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Why Is Building Affordable Houses So Difficult?

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A house is a basic need that needs to be accessible to every human being, for them to set their roots and grow. However, now it has become more like a privilege that is within the reach of selected few. Why is this so?

The market value of houses is increasing rapidly since the previous decades. This phenomenon is happening around the world, for example, in England, the price rose by 4255% between 1971 to 2011. Similarly, in this country, Malaysia, the price of houses has increased by more than 150% between 2009 to 2015.

Why Is This Happening?

The growth in population creates the demand for houses, while the number of people in each house is getting smaller, for instance, more and more people live alone or with a spouse without children.

The government of Malaysia is seeing the need to provide 100,000 flats and landed houses in a year for the next 10 years. Unfortunately, it builds less than what is expected.

 Similarly in the UK, they are required to provide 240,000 homes every year, yet they are building much lesser houses than that, hence the expected shortfall of 700,000 homes by 2031.

Rising Prices but Reducing Income

On the other hand, even if we are able to provide the required number of houses, the purchasing power of the people is still low. Obviously, the rising price of houses is a factor that reduced the purchasing power of the citizens. Therefore, it is not just the need to provide houses, but the need to provide houses with affordable price for the majority of the people. In Malaysia, the government is helping the people by introducing a scheme to buy a rented home (rent-to-buy), and subsidizing the price of the low-cost homes for the M40 & B40 citizens.

More initiatives by the government will be introduced in the near future. Perhaps a similar approach by the US and UK can be considered, such as introducing the factory home loan bank or “Help to Buy” interest-free loans. In other words, people would buy houses, if they had the money.

Nine out of 10 persons who would want to buy a house in Malaysia, are those who already own a home – it is a huge number – this raises the demand for property-owning. Due to that factor, the developers just push the price up and up – the capitalism factor. The government cannot control the increasing of property prices by the private sector which has gone out of control.

More than just credit

Based on that point, simply creating easy credit will not actually make the housing more affordable for the people!! It must be done correctly with proper control and enforcement.

More often than not, people lure not only new affordable houses but also with beautiful features and high-quality finishings. At the same time, people object to the act of deforestation for township development if the outcome is not meeting expectations.

On the contrary, history shows that people do not object to new township development with a bit of higher price if the architectural design is attractive with high-quality finishings. On the same note, they will object to deforestation if houses are less beautiful (many aspects can be mean by beautiful not just physical features) and low quality even if the price is LOW. Hence, developers are ’forced’ to build beautiful and high-quality houses, and these do not come cheap! No developer is able to build good quality houses at a low price.

How to fix it

Solving the housing crisis requires toleration between demand and supply. The nature that we are facing is so irrelevant between the price of houses and household income. Several initiatives can be taken into account in order to address the issues:

From the developer side, they should build a low cost/affordable houses beautifully with high quality through a bit of study and R&D. Many good materials and technology are available and ready to be utilized for this purpose.

Stop thinking that creating credit for house purchases will help to provide houses for the people. It merely stokes house inflation.

What we should do is to Create not-for-profit housing corporations that are incentivized by volumes. While the government policy should be to deliver the houses based on specific ceiling price and quality and not to limit or restrict the technology used to deliver the housing project, for example: only restricted to certain IBS technology, etc. This could lead to monopoly and result in a higher price of the technology due to capitalism factor (again, back to square one – the higher price of construction!). It is already proven that the idea of “Volume order will reduce the cost” is not working in the construction industry in Malaysia.

Meanwhile, if we are open to market competition and award the project to those who provide the most innovative technology to reduce the house price, the industry will compete and more technology will be introduced, thus meeting the government’s objective to deliver the low cost and affordable housing to the people .

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