IDEAS: Government intervention distorts affordable housing supply

KUALA LUMPUR (Feb 26): Government intervention on supply of affordable housing has resulted in unwanted consequence — unfair competition that deters active participation of the private developers in this segment, according to Institute for Democracy and Economic Affairs (IDEAS) senior fellow Dr Carmelo Ferlito.

Because of the little involvement of the private property developers, there is limited supply of affordable housing, Ferlito said in a statement.

“The core problem why Malaysia does not have enough affordable housing essentially comes as a consequence of government effort on directly supplying affordable houses or strongly directing policies oriented in such direction,” Ferlito commented.

He said private developers would move away from what is perceived as unfair competition, as it is impossible to compete on affordable projects with government housing.

Ferlito cited Bank Negara Malaysia (BNM)’s data that showed only 21% of new launches between January 2016 and March 2017 were priced below RM250,000, pointing out that the presence of 20 federal and state agencies for housing development was not helping the situation.

While many have been harping on mismatch of supply and demand for affordable homes, he highlighted that there are still 17% of unsold residential units priced below RM250,000.

Commenting on BNM’s proposal for centralisation of affordable housing initiatives under a single authority, he said the solution for allowing private developers to move back into affordable projects is not central planning, but rather re-opening the way to the free-market coordination role.

“The problem might not be as simple as it sounds. The market is a complex network of players, whose knowledge is continuously evolving, re-shaping their actions and decisions; central planning cannot be successful in coordinating such a network of dispersed knowledge,” he said.

He said there has to be higher profit opportunities in the lower-end housing sector which will encourage private developers to invest in affordable housing.

“If we want to bring back developers into that specific market, we have to avoid cutting out their incentives to do so with direct government intervention that created unfair competition in the market,” said Ferlito. —

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