The causes of expensive housing in Jakarta

Jakarta is among the most expensive cities in the world to own a home. A World Bank report titled Time To Act, released in 2019, shows that the ratio of house prices per income of Jakarta residents is 10.3. This is higher than even London (8.5), New York (5.7) and Singapore (4.8).

There are three main reasons why housing in Jakarta is so expensive: limits on the floor area that can be built; the complexity of building permits; and the non-utilization of private obligation funds to build affordable housing. To address this, the government needs to adopt an urban mindset and collaborate with the private sector.

First, limiting the floor area that can be built is tantamount to limiting thesupply of housing. Whereas thedemand to live in Jakarta is very high. According to market law, if supply cannot keep up with demand, prices will rise. Unfortunately, if developers want to respond to public demand by building more than allowed, then fines for overbuilding await.

Local governments, through the Detailed Spatial Plan (RDTR), limit the floor area that can be built on the grounds that the city's carrying capacity is limited. In fact, city governments can greatly improve the city's carrying capacity, among other things by building fast and mass public transportation, piping clean water, and providing green open spaces. Failure to improve the city's carrying capacity ultimately results in a limited supply of housing for the community.

The government has so far issued policies to increase floor space. However, these policies lack vision and are still considered disincentives.

Second, the licensing process for the construction of large buildings (larger than 5,000 square meters) is very complicated, time-consuming, and ultimately results in high costs. The licensing process for one building can take years.

All of this, of course, leads to higher construction costs. And who else ends up bearing these additional costs, if not the residential buying public? The Jakarta Property Institute (JPI) estimates that the process of obtaining an IMB contributes to an 8% increase in the price of a house or apartment that people buy from a developer. This is not a small amount.

Third, the lengthy and delayed fulfillment of obligations and contributions for affordable housing. Developers are obliged to finance and build affordable flats equivalent to 20% of the commercial area they build.

The problem is that it is not easy for developers to fulfill these obligations. Land to build flats must be provided by the government, but the government cannot provide enough land to fulfill the many obligations that must be fulfilled. As a result, there is a buildup of developer debt to build flats which affects the length of time to obtain the building's Certificate of Occupancy (SLF), which ultimately results in delayed building operations. The amount of the developer's debt is not small. Some sources say the value is more than Rp 11 trillion.

Urban thinking

Providing affordable, inner-city housing is not a dream. If we can unravel the factors that make housing expensive, the problem can be solved. Construction costs are relatively the same whether in downtown Jakarta or in Bogor, Tangerang and Bekasi districts. What makes the difference is the price of land.

To cope with the high price of land in Jakarta, the floor area and number of residential units built on a parcel must be increased, so that the price per square meter or the price per residential unit is relatively more affordable. With an urban mindset, a "house" does not have to be a landed house. A flat or apartment unit is also a house.

Therefore, governments in urban areas should promote more compact vertical housing concepts by maximizing existing land. Land in strategic areas, such as markets and near stations should bemixed-use and mixed-income. Thus, residents are easily connected to various strategic places in the city through mass public transportation.

Collaboration

Any Indonesian citizen can own land. In most cities, almost every inch of land is already owned by citizens, state institutions, as well as state-owned and regionally-owned enterprises. If inventoried, the government or state owns a lot ofland (land bank) in urban areas. But the question is, are the lands owned by the government now being used optimally? Many are under-utilized.

Collaboration between the government and the private sector can be a breakthrough in providing affordable housing in urban areas. Why don't we build a mixed use area on government land? The construction cost will come from the developer's obligation, which can only be collected. Let's think vertical building. Downstairs: market or terminal. Upstairs: flats for people from different income groups to live in. Around it: green open spaces and various public and social facilities. Not far away: a mass transportation hub.This is a win-win solution that requires minimal costs, but has a big positive impact. Developers are ready to be coordinated. Is the government ready to lead the coordination process?