Stuck in 1930’s Australia
OUR nation recently celebrated its 60th Merdeka Day and the just concluded SEA Games.
While we are proud of many milestones achieved over the years, there are areas that are worth our attention in leading the country towards a developed nation.
I believe one of the key concerns is the roof over our head.
In May, Bank Negara governor Datuk Seri Muhammad Ibrahim was quoted as saying that there was a growing shortage of affordable housing in our country.
“We estimate a shortage of 960,000 units of affordable housing. This is projected to reach one million units by 2020.”
He said the country required a bold and pragmatic solution towards providing more affordable housing.
His remarks made me recall the comment made by Bank of England (BoE) governor Mark Carney in 2014. He said the only long-term way to effectively bring down home prices was to build more homes. This may well be one of the most practical ways to address the issue.
Before we adopt this suggestion, let us look at some statistics to understand why we are lacking behind in terms of affordable housing.
According to the National Property Information Centre (Napic), we have a total of 5.3 million residential houses as at the first quarter of 2017. As Napic does not track rural houses, the assump- tion is only urbanites stay in these houses. This alone accounts for 70% or 22.4 million of our total population of 32 million people. Therefore, there are 4.2 persons per house in the cities on average.
The above figure concurs with the 2017 demographic statistics published by our Department of Statistics. It states that Malaysia has 4.06 persons per household on average.
What does this statistic tell us? In terms of the ratio of people to the number of homes, we have so much to catch up with countries like Australia and United Kingdom, and even our neighbouring country, Singapore.
Australia, which has a population of 23.4 million in 2016, has an average of 2.6 persons per household. In the United Kingdom, the average persons per household in 2016 was 2.4. Singapore has a population of 5.6 million and their average is 3.35 per household.
If we benchmark Malaysia with Australia, which has the closest population to us, we are still stuck in 1930’s Australia as they had already achieved 4.0 persons per household in 1933!
Affordable housing
Basic economic principles tell us that when demand is higher than supply, prices will go up. And when supply exceeds demand, prices will go down.
Looking at the above, we are very short in terms of the number of houses. If in a mature economy such as the United Kingdom, the BoE governor thinks that building more houses is important to provide affordable housing, should we not consider this approach with our current poor ratio?
To keep pace with Australia’s ratio of 2.4 persons per household, we will need 9.3 million homes to house our urban population of 22.4 million people. This means we need an additional 4.05 million houses in order to be on par with them.
Based on Bank Negara annual report 2015, the annual completion of houses for 2011 to 2015 has dropped to 80,089 units, far below the 166,000 average net increase in the number of household annually. This suggests an average shortage of 85,911 housing units per year.
With this track record, we need many years to catch up with Australia, and also Singapore.
Singapore has an effective public housing policy with its Housing and Development Board (HDB), and it sets a great example for other countries to emulate. Established in 1960, HDB took more than 50 years to build over one million flats and houses. Today, 90% of Singaporeans stay in HDB properties, and 80% of them own houses.
The above numbers and examples show that the key factor to make houses more affordable is to build more houses. With our high average persons per household and limited supply, house prices will continue to rise due to constant urbanisation and growing household formation.
Let us move away from 1930’s Australia in terms of average persons per household by providing more houses to the rakyat.