Universiti Utara Malaysia’s School of Economics, Finance and Banking, told Bernama.

Bridging the gap

MyDeposit, which was announced in Budget 2016, was implemented on April 6 and under this scheme, first-time house buyers from households with a monthly income of between RM3,000 and RM10,000 will receive a contribution of 10 per cent of the sale price or a maximum of RM30,000 (whichever is lower) to help them buy units priced at RM500,000 and below. A total of RM200 million has been allocated for the implementation of the scheme under Budget 2016.

According to Bank Negara Malaysia’s 2015 Annual Report, Malaysia had an undersupply of affordable housing, particularly in major urban areas.

“This means there is a gap between affordable housing stock and number of buyers (in that category). As such, (the government) should pay more attention to the house price-to-household income ratio,” said Muhammad Ridhuan Bos.

He said BNM’s 2014 statistics showed a house price-to-income ratio of 4.4, indicating that average house prices were 4.4 times the average annual household income.

(According to the “median multiple” methodology recommended by the World Bank and the United Nations to evaluate urban housing markets, a house is considered affordable if a household can finance it with less than three times its annual household income, that is house price-to-income ratio of 3.0 and below.)

Muhammad Ridhuan Bos, who is also Northern Corridor Research Centre Fellow Researcher and Northern Corridor Economic Transformation Programme Facilitator, said growth in household income has been lower than that of house prices in general.

He said between 2009 and 2014, the average household income rose by 7.3 per cent, whereas house prices in average had increased by 7.9 per cent.

“This (higher house prices) can have a macroeconomic impact on a household’s expenditure pattern and its ability to repay (the housing loan), as well as spend on daily essentials and services,” he said.

Use modern technology

Pointing to the housing projects implemented under the 1Malaysia People’s Housing Scheme (PR1MA) and 1Malaysia Civil Servants Housing Programme (PPA1M), and those developed by Syarikat Perumahan Negara Berhad as well as subsidiaries belonging to state government entities, Muhammad Ridhuan Bos said he hoped that they adhered to the proper standards and procedures as the main objective of their schemes was to help the lower- and middle-income groups to buy their own homes.

“State government subsidiary companies, for example, can have easy access to information about prospective buyers, as well as buying patterns and trends. Furthermore, in theory, these companies should be incurring lower building costs because the land involved belongs to the state government.

“They should also make use of expertise and technology used by CIDB (Construction Industry Development Board), such as the industrialised building system. If advanced nations like South Korea, Singapore and the United Kingdom are making use of this system, we too should consider using it more extensively in our country,” he said.

Price control

Muhammad Ridhuan Bos, meanwhile, said in order to curb price speculation in the housing market, the government should introduce stricter regulations to control house prices, similar to those implemented in Singapore and South Korea.

“During the 1980s, South Korea used to face a situation similar to what Malaysia is facing now, where housing developers have the power to determine the prices of their units. It used to be the same situation in Germany as well.

“Things changed in those countries after their governments introduced housing policies in favour of the people who need access to affordable houses. The Singapore government too emphasises house ownership, which is the main agenda in its national development,” he said.

Muhammad Ridhuan Bos also said that the government’s privatisation policy (introduced in 1983) had somewhat “contributed” to the housing woes faced by Malaysians because private developers started building far more houses than state government-owned enterprises.

“We welcome their (private developers) efforts but then since 2005, their housing developments have been trending towards the high-end market, rather than the affordable and low-cost market,” he said.

He said based on the current housing statistics, the chances of house ownership for the M40 (the middle class constituting 40 per cent of the population) and B40 (lower-income category) groups seemed bleak.

“Going by the neoclassical theory of the firm, profit maximisation is the main motive of developers as such, government intervention is necessary to ensure that demand (for affordable houses) is met by adequate supply,” he added.- Bernama