Jakarta's Middle Class Housing Problems and Solutions

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. In general, the middle class is affected by housing problems and requires government intervention.

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. It is this financial policy that can solve the housing problem in the middle class.

The need for financial policy interventions that favor the middle class is not without reason. In Jakarta, for example. The housing problem that has not been resolved by financial policy intervention has made people leave Jakarta and buy houses outside the capital city. The choice was forced to be taken because of the high price of housing.

The condition triggered by the occupancy problem is certainly detrimental to Jakarta because of the loss of potential tax and regional revenue from middle-class shopping activities.

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

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 interventions in housing provision to address housing problems, 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, and overcome this chronic housing problem.

Those in this class are free from poverty, but have not yet achieved full economic security, especially with regard to housing. 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 so that it will be free from housing problems.

First, a financial policy that can solve the housing problem in the middle class is to reduce 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. As a result, the program has not been effective in helping alleviate housing problems in the middle class.

The government needs to start thinking with an urban outlook and increase the number of vertical dwellings 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. Modeled after the success of compact cities in other countries, vertical development can be an effective solution to the housing problem in Jakarta.

Enabling people to live in the city where they work-without the two-hour commute.