Jakarta's Middle Class Housing Problems and Solutions

Opinion - published in Bisnis Indonesia

The establishment of financial policies that favor the middle class in the provision of housing often goes unnoticed. The middle class in the context of this paper are those who are no longer classified as low-income earners, but are also unable to participate in the property market.

The supply of housing will end up unabsorbed if there is no financial policy intervention from the government that can guarantee them access to housing.

The need for financial policy interventions that favor the middle class is not without reason. In Jakarta, for example. The absence of financial policy intervention has made people leave Jakarta and buy houses outside the capital. The choice was forced to be taken because of the high price of housing. This condition is certainly detrimental to Jakarta because of the loss of potential tax and regional income from middle-class shopping activities.

They work in Jakarta but spend their salaries outside the capital. The current property market situation can only be intervened by the government. The absence of intervention causes housing prices to become increasingly unaffordable.

In addition, Indonesia's broad middle class is still vulnerable to returning to low-income. The World Bank states that since 2000, 10% of the middle class has returned to poverty or vulnerability; 40% have dropped to the aspiring middle class; and only 50% have stayed in the middle class.

The data further emphasizes the importance of financial policy intervention in housing provision, especially for the lower middle class. Such interventions can help people in this class, which accounts for 45 percent of the population or 115 million people, gain access to decent housing.

Those in this class are free from poverty, but have not yet achieved full economic security. For this group, moving into the middle class is as likely as slipping back into poverty.

There are at least three financial policy solutions that can be implemented to help the middle class participate in the property market. First, lower mortgage interest rates. Data from 2020 shows that Indonesia's mortgage interest rate is the highest in Southeast Asia at 9.98%[1]. This figure is still above Thailand's 5.34%, still higher than Malaysia's 4.24%, and far above Singapore's 2.17%.

Mortgage interest rate relief in Indonesia actually already applies to houses in the Ministry of Public Works and Public Housing's Housing Financing Liquidity Facility (FLPP) program. However, the location of FLPP program houses is usually far from the city center and has not been intended for vertical housing in the middle of the city.

The government needs to start thinking with an urban outlook and more vertical housing is needed to overcome the high price of land in the city. This is because 56.7% of Indonesia's population will live in cities by 2020.

Allowing people to live in the city where they work-without the two-hour commute-will add to the city's vibrant economy.

Second, longer loan tenors make the amount of installments borne by the community also lighter. This allows people, especially those in the lower middle class, to manage their finances while still meeting their monthly installments and other needs. Currently, it is still rare for banks to have a mortgage program with a tenor of up to 25 years.

In Singapore, citizens get a 25-year tenure on all flats built by the Housing & Development Board (HDB). The 25-year tenor is no longer a bank-specific program, but a government decree.

Third, create an option to use a portion of the balance of BPJS Ketenagakerjaan contributions for a down payment on a house purchase. This method has been applied by Singapore by allowing the use of Central Provident Fund (CPF) balances, social security contributions, for down payments on house purchases.

With the CPF policy as inspiration, BPJS Ketenagakerjaan contributions can be used with criteria set by the government. This method can help ease the down payment that must be borne by prospective residential buyers. The use of BPJS balances also allows people to more freely choose housing that suits their abilities.

This is because the government's Down Payment Assistance Subsidy is currently worth a maximum of Rp 4 million. The subsidy is also only intended for low-income people. In fact, there are groups that fall into the lower middle class category and still cannot afford to provide a down payment.

Those in this group do not have full economic security, let alone fresh funds for housing down payments. There is no financial policy that helps people in this class. It is time for the provision of housing for the community to be completed as a whole from construction to financial policies. World Habitat Day, which falls in October, can be a momentum to formulate financial policies that favor the lower middle class, policies that are inclusive to provide decent housing for the community.

The same benefits will also be enjoyed by Jakarta. People, who previously left Jakarta because they could not afford the high cost of housing, can return to Jakarta.