The Crisis In Housing What is the Solution?

Transcription

1 The Crisis In Housing What is the Solution? It is becoming increasingly difficult for ordinary Malaysians to buy houses in urban areas. The prices of even terrace houses have shot up in the past 5 years. Even in semi-rural Sg Siput, the selling price of terrace houses has gone up to RM 140,000. Our Deputy Prime Minister, is reported to have said in October 2013, "House prices have skyrocketed! I often hear complaints that terrace houses can cost as much as RM500,000. Who can afford such houses? Even those earning RM 10,000 a month would have difficulty servicing loans for a RM 10,000 house which used to cost between RM 140,000 and RM 200,000 several years ago." 1 There is a housing boom in Malaysia. Lots of houses are being built. The problem is that the supply of reasonably priced houses falls far short of the need for such houses as the Table below documents. Table One: Houses built by the Private Sector in Malaysia 1/1/ /12/2010 Price of House Number built Percentage of total houses built RM 30,000 and below 5,518 1% RM 30,001-50,000 66, % RM 50,001-70,000 17, % RM 70, ,000 88, % RM 100, ,000 92, % RM 150, ,000 99, % RM 200, ,000 89, % RM 300,001 and above 92, % Source: Ministry of Housing and Local Government Answer to Parliamentary Question put by the Member from Sg Siput. We will be arguing later in this paper that around 70 to 80% of the 1.7 million families who do not yet own their own houses can only afford houses that are cheaper than RM 70, % of 1.7 million is 1.2 million. But, of the 552,600 houses built by private developers between 2006 and 2010, only 16.2% of them or 89,843 were priced below RM 70,000.This clearly demonstrates the problem created by relying on profit driven entities to provide for the housing needs of our people. Our Prime Minister, outlined several initiatives that the government int

2 ends to take to address the housing problem, when tabling the 2014 budget. The government's plans asmentioned in the PM's speech are summarized in Table Two below. Table Two: Government Plans to Address the Shortage of Affordable Houses. Scheme Ministry/Agency in charge Number of houses planned for 2014 Price range Program Perumahan Rakyat Program perumahan Rakyat Disewa Ministry of Housing 16,473 units Ns e Ministry of Housing 600 Ns PR1MA a 80, , ,000 c Affordable houses Rumah Idaman Rakyat Rumah Mesra Rakyat 15,122 SPNB b 3,000 8,000 Ns Ns 45,000-65,000 Private Affordable Ownership Scheme d Ministry of Housing 10,000 45, ,000 a. PR1MA = Program Perumahan Rakyat 1Malaysia, implemented by 1Malaysia People's Housing Corporation b. Syarikat Perumahan Negara Berhad = National Housing Corporation, a company under the Minister of Finance c. Answer to Parliamentary Question No. 56 on 18/11/2013 d. The Ministry of Rural Development also builds houses - but in rural areas. It was not mentioned in the context of affordable housing for urban population by the PM in his speech. e. Ns = not specified in the PM's speech Source: Prime Minister's Budget Speech on 25/10/2013 Is the BN government's approach to the housing problem adequate? We need to consider the following issues: 1. What is the current need for reasonably priced houses? According to Datuk Abdul Rahman Dahalan, the Minister of Urban Wellbeing, Housing and Local Government, 25.5% of Malaysians families do not own houses. 2, 3 As there are 6.8 million households in the country 4, that would mean that there are at present 1.7 million families who do not yet own houses. Most of these households would be in the lower income categories with monthly incomes of less than RM (40% of

3 Malaysian households have monthly incomes of less than RM 3054, and another 40% have monthly incomes between RM 3054 and RM 6955). 5 In addition to the 1.7 million who do not own their homes, we must consider the fact that there were 120,000 marriages registered in Malaysia annually between ** and **. Most of these newly wed couples will also join the waiting queues for reasonably priced houses. 2. What do we mean by "reasonably priced houses? Lets first look at the loan repayment schedule. At present most banks would want the loan repayment period to end before the borrower reaches the age of 60 years. Given this, the maximum repayment period that a 35 year old man can expect is 25 years. The chart below summarizes the monthly repayment required for banking loans depending on the loan repayment period. Table Three: Housing Loan Repayment schedule Loan Amount 35 year repayment period 30 year repayment period 25 year repayment period 20 year repayment period 15 year loan repayment period RM 30, RM ,000 a (RM114,240) b (RM 103,320) 310 (RM 93,000) 347 (RM 83,280) 411 (RM 73,980) RM 100,000 RM 200, RM ,000 a. Apparently the current interest rates are BLR minus 1% for housing loans below RM 100,000 and BLR minus 2% for housing loans above RM100,000. BLR at present is 6.6% b. The figures in brackets gives the total amount that the house-buyer will have to pay to settle the loan for his/her RM 50,000 house. Source: Information from Banks based on the interest rates in November 2013.

4 3. The next issue we need to consider is how much a family earning RM 3000 per month be able to put aside towards servicing its housing loan - because according to the reasoning in the section above, a large number of those in need of first homes will be having household incomes of less than RM 3000 per month. Many people glibly cite the 1/3 rule of thumb - implying that most families can afford to put aside 1/3 of their total income for housing. We need to analyse that assumption. What is the expenditure on basic needs in a family with 3 school going children? Table Four: Expenditure on Basic Needs for family with 3 children Expenditure item Amount per month Food at home. RM 6 per person x 5 pple x 30 days (Includes marketing and groceries) School related expenses Bus fare RM 60 x 3 Pocket money RM 2 x 3 children x 20 days Tuition RM 100 x 3 a Miscellanous RM 50/mnth Transport expenses Payment for car RM 400 b Petrol and maintenance RM 200 Public Transport RM 100 RM 900 RM 650 RM 700 Utilities RM 120 Telephone RM 100 RM 220 Medical Insurance RM 250 c PTPTN repayment d RM 150 RM 400 Total RM 2870 Note: a) Some may argue that tuition is not a basic need. But given our school system today, is it possible to disense with private tuition and still expect our children to perform well? Isn't education a basic need for all families? b) Is a car a basic need? It wouldn't be if we had good public transport. But in the absence of that, it would be difficult to manage with just a motorbike if one had 3 children. c) Is a medical insurance policy a basic need? Given the lack of specialists in government hospitals, many families feel the need to have a back-up policy so that they are covered if the government services are too slow. d) As of 30/9/2012, there were 2,088,056 students who had taken PTPTN loans.

5 Answer to Parliamentary Question No. 12, 8/11/2012 The table above brings to light several pertinent points - the inadequate provision of basic needs such as education, transport and health care mandates Malaysian families to make alternative arrangements. This then reduces the amount of funds the family can commit to servicing their housing loan. - A household income of RM 3000 is barely enough to meet the basic needs of a family with 3 children. And we did not put in entertainment, expenses for festivals and family occasions eg weddings etc, financial help for the parents of the couple, savings for their children's college education, the couple's savings for their old age etc. How much can we reasonably ask such a family to put aside every month to service their housing loan? Perhaps RM 300 might be "reasonable" but that would mean that they may have to compromise on several of the items listed in the table above. RM 300 a month for a 25 year loan repayment period would mean that such a family could only afford to buy a house costing RM 50,000. If a household with a monthly income of RM 3000 can only afford a loan with a monthly repayment figure of RM 300, how then the 40% of Malaysian families with incomes of less than RM 3000 per month? 4. How about families with household incomes between RM 3000 and RM collectively they make up 40% of Malaysian households. What is the reasonable amount for the repayment of their housing loan? I think here the 1/3 rule of thumb can be applied with a modification as given in the formula below : Housing Loan Repayment figure = 1/3 of the monthly household income in excess of RM 3000 plus RM 200. That would mean that the reasonable repayment figure for a family earning RM 4000 per month should not exceed RM 530 a month [ 1/3 x ( ) + 200]. The reasonable bank payment figures for other income levels are summarized in table 5 below. Table Five: Reasonable Housing Loan Repayment Amounts by Household Income Income Category Monthly Household Income RM 3000 Maximum Loan Repayment Figure that is reasonable. RM 300 per month RM 4000 RM 530 RM 5000 RM 860 [1/3 x ( ) + 200] RM 6000 RM 1200 RM 7000 RM 1530 per month

6 So is the government's response to the housing crisis adequate? From the discussion above we can see that the majority of the 1.7 million families who do not yet own a house, cannot put aside too much towards servicing their housing loans - for our estimation is that about 75% of them would be having household incomes below RM 3000 and most of the remaining 25% would be in the RM 3000 to RM 5000 category. Most of them would not be able to afford the payment sums required by the PRIMA scheme - but this, with 80,000 targetted houses is the main effort by the government to meet the housing needs of ordinary Malaysians in urban areas. (Refer back to Table Two.) In fact, even for graduate with incomes that place them within the middle 40% of Malaysian household incomes ie RM 3054 and RM , the PRIMA scheme will put too high a burden on them. If this is the situation for graduates, then how about other Malaysians? According to written reply to parliamentary question number 230 at the second session of parliament in 2013, household debt in Malaysia increased from 60.4% of GDP in 2008, to 74.0% in 2010 and to 85.1% of GDP in If one factors in the fact that share of national income accruing to households is only about 58% 6, this means that household debt in 2013 is 147% of annual household income! This is only the average figure. The debt ratio for poorer families would be much higher.the bottom 80% of the Malaysian families are severely stressed out by their debt burden! The PRIMA scheme appears to be another poorly thought out adhoc response to a very real problem faced by the Malaysian public. Consider this - PRIMA envisages a long repayment period of about 30 to 35 years. What is the likelihood of one or more recessions affecting Malaysia in that time period? Taking a conservative estimate of 1 recession every 10 years, the PRIMA borrower would have to weather 3 or 4 recessions before his loan is paid up. What are the chances that both he and his wife will not suffer siginificant loss in income during all these recessions? The likelihood of them losing their home seems to be quite high! If we insist on relying on commercial banks to provide housing loans to our population, shouldn't we then legislate that 10% of the housing loan repayment be paid into a body like the EPF every month to create an emergency fund which can be drawn upon if the buyer's household incomes falls because of a recession. This would mean that the the maximum loan repayment accruing to the bank can only be 90% of the figures listed in Table 5. One of the programs listed by the PM in his budget speech, under the Ministry of Urban Wellness and Housing. is promising, for it commits the government to subsidizing each house to a cost of RM 30,000. But the number of houses targetted for 2014 is only 10,000 - not even 1% of the current need for housing!

7 Why is there this serious problem in providing reasonably priced houses to our population? 7 When trying to address a particular problem it is always useful to define its principalcauses. Only then can we formulate a holistic solution. There are several interlinked causes of the current crisis in affordable housing in Malaysia. They are I. The "Fencing Up of the Commons" Think back to the 1960s and the 1970s. There was massive migration of lower income Malaysians from rural areas to the urban. Thousands of peasant farmers and displaced estate workers came to urban centres of growth. But most of them did not end up with huge debts to the banks. Why? Because they built their own houses on unused government land using their own skills. Their houses were flexi-sized - they could add in an extra roon if an elderly relative wanted to move in with them. That option is now not available to poor families seeking a house in urban areas. If they were to try to build on any vacant land, there is a very high likelihood that the owner of the land or the Land Office will come very quickly to stop them. The land, a part of our commons, has become "fenced up"! II. Commercialization of Home construction Communities have been building their homes for a long time. Sure there were craftsmen who specialized in certain aspects of the process, but the capacity to build houses was there in the community. The driving force for building a house then was not the hunger for profit but the need for shelter for a family in that community. (A house was primarily an use-value and not an exchanger value.) 7 That capacity has been taken away. Now there are a phlethora of laws and regulations that have to be followed, permits and licences to be obtained. Houses in urban areas are now almost exclusively built by developers and propelled by the profit motive. III. Rent-seeking by Government Officials and BN Politicians An example first: There was a large plot of government land measuring some 150 acres behind the Sg Buloh New Village in Sg Siput (U). It would have been possible to build terrace houses with a built-up area of 800 square feet and sell these to the many houseless families in Sg Siput at a cost of RM 55,000. But what happened was that the government gave this entire plot to a company wholly owned by the Perak State Development Corporation. This subsidiary company went into joint ventures with private developers and the terrace houses there are now being sold at RM 150,000 a unit. Many people blame the Developers for being greedy and pushing up house prices. There is truth in that perception. But what many do not realise is that the "fencing up of the commons" by the politicians in power (together with the help bureaucrats in the Land Office and the State Administration) and the subsequent collection of royalties on this land from the developers is also an important factor that drives up the prices of houses.

8 IV. Financialization of Capital This term might sound terribly complex, but it can be easily explained - Throughout the world there has been a failure of consumer demand to keep up with the growth of investment capital. Relocation of firms to lower wage countries, the contractualization of labour, outsourcing, the use of migrant labour to keep wages low have all led to superprofits for the big corporations. But the flip side of that coin, is that consumer demand has failed to grow at the same pace as profits, because the income of the consumers their wages - has failed to grow. The end result of this is an over-supply of goods and a lack of investment opportunities for capitalists who wish to produce goods and services for the general public. It is not in the nature of capitalists to stuff their excess profits into pillow cases and stash these in cupboards! They would want to invest in something that will grow the value of their capital. So the search for investment opportunities in the financial sector and and in real estate has become more frenzied over the past 10 years. That is why, when you pass by a new high-end appartment block that the developer claims is fully sold, you might find that less than 30% of the units have their lights on at nights. Many of the higher end appartments are bought not for their "use-value" of providing shelter but in the expectation that their "exchange value" will appreciate over time. They are investment decisions for the 5% of the richest Malaysians! The appetite of the top 5% of the population (as well as many rich non Malaysians) for expensive appartments as an investment item, plays a role in creating a scarcity of land in our urban centre and drives up the cost of land and thus the price of houses. V. Lack of coordinated resistance to the onslaught of expanding capitalism All the 4 causes detailled above are part and parcel of the expansion of capitalism into more and more aspects of Malaysian society. The fencing up of what used to be common property, the disempowerment of the people through destroying their capacity to meet a human need (shelter) through their own efforts, building of houses to make profits, and the speculation in land and in property are all integrally tied in to the development of capitalist relations in Malaysia. Unfortunately most Malaysians do not see things this way - they do not see the interconnections between these trends or the fact that they are all engendered by the insatiable desire of capital for ever increasing profits. This lack of insight on the part of the Malaysian Public, no doubt due to a large extent to the fact that the Left in Malaysia has been decimated by a very hostile government which much prefered the promotion of an ethnic interpretation of social reality, has meant that there has been no serious opposition to this onslaught. Protests have been piecemeal - isolated communities launch campaigns to protect their homes (Kg Hakka is the latest example) but they do not recognize that their oppression is just a part of a much larger systemic oppression of ordinary Malaysians by an ever-expanding capitalist system. What needs to be done?

9 1. Stop creating homelessness. There are still several "peneroka" 8 villages in urban areas - much less than 20 years ago, but still significant. Most State Governments are bent on clearing all these villages a zero squatter program - to allow for "development". An alternative approach would be to recognize these villages, legalize them by giving them land grants, upgrade their infrastructure - roads, drains, sewerage systems and rubbish collection, and poviding them with low interest small loans to make repairs and upgrade their houses. Such an approach will help reduce the number of home-less people. A similar approach can be used to handle ground tenants - these are families which have rented land from private landlords for the purpose of erecting their own houses. The numbers of this group of poor urban settlers is probably several times bigger than that of the peneroka currently living on government land. Many of these gound tenants have stayed in their current locations for decades - some even before Merdeka. But they face the danger of eviction - there is the ever present danger that some big property developer will come and offer a price that is too attractive for the current landowner to refuse. Once the developer gets the land, he will proceed to evict the ground tenants who really have no rights at all under the present National Land Code. Why shouldn't we not modify the National Land Code to create some rights for the Ground Tenants who have occupied the land for more than 20 years? Why not use the Land Acquisition Act to acquire the land and sell it to the current dwellers at reasonable prices. That money can be topped up by the government and paid to the landowners as settlement for the acquisition. Adopting this course of action would be much less expensive than making them all homeless, and then trying to build low-cost houses for them with subsidies to the developers. 2. Take the provision of First Houses for families out of the market. The government should set up a non-profit authority to build terrace houses on government land and sell these to Malaysian couples seeking to buy their first house. According to housing developers, the cost of building a terrace house given today's prices and labour costs is about RM 50 per square foot of built up area. Therefore the building cost of a house measuring 20 by 40 feet would be 800 x 50 = RM 40,000. If we add in infrastructure costs of RM 12,000 per unit, the price of each unit would be RM 52,000. Note that the cost of the land has not been factored in because we feel that government land should be used for this purpose without adding to the financial burden of Malaysian families. These terrace houses should be sold to Malaysian couples seeking to buy their first house at just above the price of construction, with the proviso that the owner can only sell this house back to the non-profit authority itself. He or she cannot use this house for speculative purposes. Of course to implement such a program, a national data base has to be created so that we know which are the families that already own houses in Muncipial Areas (urban). They will nor be eligible to partake in this scheme. We would also need to define how banks should handle the buyers who default on their loan payments - the banks should be required to sell the house back to the non-profit

10 authority at the actual price of the house. The authority can then re-sell the house to another eligible family. 3. Institute a loan insurance scheme This has been alluded to earlier. All Malaysians buying houses should be required to pay a sum of money equivalent to 10% of the loan repayment amount to a body like the EPF, that can be used to help meet the monthly loan repayment if that family suffers a loss in income because of an economic downturn. This is crucial because at present, when a lower income family defaults on their housing loan, their debt goes up rapidly because the loan interest rate goes up a couple of notches, lawyers, evaluators and auctioneers start charging their fees. However the collusion of the housing agents who often buy these houses at the court sanctioned auctions ensures that for the majority of houses sold off thus, they are purchased by the housing agents at the 4th or fifth auction after their floor price has been depressed by about 30%. This means that the family concerned still ends up owing the bank a residual debt despite losing their house and all their accumulated savings that they had invested in it! The loan insurance scheme would help reduce the incidence of default due to economic recessions. Perhaps there should be a proviso that if this fund is drawn upon, the monthly repayment amount to the bank can be reduced so that this fund can last for a longer period, giving the house-buyer more time to get a new job. 4. "Council Homes" for those earning less than RM 2500 a mnth. In an earlier section we dissected the living costs for a family of five living in an urban area. We saw that even with a household income of RM 3000, such a family would have difficulty in putting aside RM 300 a month regularly to service their housing loan. So families with household incomes less than that should be provided housing by the government at subsidized rates. 9 In the United Kingdom, the government made funds available to the local councils to build low cost flats for poor families - hence the term "council housing". Such a scheme should be considered in Malaysia - perhaps under an agency that is separate from that building houses for sale to couples not owning houses. The Malaysian government has already embarked on several programs 10 that have elements of the "council housing" scheme. Most of these provide government funds to build simple houses for the really poor in rural areas. A similar approach should be instituted for the urban poor - those with household incomes less than RM In defence of subsidizing housing. There may be people who argue that subsidizing houses will create a bad work ethic and would be inimical to the development of the economy. I beg to disagree. I believe that we have a moral imperative to make sure all our people have reasonable accomodation. Three main reasons

11 1. We are keeping our wages low in the interest of the national economy. In 2012, during the debate on the minimum wage rate, the PSM argued for RM 1500, because then a family would have a minimum income of RM 3000, which we felt was the minimum for living in our urban areas today. However or government argued that a minimum wage at such a level would lead to relocation of firms out of Malaysia, and to a loss of the local market to firms located in Malaysia. So the government set the minimum wage at RM 900. Workers were asked to sacrifice for the national good. And they have done so. Which is why it would be right to subsidize one of their most basic necessities - housing. It is not "charity" or "mollycoddling". It is their right, and should be considered a legitimate part of the "Malaysian social contract". 2. Marginalization of any part of our population will come back to impact negatively on all of us. Data the world over has shown that marginalization and the attendent hopelessness breeds underperformance, delinquent behaviour, substance abuse, an increase in street violent and the like. It is in the enlightened self interest of all Malaysians to make sure that no one is left too far behind. 3. All our religions say that we should!! The Take Home Message In summary then, the housing crisis in Malaysia has been created by various parties including ruling party politicians, land office bureaucrats, property developers, and the 10% of the richest Malaysians who have all, in their own ways, tried to make lots of money from the provision of housing to the population. Their collective actions have led to the sky-rocketting of house prices to the extent that many young couples are unable to afford homes and household debt has reached dangerous levels with many lower income families living on the precipe of bankruptcy. This has to stop. The holistic solution to this problem that has been caused by rampant capitalism, is to take the provision of the first home for Malaysian families out of the market and to provide it at the cost of construction to the families earning more than RM 2500 per month. The government has to provide subsidized housing for the families below that income level. Dr Jeyakumar Devaraj Member of Parliament, Sg Siput Parti Sosialis Malaysia Notes 1. Star 2/10/2013. Pg Star 25/10/2013. Pg 18 Does this number include the families who own houses but not the land their houses are on - the ground tenants? 3. Based on the 2010 Household survey by the Statistics Department, 57.5% of government employees and 67.1% of workers in the private sector owned houses. Parliament Question No 145 on 2/10/2013 answered by the Ministry of Urban Wellbeing, Housing and Local Government. 4. There were an estimated 6.8 million households in Malaysia in Answer parliamentary question No 12, on 8/11/2012 by Ministry of Higher Education

12 5. Based on the 2012 Household Income Survey, the poorest 40% of Malaysian families comprising 2.55 million families had monthly household incomes between RM 204 and RM 3054, while the richest 20% of malaysian families had monthly household incomes of between RM 6955 and RM 182,251. Answer to parliamentary question 454 on 18/7/2013 by the PM's Department. 6. This figure is based on the following i) Reply in Parliament to Question Number 63 on 12/6/ the Malaysian per capita household income in 2009 was RM 1,168 per month. ie RM 14,016 per year. ii) Per capita GDP in 2009 = RM24,055 (in 2009 prices). This is given in page vii of Economic Report by the Ministry of Finance for 2009/2010 RM 14,016 as a percentage of RM 24,055 is 58.3%. 7. Several of these ideas were mentioned by Boon Kia Meng in his documentary film on the housing crisis as well as during a briefing session he participated in on ***. 8. "Peneroka bandar" which means "urban pioneer" is a term popularized by Dr Nasir Hashim who wanted highlight the fact that these urban settlers had rights to the land that they were on, and that they should not be dismissed as "illegal squatters'. Nasir argued that they migrated to urban areas at the advice of government leaders who wanted to solve underemployment and low income in rural areas. They stayed in disused former mining lands because they did not have money to buy houses with grants. By their activity they rehabilitated the former mining lands. As such, their rights to the land they occupied has to be recognized. 9. According to the 2010 Household survey, there were 831,860 single mothers in Malaysia. Answer to question 484, on 3/10/2011 by Ministry of Women, Family and societal Development. ie About 16% of Malaysian families are headed by Single Mothers. Only a minority among them have the financial resources to buy a house and service their housing loans. 10. There are a number of government programs that provide houses for the rural poor the PPR scheme, housing provided by FELDA and the Perlop schemes.