Housing crisis: What is the solution? (Part 2)
The holistic solution to this problem, which has been caused by rampant capitalism, is to take the provision of the first homes for Malaysian families out of the market, says Jeyakumar Devaraj.
See Part 1 here.
Why is there this serious problem in providing reasonably priced houses to our population?7
When trying to tackle a particular problem it is always useful to define its principal causes. Only then can we formulate a holistic solution. There are several interlinked causes of the current crisis in affordable housing in Malaysia. They are:
The ‘fencing up of the Commons'”
Think back to the 1960s and the 1970s. There was massive migration of lower-income Malaysians from rural areas to the urban. Thousands of peasant farmers and displaced estate workers came to urban centres of growth.
But most of them did not end up with huge debts to the banks. Why? Because they built their own houses on unused government land using their own skills. Their houses were flexi-sized – they could add in an extra roon if an elderly relative wanted to move in with them.
That option is now not available to poor families seeking a house in urban areas. If they were to try to build on any vacant land, there is a very high likelihood that the owner of the land or the Land Office will come very quickly to stop them. The land, a part of our commons, has become “fenced up”!
Commercialisation of home construction
Communities have been building their homes for a long time. Sure there were craftsmen who specialised in certain aspects of the process, but the capacity to build houses was there in the community. The driving force for building a house then was not the hunger for profit but the need for shelter for a family in that community. (A house was primarily a “use-value” and not an “exchanger value”.) (Several of these ideas were mentioned by Boon Kia Meng in his documentary film on the housing crisis as well as during a briefing session he participated in.)
That capacity has been taken away. Now there are a phlethora of laws and regulations that have to be followed, permits and licences to be obtained. Houses in urban areas are now almost exclusively built by developers and propelled by the profit motive.
Rent-seeking by government officials and BN politicians
An example first: There was a large 150-acre plot of government land behind the Sg Buloh New Village in Sungai Siput (U). It would have been possible to build terrace houses with a built-up area of 800 square feet and sell these to the many house-less families in Sungai Siput at a cost of RM55,000.
But what happened? The government gave this entire plot to a company wholly owned by the Perak State Development Corporation. This subsidiary company went into joint ventures with private developers and the terrace houses there are now being sold at RM150,000 each.
Many people blame the developers for being greedy and pushing up house prices. There is truth in that perception. But what many do not realise is that the “fencing up of the commons” by the politicians in power (together with the help of bureaucrats in the Land Office and the state administration) and the subsequent collection of royalties on this land from the developers is also an important factor that drives up the prices of houses.
Financialisation of capital
This term might sound terribly complex, but it can be easily explained. Throughout the world, consumer demand has failed to keep up with the growth of investment capital. Relocation of firms to lower-wage countries, the contractualisation of labour, outsourcing, the use of migrant labour to keep wages low have all led to super profits for the big corporations.
But the flip side is that consumer demand has failed to grow at the same pace as profits, because the income of the consumers – their wages – has failed to grow. The end result: an over-supply of goods and a lack of investment opportunities for capitalists who wish to produce goods and services for the general public.
It is not in the nature of capitalists to stuff their excess profits into pillow cases and stash these in cupboards! They would want to invest in something that will increase the value of their capital. So the search for investment opportunities in the financial sector and and in real estate has become more frenzied over the past 10 years.
That is why, when you pass by a new high-end appartment block that the developer claims is fully sold, you might find that less than 30 per cent of the homes have their lights on at nights. Many of the higher-end appartments are bought not for their “use-value” of providing shelter but in the expectation that their “exchange value” will appreciate over time. They are investment decisions for the 5 per cent of the richest Malaysians!
The appetite of the top 5 per cent of the population (as well as many rich non-Malaysians) for expensive appartments as an investment item plays a role in creating a scarcity of land in our urban centres and drives up the cost of land and thus the prices of houses.
Lack of coordinated resistance to the onslaught of expanding capitalism
All the four causes detailled above are part and parcel of the expansion of capitalism into more and more aspects of Malaysian society. The fencing up of what used to be common property, the disempowerment of the people through destroying their capacity to meet a human need (shelter) through their own efforts, the building of houses to make profits, and the speculation in land and in property are all integrally tied into the development of capitalist relations in Malaysia.
Unfortunately most Malaysians do not see things this way. They do not see the interconnections between these trends or the fact that they are all engendered by the insatiable desire of capital for ever-increasing profits.
This lack of insight on the part of the Malaysian public – no doubt largely due the decimation of the Left in Malaysia by a very hostile government, which much preferred the promotion of an ethnic interpretation of social reality – has meant that there has been no serious opposition to this onslaught.
Protests have been piecemeal. Isolated communities may launch campaigns to protect their homes (Kampung Hakka is the latest example), but they do not recognie that their oppression is just a part of a much larger systemic oppression of ordinary Malaysians by an ever-expanding capitalist system.
What needs to be done?
1. Stop creating homelessness
There are still several ‘peneroka villages in urban areas – much fewer than 20 years ago, but still significant. Most state Governments are bent on clearing all these villages – a “zero squatter programme” – to allow for ‘development’.
(‘Peneroka bandar’, which means urban pioneer, is a term popularised by Dr Nasir Hashim, who wanted to highlight the fact that these urban settlers had rights to the land that they were on, and that they should not be dismissed as ‘illegal squatters’. Nasir argued that they migrated to urban areas on the advice of government leaders who wanted to solve underemployment and low-income in rural areas. They stayed in disused former mining lands because they did not have money to buy houses with grants. By their activity, they rehabilitated the former mining lands. As such, their right to the land they occupied has to be recognised.)
An alternative approach would be to recognise these villages, legalise them by giving them land grants, upgrade their infrastructure – roads, drains, sewerage systems and rubbish collection – and provide them with small low-interest loans to make repairs and to upgrade their houses. Such an approach would help reduce the number of homeless people.
A similar approach can be used to handle ground tenants – these are families that have rented land from private landlords to erect their own houses. The number of poor urban settlers is probably several times bigger than that of the peneroka currently living on government land.
Many of these gound tenants have stayed in their current locations for decades – some even before Merdeka. But they face the danger of eviction – there is the ever present danger that some big property developer will come and offer a price that is too attractive for the current land-owner to refuse. Once the developer gets the land, he will proceed to evict the ground tenants who really have no rights at all under the present National Land Code.
Why shouldn’t we not modify the National Land Code to create some rights for the ground tenants who have occupied the land for more than 20 years? Why not use the Land Acquisition Act to acquire the land and sell it to the current dwellers at reasonable prices. That money can be topped up by the government and paid to the landowners as settlement for the acquisition. Adopting this course of action would be much less expensive than making them all homeless, and then trying to build low-cost houses for them with subsidies to the developers.
2. Take the provision of first houses for families out of the market
The government should set up a non-profit authority to build terrace houses on government land and sell these to Malaysian couples seeking to buy their first house.
According to housing developers, the cost of building a terrace house given today’s prices and labour costs is about RM50 per square foot of built up area. Therefore the building cost of a house measuring 20 by 40 feet would be 800 x 50 = RM40,000. If we add in infrastructure costs of RM 12,000 per unit, the price of each unit would be RM52,000. Note that the cost of the land has not been factored in because we feel that government land should be used for this purpose without adding to the financial burden of Malaysian families.
These terrace houses should be sold to Malaysian couples seeking to buy their first house at just above the price of construction, with the proviso that the owner can only sell this house back to the non-profit authority itself. He or she cannot use this house for speculative purposes.
Of course, to implement such a programme, a national database has to be created so that we know which are the families that already own houses in muncipial (urban) areas. They will not be eligible to partake in this scheme.
We would also need to define how banks should handle the buyers who default on their loan payments – the banks should be required to sell the house back to the non-profit authority at the actual price of the house. The authority can then re-sell the house to another eligible family.
3. Institute a loan insurance scheme
This has been alluded to earlier. All Malaysians buying houses should be required to pay a sum of money equivalent to 10 per cent of the loan repayment amount to a body like the EPF.
This can be used to help meet the monthly loan repayment if that family suffers a loss in income because of an economic downturn. This is crucial because, at present, when a lower income-family defaults on their housing loan, their debt goes up rapidly because the loan interest rate goes up a couple of notches, and lawyers, evaluators and auctioneers start charging their fees.
The collusion of the housing agents who often buy these houses at the court-sanctioned auctions ensures that for the majority of houses sold off thus, they are purchased by the housing agents at the fourth or fifth auction after their floor price has been depressed by about 30 per cent. This means that the family concerned still ends up owing the bank a residual debt despite losing their house and all their accumulated savings that they had invested in it!
The loan insurance scheme would help reduce the incidence of default due to economic recession. Perhaps there should be a proviso that if this fund is drawn upon, the monthly repayment amount to the bank can be reduced so that this fund can last for a longer period, giving the house-buyer more time to get a new job.
4. ‘Council homes’ for those earning less than RM2,500 a mnth
In the first part, we dissected the living costs for a family of five living in an urban area. We saw that even with a household income of RM3,000, such a family would have difficulty in putting aside RM300 a month regularly to service their housing loan. So families with household incomes less than that should be provided housing by the government at subsidised rates.
(According to the 2010 Household Survey, there were 831,860 single mothers in Malaysia.
In answer to question 484 on 3 October 2011 by Ministry of Women, Family and Societal Development ie about 16 per cent of Malaysian families are headed by single mothers. Only a minority among them have the financial resources to buy a house and service their housing loans.)
In the United Kingdom, the government made funds available to the local councils to build low-cost flats for poor families – hence the term ‘council housing’. Such a scheme should be considered in Malaysia – perhaps under an agency that is separate from that building houses for sale to couples not owning houses.
The Malaysian government has already embarked on several programmes that have elements of the “council housing” scheme. (There are a number of government programmes that provide houses for the rural poor – the PPR scheme, housing provided by Felda and the Perlop schemes.) Most of these provide government funds to build simple houses for the really poor in rural areas. A similar approach should be instituted for the urban poor – those with household incomes less than RM2,500.
In defence of subsidising housing
There may be people who argue that subsidising houses will create a bad work ethic and would be inimical to the development of the economy. I beg to disagree. I believe that we have a moral imperative to make sure all our people have reasonable accommodation. Three main reasons:
1. We are keeping our wages low in the interest of the national economy. In 2012, during the debate on the minimum wage rate, the PSM argued for RM1,500, because then a family would have a minimum income of RM3,000, which we felt was the minimum for living in our urban areas today. But the government argued that a minimum wage at such a level would lead to relocation of firms out of Malaysia, and to a loss of the local market to firms located in Malaysia. So the government set the minimum wage at RM900. Workers were asked to sacrifice for the national good. And they have done so. Which is why it would be right to subsidise one of their most basic necessities – housing. It is not ‘charity’ or mollycoddling. It is their right, and should be considered a legitimate part of the ‘Malaysian social contract’.
2. Marginalisation of any part of our population will come back to affect negatively on all of us. Data the world over has shown that marginalisation and the attendant hopelessness breeds underperformance, delinquent behaviour, substance abuse, an increase in street violence and the like. It is in the enlightened self interest of all Malaysians to make sure that no one is left too far behind.
3. All our religions say that we should!
The take-home message
In summary then, the housing crisis in Malaysia has been created by various parties including ruling party politicians, land office bureaucrats, property developers, and the 10 per cent of the richest Malaysians who have all, in their own ways, tried to make lots of money from the provision of housing to the population.
Their collective actions have led to skyrocketing house prices to the extent that many young couples are unable to afford homes and household debt has reached dangerous levels with many lower-income families living on the precipe of bankruptcy.
This has to stop. The holistic solution to this problem, which has been caused by rampant capitalism, is to take the provision of the first homes for Malaysian families out of the market and to provide it at the cost of construction to families earning more than RM2,500 per month. The government has to provide subsidised housing for families below that income level.