Home ownership – need for alternatives

PETALING JAYA: Bank Negara Malaysia (BNM), which has insisted that increasing access to financing is not the way to resolve the affordable housing issue, said yesterday developing alternatives to home ownership, including a well-functioning rental market, should be a policy priority.
“The suggested need for alternatives highlights the adverse consequences that poorly designed incentives to increase home ownership can have on housing affordability over the longer term.
“It also provides a viable route to help low-income and early career individuals onto a path towards eventual home ownership. Better enforcement is also critical to prevent the abuse of schemes intended to assist specific household segments to own or rent homes,” it said in a statement yesterday.
The matter was discussed at its fourth Economics Research Workshop themed “The Housing Market: Issues and Policy Options” held on Monday.
BNM said a broad consensus was that policy considerations need to balance the objectives of providing a minimum quality standard of housing for all Malaysians, while preventing a buildup of imbalances in the housing market.
It added that policy measures to ensure access to credit must therefore be pursued with concern for the protection of home buyers from financial hardship leading to foreclosure and poorer welfare.
It has been widely speculated that Budget 2017, which will be tabled on Oct 21, will feature measures to increase access to financing for first-time and affordable housing buyers. A recent proposal by the Urban Well Being, Housing and Local Government Minister to allow more property developers to provide financing to house buyers is aimed at boosting access to financing.
“Discussions noted that incentives for increasing home ownership should be carefully considered so as not to blunt the effectiveness of market mechanisms, which work to correct housing imbalances.
“The need to ensure that price thresholds adopted for affordable houses are appropriate was highlighted, noting that house prices remain out of the affordable reach for many low- and middle-income households,” said BNM.
The conference, attended by representatives from financial institutions, government agencies, property developers, academia and think tanks, was held to examine key issues in Malaysia’s housing market, drawing on current research conducted on housing affordability, demand and supply mismatches and the drivers of property prices.
Six research papers were presented at the conference, concluding with a policy dialogue on priorities and strategies to provide affordable housing to Malaysia’s households.
Among the key findings of the research papers were that key determinants of house prices were income and credit, with both variables closely linked as income is the main criteria for access to financing.
It highlighted that aggregate house prices had risen beyond levels that were consistent with macroeconomic stability and the country’s economic fundamentals during the 2013-2014 period and that targeted policy measures were effective in stabilising prices in the housing market by 2015.
The third finding was that housing imbalances feature more prominently in selected locations and price segments, which worsens housing affordability and drives higher household debt in these segments.
BNM said several participants at the conference cautioned that the 2007 global financial crisis had its origins in sub-prime mortgage lending, which should serve as an important lesson on factors that can increase risks in housing markets, with far-reaching consequences for financial and macroeconomic stability.