Encik Abdul Rasheed Ghaffour: Sustainable development of
affordable housing
Keynote address by Mr Encik Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of
Malaysia (Bank Negara Malaysia), at the Dialogue on "Sustainable Development of Affordable
Housing", Kuala Lumpur, 4 July 2017.
* * *
I am sure many of us here can still remember when we set out to buy our first house, which may
be between 20 to 30 years ago. Back then, a typical terrace house or a 3-bedroom apartment
came at a price tag of between RM200,000 to RM300,000. The monthly repayment would be
around RM1,200 to RM1,600. It was a big commitment. But it was manageable; it made financial
sense, and it was affordable.
That was many years ago. Those who are starting out today face much higher barriers to buying
a house. The numbers speak for themselves. Lets take a widely used measure - the Median
Multiple, for example. Under this measure, a house is considered affordable if the median house
price is less than three times the median annual household income. For Malaysia, this ratio has
consistently been above four since more than 10 years ago. In our major cities, the ratio can be
as high as ten. Even if we look at other measures, the broad conclusion remains: housing in
Malaysia is becoming less affordable.
This dialogue on "Sustainable Development of Affordable Housing" is therefore very timely.
Confucius once famously said that the strength of a nation derives from the integrity of the home.
This underscores an important truth. Housing is not just about putting a roof over our heads, nor
is it only a personal or financial issue. Assuring housing stability helps ensure that households
can meet other basic needs and establish roots that build stronger communities. The challenges
facing affordable housing are also complex and call for multiple stakeholders to work together to
find solutions that will deliver desirable outcomes over the long term. It therefore has much
broader socio-economic dimensions that concerns all of us.
It is firstly crucial to frame the issue of affordable housing correctly. Fundamentally, the issue is
one of owing to significant
a large and growing mismatch between demand and supply,
changes in our housing markets and demographic shifts. Prior to 2012, investor purchases of
multiple homes increased very sharply, crowding out first-time homebuyers and pushing up
prices of homes across the board in preferred locations. At its peak, the growth in housing loans
taken out to buy second and third homes exceeded 15%. This excludes cash purchases. This in
turn drove a higher concentration of new supply in higher priced segments, further widening the
demand-supply gap for affordable homes. By 2012, annual house price growth had risen above
11%, almost four times the 10-year average house price growth between 2000 and 2009.
Demand for affordable homes has also increased rapidly from the higher rate of net new
household formation. This reflects trends that point to smaller household sizes; the young
moving out from family homes earlier, including to take jobs in urban cities; and an ageing
population preferring to remain in their homes than move in with their adult children. Such
demand pressures have been further compounded by income levels that have not increased in
tandem with the increase in house prices.
All told, the shortage in affordable housing based on 2014 data is estimated at 960,000 units.
This could rise to one million units by 2020 if further measures are not taken to increase supply
of affordable houses and improve affordability.
Financing measures implemented by the Bank along with fiscal measures by the Government
between 2010 and 2013 did in fact achieve this to a certain degree. House price growth has
since moderated to 5.5%, closer to income growth, following measures taken to dampen
speculative activities in the housing market and manage high household debt levels. Lending
standards that are more aligned with the level of income have also encouraged private
developers to shift their focus to the more affordable segments which should help improve
supply conditions.
Approval rates for housing loans by the banking sector remain high at 74%, with more than 60%
of the new housing loans extended for house purchases below RM500,000. Loan rejection rates
for houses in the affordable segment have actually been on a declining trend, falling by 18%
since 2012. Nevertheless, there is also scope for financial institutions to develop innovative
financing schemes - such as equity finance - to make home ownership more affordable. These
include shared ownership schemes where buyers can acquire partial interest in a home, instead
of being burdened by an outright purchase. Similarly, we have also observed lease-to-own
schemes under Islamic finance arrangements, where tenants have the option to increase their
stakes in a home after leasing for a period of time. Bank Negara Malaysia continues to work with
the industry to uncover new opportunities, including through financial education, to support
firsttime home buyers within their means.
Financing therefore is not the issue. More to the point, financing measures have had an important
role in tempering house price increases and encouraging an increase in the supply of affordable
homes.
This alone, however, is insufficient. Public policy can play a bigger role in advancing the
affordable housing agenda. Given the structural factors that are shaping the housing market,
solutions have to go beyond advocating for the construction of more houses. It is also imperative
that we improve the existing ecosystem for affordable housing delivery to respond to both current
and new challenges ahead.
Let me briefly touch on several key components of such an ecosystem.
First is having An integrated database on housing supply and demand is critical -
good data.
this should provide insights on the needs and preferences of households, their linkages with
demographic shifts, as well as housing gaps across different parts of the country. As much as
possible, the repository of information should be made available to all relevant stakeholders,
thereby enabling better-informed decisions across the board. For the Federal and State
Government authorities in particular, the database will be useful in supporting housing
interventions that are more targeted, more efficient, and better coordinated with other public
policies to build stronger communities.
With an aggregated view of market conditions, large-scale housing projects can also be better
planned and executed. This will be key in capitalising on the lower costs made possible through
smarter procurement processes and industrial construction approaches, as proven in countries
such as Singapore, Hong Kong and Australia. It will also enable affordable housing quotas for
development projects to be implemented in a way that is more responsive to market conditions,
and therefore more practical to enforce.
Importantly, we must seek to connect affordable housing initiatives with broader social
development programmes to create livable and vibrant communities. Homes should be
reasonably close to centres of employment, schools and healthcare facilities. Good connectivity
between these areas and transportation hubs would encourage the development of affordable
housing, strengthen supply conditions, and create opportunities for the more efficient allocation of
scarce development resources. A major part of this is an integrated public transportation system
that spans the greater KL and Klang Valley. The Government's ongoing efforts to improve public
transportation such as the LRT and MRT projects are major steps in the right direction.
Second, innovative financing models to fund affordable housing projects should be further
developed. Current intervention measures largely focus on subsidising home-buyers or the direct
provision of housing. Over the longer term, these need to be complemented by new, more
sustainable alternatives that combine public and private funding for affordable housing
development and investment. In other parts of the world, public-private partnerships through joint
ventures have replaced traditional methods of financing for the supply of public housing. Public
funding could also be deployed more efficiently to crowd in private capital for affordable housing
developments - for example, by providing cost-efficient funding to institutions that finance
affordable housing projects.
Regardless of the measure, it will be crucial to build in mechanisms that promote programme
efficiency and effectiveness. These include business models that are based on sound
commercial principles, good governance and appropriate risk management strategies. Schemes
introduced could specify minimum technical standards, execution guarantees and other
conditionalities for financing or payment. 'Social impact bonds' - which have gained interest in
some countries such as the United Kingdom, United States, and Australia - are a useful
example. These investment structures operate on a "pay-for-success" model, where the
Government repays the costs of a programme plus a return, only if pre-defined social outcomes
are achieved.
Third, there is a need to
foster more diverse collaborative partnerships to deliver
affordable housing. This includes a vibrant community of social housing enterprises, private
foundations and non-profit organisations that support or complement the Government's
affordable housing agenda. Notably, such organisations have also been instrumental in
encouraging the development of a vibrant rental market as a viable alternative to home
For example, in Australia and Hong Kong, social enterprises have had an important
ownership.
role in building affordable housing units or revitalising existing properties for sale or rental,
typically targeted at lower-income groups.
We need to consider how similar models could be developed here and the role of public policy to
enable this. In the context of rental properties, a robust legal and institutional framework to
safeguard the rights of tenants and landlords, mechanism to protect tenancy deposits, and
arrangements for dispute resolution have been key success factors for countries that have a
thriving rental market. At the same time, the introduction of "rent-to-own" schemes could also
complement this. The Government has recently launched such a programme. We would
welcome the private sector, particularly developers, to also explore such a strategy.
Sound, innovative and coordinated public policy is central to addressing the affordable housing
challenge. We have advocated that this should reside with
a central authority that leads,
oversees and coordinates affordable housing initiatives for the nation. This would promote
greater strategic and operational cohesion at the national level. Regulatory processes that
increase the cost of supplying affordable homes should be reviewed and streamlined. The
central authority can also spearhead more effective communications and build stronger
collaborations with key partners to advance the affordable housing agenda. Certainly, more can
also be done to increase awareness and further increase the take-up rates for financial
assistance programmes introduced by the Government such as Skim Rumah Pertamaku
(SRP), Skim Jaminan Kredit Perumahan (SJKP), Skim Deposit Rumah Pertama (MyDeposit),
Skim Pembiayaan Fleksibel for PRIMA homebuyers and Skim Pembiayaan Fleksibel (SPEF) for
PR1MA homebuyers.
We only have a few hours ahead of us to discuss a very complex and important issue that has
no easy solutions. We need to think creatively and act collectively, and today, we have an
opportunity to do both. I am therefore excited to hear the insights from our distinguished
speakers, as well as the constructive exchange of ideas between everyone here today. As we
do, we should keep in mind that the goal of affordable housing is not just about owning property; it
is about building stronger and more resilient communities - with greater opportunities created for
those within them to succeed in life. This could well change how we see the problem and
approach its solutions.