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IDEAS raises concerns over potential government-led market distortions in the housing market

Kuala Lumpur, 11 January 2019 – IDEAS has responded to the National Affordable Housing Council (MPMMN) plan to build one million affordable homes in the next ten years. MPMMN agreed to set up the One Million Affordable Homes (RMN) 2018-2028 Implementation Monitoring Steering Committee chaired by Housing and Local Government Minister. MPMMN also agreed to utilise Wakaf land as part of the solution to build more affordable homes in Malaysia.

In response, IDEAS Senior Fellow Dr Carmelo Ferlito said, “It is quite an ambitious plan to build one million houses by 2028, considering that the entire private sector was only able to provide an average of 200,000 new launches across all price ranges per year during the best years of the property market.”

Dr Carmelo’s concern is not rooted in the targeted numbers of houses per se; according to him, government involvement in the industry may hurt the industry in the long run. He said, “Market information is by nature dispersed into individual minds and therefore not collectable by a single central planner; it is also dynamically created, and modified, through billions of market interactions. Therefore, while a central planner can possess the necessary technical knowledge in order to build one million affordable houses, what is impossible to be gathered is the entrepreneurial knowledge about the actual market needs (including the conditions of time and place). This is what makes impossible for the government to know what the market truly needs. It is best to leave the market to the entrepreneurs since they are the players who are continuously engaged with the market process.” Dr Ferlito added that “development plans need not only to be implemented but also timely revised because of new information acquired via market interactions. A central plan would suffer from rigidity and would lack the necessary interaction with market forces in order to discover if it needs to be revised; this would bring about losses which, in the case of government enterprises, fall on taxpayer’s shoulders”.

Although the government’s intention is commendable in providing affordable homes to the Rakyat, Dr Carmelo warns the government to be careful of not intervening the market directly and creating distortions. The government had previously signalled its intention to conduct an open tender to engage the private sectors in providing affordable homes, Dr Carmelo believes that this could be a move in the right direction (although not optimal), rather than building houses directly through government-linked companies or ministry agencies.

“I believe there is demand for affordable houses and I also believe that only private entrepreneurs can elaborate sound plans in line with the real market needs. This does not necessarily have to be focused on home ownership, but also toward new rental schemes,” concluded Dr Carmelo.

2019-01-11T14:19:16+00:00 11th January 2019|Media Statements|Comments Off on IDEAS raises concerns over potential government-led market distortions in the housing market