Raising maximum income threshold for eligibility does not make homes more affordable

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Source: The Edge, 23 October 2017

The Penang state government’s recent announcement of the relaxation of the rules for eligibility for affordable flats in the state does not tackle the root cause of the overhang: the fact is, the ‘affordable’ homes are simply too expensive for the low-income group.

No amount of relaxing of the rules can mask this fact.

On 23 October 2017, the Edge ran a story showing what the various income groups could afford in Penang based on their income:

Property price levels that Penang residents can afford:

  • RM118,000 (for the bottom 40% of the people)
  • RM230,000 (for the middle 40%)
  • RM442,000 (for the top 20%)

What the median Penang household can afford – RM195,000 (see chart above).

Average home price in Penang at the end of 2016 – RM410,000

The Edge also found that housing prices in Kuala Lumpur and Penang were “severely unaffordable” at over six times the annual household income. Based on a median household income of RM5,409 in 2016 in Penang, it said half of Penang residents could only afford homes priced up to RM195,000 – well short of the RM410,000 average home price in Penang (at the end of 2016).

(A home price of three times the annual household income is considered affordable. For example, if the annual household income in a family is between RM2,000 and RM3,000, then the family would only be able to afford housing between RM72,000 and RM110,000 – the latter being close to the affordability figure of RM118,000 for the median bottom 40% of households, as reported in The Edge.)

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What this means is that many don’t earn enough to afford the ‘affordable’ homes targeted at them. The fact that banks have been rejecting 60% of housing loan applications should tell us something. Moreover, 16,528 homes below RM150,000 are unsold nationwide, suggesting there could be issues of not just affordability but also location (far from jobs) and transport (commuting time, lack of public transport, fuel costs).

Clearly, the state’s definition of “affordable housing” – many of these going for RM300,000 on the island (though some are priced at RM250,000 and RM150,000) – is seriously problematic as it is not a true reflection of affordability for those with household incomes below RM6,000. Even many in the middle 40% will struggle to afford homes priced at RM250,000, especially households with single parents or with only one spouse working.

What’s more, many even in the top 20% of the population will find it tough to buy a home above RM500,000. In the first quarter of last year, 60% of unsold homes were priced at RM500,000 and above, many of them over RM1m.

No wonder, Penang’s property overhang rose to 3,445 homes in 2018 compared to 2,271 the previous year.

So raising the maximum income eligibility for a RM150,000 home from RM6,000 a month to RM8,000 will not help the bottom 40%. At a time when the monthly minimum wage is just RM1,100, it is crystal clear that those in the bottom 40% are not earning RM6,000 let alone RM8,000, even with spouses’ incomes combined. The increase in the threshold merely allows those earning between RM6,000 and RM8,000 – ie more of the middle 40% – to now be able to buy the excess homes that were originally targeted at the lower-income group.

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Similarly, the raising of the income thresholds to RM10,000 and RM12,000 for homes priced at RM200,000 and RM300,000 in effect allows the upper-middle class to buy homes originally targeted at lower-income groups.

While the relaxation of the restrictions will allow more workers from outside Penang currently employed in the state to buy homes, it will also allow middle and higher-income speculators from other states to buy ‘affordable’ homes in Penang.

So this relaxation of rules does not solve the housing needs of the bottom 40% in Penang, Instead, it merely allows the higher-income groups, including those from other states, to buy homes originally targeted at the low-income group and middle class in Penang.

It also allows developers – whose greed caused this overhang in the first place – to reduce some of the unsold homes in their books. But higher-end developers won’t be pleased as some of their targeted buyers from the upper-middle class will now be able to buy cheaper homes that were originally built for those with lower incomes.

All this reflects a failure in the misguided policy of allowing higher densities (well beyond what the Penang Structure Plan 2020 allowed) in the hope that it would lead to more affordable homes being built. Instead, more homes were built at unaffordable prices to maximise profits for developers. Now that the developers are faced with a glut, it would seem that the state is pandering to them by raising the income thresholds for eligibility and exempting stamp duty for properties priced between RM300,000 and RM1m.

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Faced with such a large overhang, it is puzzling that the state is now planning for 7,700 acres of land reclamation in the draft Penang Structure Plan 2030. Most of the housing on this reclaimed land will very likely be targeted at higher-income buyers and will worsen the overhang. So why plan for so much land reclamation? Who benefits from this?

In the past, state-owned Penang Development Corporation used to intervene in the housing market by developing entire townships of low and medium-cost housing such as Seberang Jaya and Bayan Baru. But it does not appear to be playing that role now.

The provision of affordable housing has instead been left to market forces and the private sector. Clearly, that shift in policy has failed. What we have been witnessing over the past few years is the turning of housing into a commodity with the developers reaping the most profits.

What is the duty of the state if not to ensure the provision of truly decent and affordable housing for all, especially the lower-income groups. It is a challenge indeed but not insurmountable. It is high time the state intervenes in the market, stop pandering to developers, and provide genuinely affordable housing.

Aliran executive committee

2 February 2019

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Santana
Santana

When businesses are in trouble the govt always panders them but when the ordinary folks complain of exorbitant house prices govt pretends not to hear

Mokka Sancha Hii

Wow..is Incredible unbelievable to raise the maximum income eligibility for a RM150,000 home from RM6,000 a month to RM8,000 ??…can calculate one ma..5k-1k( hse loan ), 700 ( car loan ) = balance of 3300- food ( cook at home ) : 800?? = 2500 – misc charges ; RM1k .= still left w 1500 ler…crazy..no wonder so many unsold.