Making Housing Affordable
This is the first in a series of reports undertaken to examine the various dimensions of the housing industry. Future studies will focus on matters relating to land and it's attendant regulations, the financing of housing and how housing must be understood as a critical component of city-making. More
The provision of adequate housing is critical for the growth and well-being of society. The issue of housing is a multi-faceted one, for it encompasses not only shelter, but also security, privacy, investment, and personal identity.
For households, housing serves as both a major motivation for savings and a significant influence on consumption. In addition, the locational aspect of housing directly influences labour mobility and therefore human capital, economic growth, and productivity.
In the wider economy, housing is an integral part of the construction industry, with residential construction comprising 27% of total construction output as at 2014. Although construction in turn comprised only 4.3% of total GDP in the same year, the sector returns an output multiplier of 1.9 times for the economy. This means that every additional RM1 of output in the construction sector leads to an RM1.90 increase in total output for the economy, with residential construction alone having a multiplier of 2.0 times. The housing sector is thus a key economic sector, and must be perceived and managed as an integral part of overall economic management.
Unfortunately, this perception of housing as a key economic driver has yet to take root. Housing is too often seen by governments as a welfare issue, requiring the transfer of physical or financial resources to low-income households who are unable to house themselves adequately. Such resources, however, are rarely adequate. As a result, government housing agencies limit their activities to direct housing provision for a small minority of potential beneficiaries, ignoring the interests of most of the population. By focusing on a small and limited housing agenda, these agencies fail to either understand or manage the housing sector as a whole.
This can be seen from the growing concern among middle-income households regarding their capacity to purchase homes. This group is often ineligible for public low-cost housing programmes, but are unable to afford housing supplied by private real housing developers.
Therefore, it is important to move towards a broader agenda of guiding and managing the housing sector as a whole. The sector must also be viewed as one that is important and productive, where policies have serious repercussions for overall economic performance and not, as is commonly viewed (especially for low-cost housing) as a sector which is a drain on productive resources. Our case study in the Philippines (8990 Holdings, Inc.) demonstrates the point that building houses for low-income households can be profitable.
This report considers the problem of supplying affordable houses to the general public from the perspectives of both institutions (the national business system) and firms (industry value chain analysis and the economics of governance). This is based on the premise that improvements are needed at the level of construction projects and firms in order to increase the affordability of houses at the national level.
Until now, policies have focused on controlling house prices once the consumer receives the house at the end of the production process. This report adopts a different approach as evidence shows that it is far more efficient to enhance capacity on the supply side in order to develop a sustainable and responsive housing sector that caters for all sections of the population.
This is the first in a series of reports undertaken to examine the various dimensions of the housing industry. Future studies will focus on matters relating to land and it's attendant regulations, the financing of housing and how housing must be understood as a critical component of city-making.