KUALA LUMPUR, Feb 26 — A local think-tank today blamed the shortage of affordable homes on the existence of federal and state agencies related to housing that it said created unfair competition with property developers.

Institute for Democracy and Economic Affairs (IDEAS) senior fellow Carmelo Ferlito highlighted the intervention by 20 agencies at both the federal and state levels in the housing industry.

“It is normal for private developers to move away from what is perceived as unfair competition. The reasoning is simple and easy — as a private developer, it is impossible to compete on affordable projects with government planning.

“That is why we are facing a limited supply of affordable housing in the country,” he said in a statement.

Ferlito explained that the problem of insufficient affordable homes cannot be pinned to the mismatch between “limited supply and ample demand”.

If that were to be the case, he said, then there will not be any unsold residential units below RM250,000 in the country today.

“The problem might not be as simple as it sounds (as) the market is a complex network of players, whose knowledge is continuously evolving, re-shaping their actions and decisions; central planning cannot be successful in coordinating such a network of dispersed knowledge,” he explained.

He said allowing developers to move back into affordable projects would re-open the way for a free market.

“However, if we want to bring back developers into that specific market, we have to avoid cutting out their incentives to do so with direct government intervention that created unfair competition in the market,” Fertilo said.

To tackle the shortage of affordable homes, Bank Negara Malaysia (BNM) recently outlined five strategies to overcome the issue, including centralising affordable housing initiatives and setting up an integrated housing database and an applicant registry for planning and allocating affordable housing.

It also suggested reducing the cost barrier to affordable housing, rehabilitating household balance sheets by enhancing financial literacy and improving the rental market by strengthening the legal framework.

During the year up to the first quarter of 2017, only 24 per cent of new launches were priced RM250,000 or less, a range that 35 per cent of Malaysian households could afford.

The quarterly bulletin by the central bank also revealed that from 2007 to 2016, house prices grew 9.8 per cent while household income only increased 8.3 per cent.

The mismatch was most acute from 2012 to 2014, when the growth in house prices (26.5 per cent) was more than double the growth in income levels (12.4 per cent).

As a result of the supply-demand mismatch, BNM said the level of total unsold residential properties in Malaysia stood at a decade-high of 146,497 units as at the second quarter (Q2) of 2017, an increase from 130,690 units in the preceding quarter.

In Q2 2017, almost 82 per cent of unsold units were priced above RM250,000.

---

First published in Malay Mail Online on Feb 26, 2018.