Kuala Lumpur, 14 June 2019 – The Malaysian National Housing Policy has been launched to tackle the issues of home affordability and the growing number of unsold properties in the high-end segment. IDEAS’ new policy paper “The Property Market, Affordability, and the Malaysian National Housing Policy”, authored by IDEAS Senior Fellow Dr Carmelo Ferlito contributes to the debate by exploring the affordability issue in the realm of the general property market situation, which in the current scenario is facing a downturn readjustment process.

IDEAS Senior Fellow Dr Carmelo Ferlito said that “The industry (property market) is suffering a downturn that might lead to a wider economic crisis. The current discussion is strongly unbalanced toward the issue of affordability, while the property market’s cyclical dynamic is disregarded; such a tendency could lead to a situation in which the country will not be equipped to face the consequences of the downturn that has already started.”

According to Dr Carmelo, the affordability issue is a complex one and simply looking at the ratio between median house price and median income is simplistic and misleading. He said, “To decide what is individually considered as affordable means making a choice involving a trade-off between three elements: price, floor area and location.” Dr Carmelo also believed that “Low-end market segment is not disregarded by the private developers because it is naturally unprofitable, but because it is artificially made unprofitable by a series of regulatory obstacles that become supply-side bottlenecks.”

Recently, the government introduced the National Housing Policy (NHP) that indicate the government is playing an active role in the market. However, Dr Carmelo warns the government a better way to generate affordable projects would be to remove regulatory obstacles, starting with reducing the direct involvement of government agencies in building low-cost homes.

Commenting on the NHP, Dr Carmelo said, “In contrast with what is suggested by the National Housing Policy, too-strict requirements for low-cost developments (i.e. minimum size) should be avoided in order to facilitate the interaction between supply and demand, taking into account the location and size factors, and therefore allowing lower income people to move toward the economic heart of the country, supporting thus not only their housing issues but also promoting their possibilities for a higher degree of social mobility.”

“Disruptive entrepreneurship will play a key role in developing new technologies for making housing developments cheaper from the cost side. However, in order to emerge such kind of entrepreneurship requires the freedom to react to market signals and cannot be centrally designed by the government.”

Dr Carmelo also stressed how the rental market will play a growing role in the future, also because of generational cultural changes. In this perspective, the government may play a different role in the low-end segment, with initiatives like the guaranteed-rent homes, where the central authority guarantees the loan for those developers investing in affordable projects, and partially covers the rent disbursement, in order to make the projects both affordable and economically viable. “This method would have the advantage of avoiding capital expenditure from the government side, and moreover of decreasing current expenditures whenever the subsidised tenants improve their economic conditions”, concluded Dr Carmelo.

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