Not Only Construction, Financial Policy is Crucial for Provision of Owned Housing

November 3, 2021

Housing provision involves a long chain of processes. What has been highlighted so far is that the physical construction of housing and financial schemes often go unnoticed. In fact, preparing a financial policy scheme to play a crucial role in ensuring that the supply of housing can be reached and absorbed by the community.

If ownership is the focus of the national housing program, it is also important to formulate financial policies that make the supply of housing accessible and absorbed by the community. As is the case with electronic goods, installments with attractive schemes can encourage sales.

Here are some frequently asked questions regarding housing provision:

If the backlog in Jakarta is high, isn't the solution to build more houses?

Not entirely true. Building means increasing supply. However, building the physical construction of housing is not enough because it is the easiest part of the housing supply chain. Meanwhile, the process of reducing the housing backlog starts from construction to ensuring that the housing units are occupied. This means that market absorption is very important.

Construction is not the only solution to providing housing. In the Pasar Rumput flats, South Jakarta, for example, the units have not been occupied until now (September 2021) since they were completed in September 2019.

Why does the zero DP program not automatically solve the backlog?

If building housing is the only solution to reduce the backlog, then the apartment units in the DKI Jakarta Government's zero DP program should have been filled. The DKI Jakarta government changed the maximum salary ceiling that can participate in the program to Rp 14.8 million. This is because, at the maximum salary limit of IDR 7 million applied when the program was inaugurated, many applicants did not pass the bank selection.

The zero down payment program is not equipped with an attractive loan scheme that can be covered by the public. Financial policy interventions in the form of low lending rates, lower down payment minimums, and longer loan tenors are needed to make the program accessible to more people.

Partner banks in the housing provision program certainly operate like conventional banks. That is why the government must commit as a guarantor of funds and cannot leave the occupancy process entirely to financial institutions. The commitment can be in the form of providing down payment subsidies, interest subsidies, installment subsidies, or as applied to the Housing Financing Liquidity Facility (FLPP) program.

Another option is for the government to appoint an agency as a lending institution. That way, the government can develop an attractive loan scheme for home ownership.

What is the price condition of commercial apartments according to current market prices?

As an illustration, apartments priced at Rp 850 million in Jakarta are usually located around the city borders. With a 15% down payment, 9% interest, and a 20-year tenor, the monthly installment is around Rp 6.5 million per month. This value does not include administration and provision fees, which are around 1.5% and are paid at the beginning.

This value is far from the ability of millennials today according to the JPI survey. The JPI survey in October-November 2019 noted that their ability to pay in installments was around Rp 1-3 million per month.

What can the government do?

Making financial policy interventions by providing interest subsidies is one of them. The central government's Housing Financing Liquidity Facility (FLPP) policy should be appreciated as the beginning of a holistic housing provision process. However, the policy has not been able to help urbanites.

Housing in the FLPP program should also be used by people who live in cities, including Jakarta. The government and stakeholders in providing housing need to start thinking urban. Financial policy intervention is also needed in cities because housing prices are already very expensive. Furthermore, think urban by optimizing space utilization in the form of vertical residential development.

In addition, the government also needs to be the main actor in providing housing as a developer and lender. Singapore has already done this through the Housing & Development Board (HDB).

Apart from attractive mortgage schemes, what else can the government do to intervene?

Singapore with their Central Provident Fund (CPF) can be an inspiration. In Indonesia, CPF resembles the BPJS Ketenagakerjaan contributions that workers are required to pay each month. The difference is that the Singapore Government allows a portion of CPF-calculated based on set criteria-to be used to buy housing.

BPJS Employment contributions can be applied according to the criteria set by the government. This method can help ease the down payment that must be borne by prospective residential buyers.

Apart from attractive mortgage schemes, what other issues does the government need to address?

Bureaucracy and land use are quite problematic for the construction of flats. For information, developers have an obligation to build low-cost flats for each development on more than 5,000 square meters of land. The implementation is often hampered by these two things. In fact, if the bureaucracy is smooth and the land use is clear, many obligations can be resolved.

In terms of construction, massive flat development can reduce costs and materials. This of course affects the final selling price that the community will pay. In addition, the provision of diverse housing and various types allows people to adjust their needs and the type of housing they can afford.

Ultimately, housing provision requires holistic and interconnected policies. Focusing only on one of the stages will not produce an impact that can truly be felt by the community.

Of all the things that need to be addressed in the provision of owned housing, does this mean that rental housing is not problematic?

Many programmed people who live in rusunawa eventually leave and return to their original location of residence or look for another place to live. The reason is that the location of the flat is far from their workplace, which makes extra costs incur.

In addition, both parties-residents and managers-did not fulfill their basic obligations in the flat. Residents are in arrears with rent payments for one reason or another. Meanwhile, the manager cannot maintain the flat professionally due to limited funds due to rent arrears.

As of early August 2021, the DKI Jakarta Housing and Settlement Area Agency stated that around 26 thousand units of simple rental flats (rusunawa) owned by the DKI Jakarta Government were empty. To ensure that rusunawa are occupied, socialization from the government about the obligations and rights of residents and professional management are two things that must go together.

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