I have a feeling I’m going to get a few brickbats for this post. From this weekend’s news:
Over 7,000 hopefuls apply for homes under PR1MA project
PUTRAJAYA: More than 7,000 people have applied for the 560 units of affordable homes under the first phase of the 1Malaysia Housing Programme (PR1MA) project.
With the demand 13 times more than the supply, the corporation will select the successful applicants through balloting.
The balloting will be carried out tomorrow, witnessed by Prime Minister Datuk Seri Najib Tun Razak and audited by KPMG Business Advisory Sdn Bhd.
PR1MA chief executive officer Datuk Abdul Mutalib Alias said more than 5,900 of the applicants – or 84% – are first-time house buyers...
...Successful applicants will be offered apartment units in Precinct 11 here, developed by Putrajaya Holdings Sdn Bhd, at between RM120,000 and RM150,000 per unit.
Applicants must be Malaysians above 21 years old, living or working in Putrajaya, as well as registered voters in Putrajaya, with a gross household income of not more than RM6,000 a month.
The applicants must also not already own more than one other home in the country.
While I won’t argue against the need for affordable housing, from an economic perspective I don’t think this effort is ideal. The fact that the units are 12 times oversubscribed suggests latent demand…or equivalently that the units have a financial worth far more than the government is selling them for. Granted that there’s a 10 year moratorium on selling the units, but at the end of the period, what’s stopping people for selling them at their full market value? And if they do, won’t this just result in the same problem as before – a lack of affordable units in prime locations?
The whole point of having a competitive market is that the price allocates scarce resources to those who can best afford them. By selling below the market rate, the PR1MA widens the scope of people who can afford these units, but doesn’t actually address the problem of supply (or costs). For example, this is taken from the Building Materials Cost Index (index numbers; 2008=100):
The BCI is used as a guide for government construction variation orders (I’m not going to comment on the implications that a special index had to be constructed for variation orders), but its still useful in tracking the increase in material costs. In the instance above, the index is tracking the cost of constructing a single story reinforced concrete building in the central region of the peninsular (covering the Klang Valley south to Melaka).
If the index went back far enough, you’d probably see the same spike in costs in late-2007/early 2008. Be that as it may, construction materials costs are now 40% higher than they were last year, and 50% higher than in 2009. Indexes for costs for larger buildings, and in different regions of Malaysia, show the same trend – its a lot more expensive to build houses now than it was a couple of years ago.
So on the one hand, PR1MA is using land at below its economic value, while at the same time having to swallow a 50% increase in constructions costs. And because balloting results in a limited number of people getting the units (with their potential for windfall profits down the road) relative to the number of households that need affordable housing, how is this fair or equitable? It’s like a lottery.
I pass by the Sg Besi airport on the way home from work every day – this is slated for development under PR1MA soon, with 10,000 units. Real estate value appreciation here (and thus the temptation for owners to sell after passing the moratorium), will be even greater. This is prime land that the government is letting go – is this the best use of government assets?
My preference would be to develop these prime locations at full economic value – then use the proceeds to address the REAL problem which isn’t, believe it or not, lack of affordable housing. What we’re really seeing here is the pressure of urbanisation. Expensive housing is just a symptom, as is increasing congestion and the strain on public utilities.
Lest I be accused of unconstructive criticism, how about these proposals:
- High speed rail link from Klang to KL Sentral, and from Rawang to Nilai, with a bare minimum of stops (say, 3-4 on the Klang line);
- Expansion of the MRT and LRT lines, feeding into the rail links.
To fund these:
- Tax petrol (and redirect existing subsidies);
- Tax car use in the inner city during office hours (a’la Singapore);
- Open tender/JV for development of inner city government properties.
What I’m looking at here is reducing the direct and indirect costs of urbanisation – faster, more efficient transport links reduces the pressure for housing and accommodation close to the city centre. And we’ll probably reduce the health costs from asthma and other respiratory diseases.
I know none of these will be popular – in the shorthand of “Yes Minister”, it would take a courageous politician to take this route (i.e.there’s no votes in this). That doesn’t mean it’s not a potentially better way of managing things long term.
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Hisham, I would appreciate if you could either point me to an earlier post, if any, on your thoughts regarding petrol tax or expand on this issue.
ReplyDeleteBased purely on what's stated in the current post, I doubt imposing a nation-wide petrol tax and using the proceeds to improve transportation infrastructure in the Klang Valley and adjacent areas will be very palatable to many.
I also curious as to whether you've factored in the impact of such a tax on the price of goods nation-wide. In any case, if the peak oil theory is correct, a petrol tax is superflous.
Getting back to the main topic of the post, it would seem that you are in favour of the "live in suburbs, work in city" model. Doesn't this model require significant investment in mass public transport systems / infrastructure over a bigger area if even greater use of private vehicles is to be avoided?
Hisham, I would appreciate if you could either point me to an earlier post, if any, on your thoughts regarding petrol tax or expand on this issue.
ReplyDeleteBased purely on what's stated in the current post, I doubt imposing a nation-wide petrol tax and using the proceeds to improve transportation infrastructure in the Klang Valley and adjacent areas will be very palatable to many.
I also curious as to whether you've factored in the impact of such a tax on the price of goods nation-wide. In any case, if the peak oil theory is correct, a petrol tax is superflous.
Getting back to the main topic of the post, it would seem that you are in favour of the "live in suburbs, work in city" model. Doesn't this model require significant investment in mass public transport systems / infrastructure over a bigger area if even greater use of private vehicles is to be avoided?
tanstaafl,
ReplyDeleteTry here - I think I've been pretty consistent on this issue. And no I don't expect it to be popular policy.
But here's what I think - we're going to see an acceleration in urbanisation over the next 10 years, and this development is not going to be happening in the more rural states. It's going to be the Klang Valley, greater Penang and Iskandar in Johor.
KL alone has seen a jump in population of nearly a third (to 1.6 million) in the last five years. The Klang Valley contributes half the GDP of the country, and where there's economic opportunity you'll find people moving there. It's not so much population increase, as it is internal migration.
We ignore this kind of structural change at our peril. I'm not so much in favour of the suburban model as I think its inevitable. And the sooner we recognise that, the better. Yes it would require a much more integrated and expanded public transportation system.
In reference to peak oil, actually a tax would be beneficial - it forces a quicker adoption of alternative energy sources by changing people's consumption and energy behaviour before we hit peak oil. This article I posted on explains the reasoning.
Also a tax increase is a one time only deal, much like the initial impact of a GST - at worse, you'll see feed through effects lasting maybe a year, but mostly in the quarter where its imposed.
Thanks for the link and apologies for the earlier double post.
ReplyDeleteI agree that greater urbanisation is likely under the status quo and that the suburban model works (despite its various related costs) in a cheap oil environment.
I guess my question really is whether greater urbanisation and the suburban model is going to be viable in an environment of expensive oil under a peak oil scenario in the next 5-10 years (most peak oil pundits claim an even more immediate time frame).
To my mind, we should be looking for ways that allow people to live closer to where they work not the other way around. In this regard, I agree PR1MA isn't likely to work without stringent pricing / zoning limitations, etc. The on-going conversion of residential properties in certain places in the Klang Valley indicates this is NOT happening.
As currently formulated, this is just a form of property play and if we follow the money, we will see who is actually profiting from these developments.
As far as a petrol tax to incentivise adoption of alternative energy sources, I have to say that merely removing the subsidies on fuels and gas and letting the price effect flow through fully would be sufficient at this point. Fuel & gas at current market prices would have a pretty big impact as is.
I dislike the idea of a tax that broadly impacts the entire economy to achieve very specific and geographically limited objectives. Further, taxes of this nature, like subsidies, tend to stick around long after they cease to be entirely beneficial.
Oh btw, we've already hit peak oil in 2006 according to some analysts based on oil extraction/production numbers but the effects have been ameliorated somewhat by the 2008 financial crisis.
ReplyDeleteThe fact that oil is back around USD80 (WTI) - USD100 (Brent) despite stagnant / subdued global growth in 2008 - 2011 seems to be pretty indicative that these analysts are correct.
I think we don't have a choice - I agree it's either up or out. Either way is fine with me. But though I'm hesitant about ascribing this solely to Malaysian character, the focus is still on landed property. That's not going to be viable, unless we can get a comprehensive transport network which could reduce the reliance on private transport.
ReplyDeleteFor the subsidy and tax, I'm not crazy enough to think we can get that done in one shot :). As Pak Lah found out, that's political suicide and memories of that are still fresh.
No, let's restart the suspended subsidy rationalisation program, and get convergence between pump and market prices (say within 2-3 years), at a pace that will allow attitudes, behaviour and especially wages time to adjust. We can tack on the tax after that as a continuation of the program.
I don't see the receipts from a petrol tax as necessarily limited in its use. The primary reason for it - environmental cleanup and health costs - would apply equally to Sabah and Sarawak, as it would in the Klang Valley. That it might help with funding a metropolitan transportation would be a bonus.
I don't think that leaving this tax on the books should be a problem either - it'll die a natural death if/when oil use dies out.