When we talk about housing within the market economy today, we have to deal with the inherent logic of the market.
Risking oversimplification, in the market economy, a house has two components, a use-value and an exchange-value. Use-value refers to how the commodity fulfil one’s needs while exchange-value is what we are willing to exchange for the said commodity – in modern economy, it is measured in money.
The relationship between use-value and exchange value is one of trade-offs; if you want to have the use-value, you will have to give up the exchange-value and vice versa. In other words, if you want to use the house (to live in), then you have to give up the monetary compensation you will get from selling it.
This essentially means, society needs to make a choice. What we want housing for? Which is the priority, the use-value or the exchange-value?
If we see a house as a speculative commodity, then we opt for its exchange-value, we invest in housing as short- or long-term asset, we speculate, and we flip properties for profit. And the result is obvious, many potential buyers will then face the difficulty of gaining the use-value of the house because of the explosion of its exchange-value.
Given the contradiction of use-value and exchange-value, I will briefly present two conventional views on how to deal with the housing question and then attempt to introduce a third view via actual policy measures implemented in the state of Penang.
First view: Let the market has its course
Some argued that by freeing the dynamics of exchange-value (“Let the market has its course”) we will finally be able to house everyone. The argument is, the market is an efficient mechanism to allocate goods and services because true competition drives down the prices of things, hence enabling consumers to afford them. But is this true?
When we depend solely on the exchange-value to deliver the use-value, the former will first rise so much that it becomes unattainable. Use-value then can only be delivered by paying a high price, today often through credit. The 2008 subprime crisis showed how in loosely regulated market, when the prices of houses eventually went down, ie. when the property market correction took place, homeowners were already laden with high mortgage debts. They then risked credit default or even foreclosure due to the accompanying downturn in the economy.
Second view: Socialist model of housing
There are also others who advocate that housing should be removed from the market altogether and the government should be responsible to provide housing as a public good for all.
This swings to the opposite extreme of the first view, and is equally untenable as intervention at such scale will only impose huge cost on the part of the government, an economic problem on its own.
Historically, the socialist model of housing has also produced homelessness due to the inability of governments to meet housing demands, especially in urban areas of high growth. Many large families, and even multiple families would have to share a single unit of housing causing what is known as “hidden homelessness” because of the inability of smaller and younger households to get into the social housing queue. Consumers also had lesser choice over the type and quality of housing in such model.
The question before us then is this: Is there a third way to deal with the housing question?
A third way solution: Penang state government’s housing model
A possible model would be the intervention of the Penang state government on housing which was shaped by the old dictum: As much market as possible, as much government as necessary.
Within this approach, the government intervenes and works with the market to deliver use-value to those most vulnerable to the market dynamics – the low and middle income groups. Beyond this, the market is allowed to function to enable innovation and plurality.
We shall examine some of the key housing policies by the Penang state government to see how this model works especially in light of the contradiction of use-value and exchange-value discussed above.
It must first be noted, however, that the state government has no control over monetary policy which is under federal jurisdiction. Hence any strategy at the state level is limited to supply side intervention.
Affordable housing: Recognising the changing needs in housing demand
In 2012, the Penang state government set up an RM500-million Affordable Housing Fund, the first ever in Malaysia, to build low- to mid-range public housing. The Chief Minister of Penang, Lim Guan Eng, announced that through the fund, the state government aims to achieve “the democratisation of housing” by 2020 through building 22,000 units of public housing priced within the range of RM42,000 to RM400,000 in all five districts of the state.
What is really novel in this programme is the introduction of a new category of public housing termed “affordable housing” where prices are capped at RM250,000.00 (Seberang Perai) and RM400,000.00 (Penang island). This category of housing at present, has the biggest gap in supply and demand, according to a research done by Penang Institute, the state policy think tank.
What the state did essentially was to acknowledge that besides the traditional government-subsidised low-cost and low-medium-cost housing, “affordable housing” should also be a not-for-profit public venture instead of merely a profit-driven private venture. In other words, the state government aims to keep the use-value of mid-range housing within the reach of genuine first time home buyers as much as possible.
A sale moratorium period of five years was also imposed on these affordable housing, and sub-sales can only be offered to interested buyers in a state housing list – which in turn is subjected to independent auditing to prevent abuse. This is basically to shield affordable housing against the inflation of exchange-value when traded in an unregulated market, again, an attempt to recover the use-value for genuine buyers.
The state government also announced plans to incentivise private developers to build affordable housing with similar price caps.
Shared-ownership Scheme (SOS)
A year after the introduction of the Affordable Housing Fund, in November 2013, Penang introduced yet several other important policy measures to tackle the state’s housing problem.
In the Chief Minister’s 2014 state budget speech, a substantial focus was given towards housing. Among others, the state government launched the Shared Ownership Scheme (SOS).
The programme, now being piloted in a low-cost housing scheme in Taman Sungai Duri, Seberang Perai Selatan, enables buyers to go into a joint partnership with the state government for their first home purchase. The state government will own 30% of the property share so that the buyer only needs to take a mortgage for the balance 70%. When the property is sold in the future, the buyer will recover his share of the house plus profit proportion to his share, if any. Similar to the affordable housing category, the unit purchased under SOS is subjected to “off the market” sale to those in the social housing waiting list only.
The idea of SOS is once again to enable genuine buyers, especially those from the lower income group to appropriate the use-value of a house by lowering its exchange value – this time by the state government underwriting one-third of the cost so that the current price of a low-cost unit at RM42,000.00 will be made even more affordable for the buyer who now only needs to pay RM29,400.00 for it.
For the poorest of the poor who cannot even afford 70% share of a low-cost unit, the state government at the same time introduced the Rent-to-own programme which enables the tenant of a public housing scheme to own the unit after paying rent for a time. A pilot project has been successfully implemented in Taman Seruling Emas, also Seberang Perai Selatan, where 51 participants of the scheme will pay a monthly rental of RM100 plus maintenance fee of RM20. After 15 years, the unit will be transferred to their ownership.
The same model was later emulated by the Malaysian federal government through its 1Malaysia People’s Housing Scheme (PR1MA).
Putting a higher price tag for foreign home ownership and property speculation
In order to ensure that housing demands from foreign interests, usually affluent ones, do not drive up the cost of mid-range housing, the Penang state government has since 2012 imposed a minimum property purchase price for foreign interest. Non-citizens may only purchase properties above the price of RM1 million and for landed property on the island, those above RM2 million.
Additionally, introduced in the 2014 state budget, a levy of 3% will be charged on property purchased by non-citizens with exemptions given to purchases for “industry purposes, promotion of employment, education, human talent or promoting Penang as an international and intelligent city.”
Also introduced in the 2014 state budget, a 2% levy will be imposed on property purchased after 1 February 2014 and disposed of, within three years from the date of purchase. This is to curb the practice of “flipping”; buying and selling a property rapidly in order to make a quick gain. It is easy to see how flipping increases the exchange-value of a house at the expense of its use-value.
Rethinking (and recognising) housing as a right
Of course, there are still many unresolved issues in regards to housing in Penang, and in Malaysia as a whole. At the core of this discussion, lies the problem of many governments refusing to recognise housing as a right – that the use-value of a house is vital for the reasonable well-being of a person.
Article of the Universal Declaration of Human Rights states that,
“Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services…”
Yet rarely does a government actually take housing right seriously, especially here in Malaysia.
To illustrate this problem, take for example, those who face the highest risk of being rendered homeless in our society, people who live on land belonging to someone else without the permission of the landowner.
The Malaysian land law is based on the Torrens system which guarantees the indefeasible rights of title-holder to its land often at the expense of those who lived and worked on the land for generations. These peneroka or “pioneers” will be rendered homelessness when title-holders wish to reclaim their land. Under such system, the peneroka are called setinggan, “squatters” and they have no claims whatsoever in regards to the land.
Often politicians have to intervene to ensure these evictions of peneroka are done properly, thus resulting in uncertainties not only for legitimate landowners and developers but also for the peneroka themselves.
However, if our government recognises housing right, and take the concrete steps to legislate such right, then even though the so-called squatters have no rights to the land, they can still appeal to the authority to honour their rights to housing.
Essentially, it is again to make a choice about housing (and perhaps about other goods and services as well, such as education and healthcare) – first whether use-value or exchange-value should dominate, and secondly, how should we best deliver the value we want of these commodities.