CITIES MAKING HOUSING AFFORDABLE KHAZANAH RESEARCH INSTITUTE 1 2 KHAZANAH RESEARCH INSTITUTE MAKING HOUSING AFFORDABLE ©2015 Khazanah Research Institute August 2015 Perpustakaan Negara Malaysia Cataloguing-in-Publication Data Making housing affordable. – Kuala Lumpur, Malaysia: Khazanah Research Institute 1. Public policy – Malaysia. 2. National Business Systems for Housing – Malaysia. 3. Affordable housing – Malaysia. 4. Institutional arrangements. 5. Economics of governance. 6. Construction procurement route. I. Title: Making housing affordable. II. Khazanah Research Institute. ISBN 978-967-12929-2-1 This work is available under the Creative Commons Attribution 3.0 Unported license (CC BY3.0) http://creativecommons.org/licenses/by/3.0/. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following attributions: Attribution – Please cite the work as follows: Khazanah Research Institute. 2015. Making Housing Affordable. Kuala Lumpur: Khazanah Research Institute. License: Creative Commons Attribution CC BY 3.0. Translations – If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by Khazanah Research Institute and should not be considered an official Khazanah Research Institute translation. Khazanah Research Institute shall not be liable for any content or error in this translation. Published August 2015 All queries on rights and licenses should be addressed to Chief Operating Officer’s Office Khazanah Research Institute Level 25, Mercu UEM Jalan Stesen Sentral 5 Kuala Lumpur Sentral 50470 Kuala Lumpur Malaysia Fax: +603 2265 0088; email: [email protected] Publication orders may be placed through our website www.KRInstitute.org “You cannot write with the view to impact or to response. That way you distort the latter and corrode the integrity of the writing itself. You cannot anticipate the context of the motives of readers in unconstrained futures. So all you can do is write what you should, whatever that means. A very different sort of obligation.” Tony Judt (as cited in Homans, 2015) KHAZANAH RESEARCH INSTITUTE III This report was prepared by the researchers of Khazanah Research Institute, Dr. Suraya Ismail, Intan Nadia Jalil and Puteri Marjan Megat Muzafar. It was approved by the editorial committee namely, Dato’ Charon Mokhzani, Dr. Muhammed Abdul Khalid, and Wan Khatina Wan Mohd Nawawi. It was authorised for approval by Dato’ Charon Mokhzani. ACknowledgements We would like to extend our deepest gratitude to the following without whom this report would not have been possible: Sr. Mazli Mohamed Ayob, Operon Asset Advisory Sdn Bhd; Sr. Hj. Jailani Jasmani, JUB Central Sdn Bhd; Professor Emeritus Ezrin Arbi and Associate Professor Dr. Sr. Wan Nor Azriyati Wan Abdul Aziz, University of Malaya; Sr Khuzaimah Abdullah, Sr Aina Edayu Ahmad and Amy anak Pirah, National Property Information Center; Terence Wong, CIMB Group Berhad; Richard Blakeway and Alan Benson, Greater London Authority; Hj Zainuddin Ahamad, Town and Country Planning Department Peninsular Malaysia; Siti Hajar Md Saleh, Syarikat Perumahan Nasional Berhad; Datuk FD Iskandar, Aslinda Mohd Noor and Karen Yeong, REHDA; Ar Kamrudzaman Mat Rejab, PRIMA, Datuk Seri Michael Yam, InvestKL; Tn Hj Azahari Mohd Raslan and Tan Keng Chuan, Department of Statistics; Professor Shlomo Angel and Nicolás Galarza, New York University (NYU); Christopher Herbert, Joint Center for Housing Studies, Harvard University; Hugh Pavletich, Annual Demographia International Housing Affordability Survey; Tan Sri Dato’ Dr. Lin See-Yan, IGB Reit; Chang Kim Loong, House Buyers Association; Dr. Mohd Yusof Saari, Institute of Agricultural and Food Policy Studies; Mohd. Misbah Rembun and Mohd. Rafizan Idris, Construction Industry Development Board (CIDB); Brendan De Frank Gamin, Perbadanan Pembangunan Perumahan (Sarawak); Fauziah Fakurudin, Perbadanan Setiausaha Kerajaan Pulau Pinang, Januario Jesus Atencio, 8990 Holdings and to the 12 firms (property development, construction and architectural firms) that participated in the five Malaysian case studies. Special thanks are due to Rosli Haron, Assistant Town Planning Officer from the Town and Country Planning Department, Penang for assisting us in constructing the maps used in the report. We are particularly grateful for the contributions from our colleagues at the Khazanah Research Institute: Yap Gin Bee, Theebalakshmi Kunasekaran and Adibah Abdulhadi, and not forgetting our hard-working interns: Nicholas Khaw Hock-Lu; Siti Hajar Bakri@Hashim; Muhammad Nazhan Kamaruzuki and Sivananthan Ramasamy. In writing this book, we have benefitted tremendously from the contribution of the people mentioned above. However, any fault lies entirely with the authors. IV KHAZANAH RESEARCH INSTITUTE AUTHORS DR. SURAYA ISMAIL is a Director of Research in Khazanah Research Institute. Before joining the Institute, she was in Think City (a city-making initiative of Khazanah Nasional Berhad), and had previously taught at the University of Malaya. Her research interests include theories of the firm, the economics of governance and the history of economic growth. Suraya was educated at the universities of Malaya, Reading and UCL. She holds a PhD in Institutional Economics and Governance. Dr. Suraya Ismail Director of Research INTAN NADIA JALIL is a Deputy Director of Research at the Khazanah Research Institute. She was previously the World Bank’s Country Economist for Malaysia. Prior to that, she was an economist with Khazanah Nasional Berhad’s Research and Investment Strategy (KRIS) division. Her research interests cover the interactions between public policy, economic development, urbanisation dynamics and social inclusion. Nadia holds an MSc in Regional and Urban Planning Studies from the London School of Economics and Political Science and graduated from Intan Nadia Jalil the University of Cambridge, United Kingdom with a BA in Deputy Director of Research Economics. PUTERI MARJAN MEGAT MUZAFAR is a Research Assistant at the Khazanah Research Institute. Her fields of interest are in the relationship between economic growth and social development with a special interest in educational issues. Puteri Marjan was a Yayasan Khazanah scholar. She holds a first class degree in Economics from the Multimedia University. Puteri Marjan Megat Muzafar Research Assistant KHAZANAH RESEARCH INSTITUTE V Our website (www.KRInstitute.org) has interactive versions of all the charts in this report, where the underlying data can also be downloaded. If you are reading this on the PDF version, the charts link directly to our website. CONTENTS ABBREVIATIONS IX SECTION 4 EXECUTIVE SUMMARY XI INTRODUCTION 1 POLICY RECOMMENDATIONS 74 Chapter 9: Key Findings and SECTION 1 Policy Recommendations 75 Develop Measures to Improve the THE STATE OF HOUSING 4 Efficacy of the Construction Chapter 1: The Malaysian Industry’s Delivery System to Housing Market 5 Supply Housing at Affordable Prices 75 Chapter 2: How Affordable is Develop Measures to Reduce the Malaysian Housing Market? 11 Pressures Leading to Rapid House Price Escalation 78 Develop Measures to Plan for SECTION 2 a Steady Supply of Housing at Affordable Prices 79 HOUSING DEMAND, SUPPLY, AND INTERVENTIONS 27 Chapter 3: Housing Demand, CONCLUDING REMARKS 82 Supply, and Prices 28 Chapter 4: Housing Factors APPENDICES in Malaysia 30 Chapter 5: House Prices Formula of Growth Rate and Speculators 42 Calculation 83 Affordable Housing Schemes 84 Speculation, Herding and SECTION 3 Market Inefficiency 86 THE STATE OF HOUSE- Methodology for Case Studies 91 BUILDING IN MALAYSIA 48 Institutional Economics and the Economics of Governance 96 Chapter 6: National Procurement Details of Procurement Routes System for Housing 49 According to Functional Form 100 Chapter 7: Case Studies 56 11th Malaysia Plan Measures Chapter 8: The New Way – Related to Affordable Housing 103 A New Institutional Structure for a New Method of Production 68 SOURCES AND REFERENCES 108 VI KHAZANAH RESEARCH INSTITUTE FIGURES Figure 1: Number of property Figure 13: Number of residential transactions by type of properties properties launched, by transacted (units), 2002-2014 7 price and house type – Figure 2: Value of property ‘moderately unaffordable’ and transactions by type of properties ‘affordable’ markets 22 (RM billion), 2002-2014 8 Figure 14: Number of launched Figure 3: Number and value of residential units by price range, residential transactions, 2002-2014 8 2004-2014 24 Figure 4: Malaysia’s house price Figure 15: Composition of index, 2000-2014 9 residential units launched by price range, 2004-2014 24 Figure 5: Breakdown of house prices by state, 2014 10 Figure 16: Relatively inelastic housing supply meeting relatively Figure 6: Growth in household incomes elastic demand 29 and house prices, 1997-2014 11 Figure 17: Malaysian population Figure 7: Percentage distribution size (‘000), 1970-2040 30 of households for each income category in Malaysia (%), 2014 15 Figure 18: Number of households and household size in Malaysia, Figure 8: Distribution of house 1970-2020 30 prices, when the median multiple is three times (units) 15 Figure 19: Population density according to mukims in Greater Figure 9: Simulations for median Kuala Lumpur, 2010 31 multiples of two, three, four, five and eight times (units) 16 Figure 20: Urbanisation level by state (%), 2010 34 Figure 10: Housing affordability relative