News: Regulatory Obstacles Made Low-End Market Artificially Unprofitable, Ideas

Jun 14, 2019

A think tank has called on government agencies to reduce direct involvement in the construction of low-cost homes to better generate affordable housing projects.

Institute for Democracy and Economic Affairs (Ideas) senior fellow Dr Carmelo Ferlito explained that private developers shy away from the low-end market segment not because it is naturally unprofitable, but because a series of regulatory obstacles have made the segment artificially unprofitable, reported The Sun Daily.

“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,” he said in a new policy paper titled “The Property Market, Affordability and the Malaysian National Housing Policy”.

Ferlito noted that disruptive entrepreneurship will play a vital role in developing new technologies that could help make housing developments cheaper at 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.”

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With the property market at a downturn which could lead to a wider economic crisis, Ferlito said the current discussion is strongly tilted toward the issue of affordability, while the cyclical dynamic of the property market is disregarded. This tendency may lead to a situation in which Malaysia will not be ready to face the consequences of the market downturn that has already started.

Since affordability is a complex issue, simply looking at the ratio between median income and median house price is simplistic and misleading, he said.

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“To decide what is individually considered as affordable means making a choice involving a trade-off between three elements: price, floor area and location.”

Looking ahead, Ferlito believes that the rental market would play a growing role due to generational cultural changes.

 

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