TECNICAL ASSISTANCE FOR POLICY DEVELOPMENT FOR ENABLING THE HOUSING MARKET TO WORK IN INDONESIA
By. THE HOMI Project Team
By. Marja C. Hoek-Smit
ACKNOWLEDGEMENTS
The HOMI Project team was based in the Directorate General of Human Settlements Development (DGHSD) in the Department of Settlement and Regional Infrastructure (Kimpraswil). We would like to express our particular appreciation to Ir. Djoko Kirmanto, Director General of DGHSD; and to Ir. Imam S. Ernawi; Director of Technical Support, and Ir. Iskandar Saleh, for all their support. In addition, the counterparts assigned to the consultants within DGHSD were very helpful.
Beyond Kimpraswil, the consultants received valuable inputs from the Technical Committee, which included representatives from Bappenas, Ministry of Finance and Ministry of Home Affairs, as well as Kimpraswil. Especially helpful to the team’s work were DR. Herry Darwanto and Ir. Salusra Widya from Bappenas.
Representatives from several quasi-governmental or non-governmental agencies were also instrumental in providing valuable information and feedback. These agencies included, but were not limited to, Jamsostek, Perbanas and REI.
Technical AssistanceFor Policy Development For Enabling The Housing Market To Work In Indonesia i
CHAPTER 1
BACKGROUND TO THE HOMI PROJECT
TABLE OF CONTENTS
1.1 Housing Policy and Finance Problem 1- 1 1.2 The Homi Project as a response 1- 2
1.2.1 Objectives of The Technical Assistance 1- 3 1.2.2 Summary of Scope of Services 1- 4
Technical Assistance For Policy Development For Enabling The Housing Market To Work In Indonesia 1 - i CHAPTER 1
BACKGROUND TO THE HOMI PROJECT
1.1 Housing Policy and Finance Problem By standards of many of its Asian neighbors the housing and housing finance sectors in Indonesia are under-performing. Housing investment in Indonesia is approximately 1.5% of GDP, compared with a range of 2% to 8% in comparable countries. Similarly, mortgage finance equals 25% of GDP in Malaysia, while in Indonesia this figure is only 3%. Housing has the potential to be an important economic sector, contributing to job creation, expansion of the finance system and creation of household wealth. Housing can also be a powerful tool in redistributing income or wealth. Economically, financially and socially the sector could play a more prominent role in the recovery process.
Clearly, the low and uncertain household incomes are an important factor in the limited role housing plays in the economy. The weakness and inefficiency of the financial sector further hinder expansion of a healthy housing delivery system.
There is clear evidence that current housing policies and programs hinder the efficiency and expansion of the housing sector. Under the current housing policy system, the delivery of market produced non-subsidized housing units for low-and moderate-income groups has declined (although the slow economy has also contributed). Production is nearly entirely dependent on the KPR interest rate subsidy for loans for specific house-types, which is the corner stone of the current GOI housing policy. Yet only about 40 percent of the population can afford a 21 m2 RS house.
The system remained unchanged for at least 20 years until the economic and financial crisis of 1997. However, the 1997 collapse was just the final straw for a system that had become untenable and had an increasingly negative impact on housing market and housing finance sector development. It is unnecessarily costly, has a negative influence on market innovation and, because of a gradual hollowing out of the value of the subsidy due to inflation, houses are increasingly built on cheap land far away from services and infrastructure. This has a negative impact on urban development.
After the crisis, and as part of the IMF agreement, BI liquidity funding for KPR subsidies was ceased and MOF had to carry the subsidy on its RDI budget. This is supposed to be phased out by 2004.
Technical Assistance For Policy Development For Enabling The Housing Market To Work In Indonesia 1 - 1 The housing market can be characterized as follows :