Affordable housing: Relaxation of rules – whose interest does it serve?

The housing glut – the G-word few want to say – in Penang has once again come under the spotlight.

The state’s response has been tinker with the eligibility rules for affordable housing so that better-off buyers can now take up the slack.

Now, this is the problem: unlike in the past, when PDC played an active role in providing affordable housing, the state has been lieaving to market forces and the private sector to fulfil this role.

But that resulted in too much of the wrong kind of homes being built. Only now that there is a glut, which the state vigorously denies, does the state wants to intervene in the market (to save the developers from the glut that has built up?).

Now is the time it should leave it to market forces to push down the prices of homes in the face of the glut. After all, if supply is more than demand, prices will gradually drop. Instead, the state is intervening in the market now by allowing better-off buyers to take up the glut in housing originally meant for the lower-income groups.

Check out the following statement by Aliran:

The Penang state government’s recent announcement of the relaxation of the rules for eligibility for affordable flats in the state does not tackle the root cause of the overhang: the fact is, the ‘affordable’ homes are simply too expensive for the low-income group.

No amount of relaxing of the rules can mask this fact.

On 23 October 2017, the Edge ran a story showing what the various income groups could afford in Penang based on their income:

Property price levels that Penang residents can afford:

• RM118,000 (for the bottom 40% of the people)
• RM230,000 (for the middle 40%)
• RM442,000 (for the top 20%)

What the median Penang household can afford – RM195,000 (see chart above).

Average home price in Penang at the end of 2016 – RM410,000

The Edge also found that housing prices in Kuala Lumpur and Penang were “severely unaffordable” at over six times the annual household income. Based on a median household income of RM5,409 in 2016 in Penang, it said half of Penang residents could only afford homes priced up to RM195,000 – well short of the RM410,000 average home price in Penang (at the end of 2016).

(A home price of three times the annual household income is considered affordable. For example, if the annual household income in a family is between RM2,000 and RM3,000, then the family would only be able to afford housing between RM72,000 and RM110,000 – the latter being close to the affordability figure of RM118,000 for the median bottom 40% of households, as reported in The Edge.)

What this means is that many don’t earn enough to afford the ‘affordable’ homes targeted at them. The fact that banks have been rejecting 60% of housing loan applications should tell us something. Moreover, 16,528 homes below RM150,000 are unsold nationwide, suggesting there could be issues of not just affordability but also location (far from jobs) and transport (commuting time, lack of public transport, fuel costs). Full statement here on the Aliran website