Fri, 29 Sep 2023


'Govt involvement in affordable housing market harmful'
Published on: Thursday, June 08, 2023
By: FMT, Danial Azhar
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'Govt involvement in affordable housing market harmful'
Economist Carmelo Ferlito says the government should remove legal requirements such as the minimum sizes of houses and compulsory affordable housing quotas.
PETALING JAYA: Excessive regulation and the government’s involvement in the affordable housing market are detrimental to the sector’s performance, said an economist.

Carmelo Ferlito of the Center for Market Education believes the presence of the government in the affordable housing segment is crowding the market and keeping investors away.

“This is why many developers prefer to develop high-end properties. How can private developers compete with the government?” he said.

Ferlito told FMT the government should focus instead on encouraging the private sector to supply affordable housing, including removing “distortions” created by minimum housing standards.

Legal requirements such as minimum house sizes, Bumiputera quotas, and compelling private developers to supply affordable housing affect costs and distort the “coordination” between the supply and demand of such homes, he said.

“Affordable housing is not purely about fixed pricing for a fixed product. Location, accessibility of public transportation, floor area and so on are important factors as well for developers and consumers alike,” he said.

He said removing distortions was important as it would allow market forces to play their role more effectively. It will also give developers and house buyers more choice in the trade-off between prices, floor area and location.

“The point is that the affordable market segment is not disregarded by developers because it is unprofitable, but because it is artificially made unprofitable by regulatory obstacles and the heavy involvement of the government,” said Ferlito.

On Tuesday, Prime Minister Anwar Ibrahim said the construction of affordable housing or public housing projects (PPR) would be made compulsory for development projects in Kuala Lumpur.

Anwar said the condition was necessary as the government’s aim of ensuring the availability of more affordable housing to meet the needs of the poorer Malaysians had not been achieved.

However, former Melaka Real Estate and Housing Developers’ Association chairman Anthony Cho said the government should undertake the responsibility of ensuring the availability of affordable housing.

“When developers are forced to build affordable housing, it is the middle-income earners who have to pay more, as the cost of building affordable homes will be passed on to them,” he said.

Cho said house prices would increase if developers were burdened with building affordable homes, especially since land prices continue to rise due to scarcity.

“This is not a long-term solution because, over time, the incomes of those who bought affordable homes will grow and they will no longer be in the B40 group. But there will be (other) people in the B40 who would need these homes,” he said.

He proposed that the government buy up affordable homes and lease them out to those in the B40 group for a period of five years. Upon expiry of the lease tenure, the government should review to see if the tenants still qualify to live there.

“If their incomes have grown and they are no longer in the B40, they should vacate the home so others in the B40 group can live there.”

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