Tag: homeownership

Categories
Economics

[2643] Price ceiling on foreigners’ purchase will be ineffective at controlling home prices

In the news recently, the state of Johor plans to raise the floor price at which foreigners are allowed to purchase a house. The floor is now set at half a million ringgit. The proposed new floor is RM1 million (The news report in The Star wrote ceiling but if you know your microeconomics, you will know that raising the ceiling instead of the floor does not make sense and in fact, will bring in a very different outcome inconsistent with the overall theme of the article).[1]

The state government wants to control home prices and by raising the floor, the idea is that there will be more homes for locals while foreigners are only allowed the more luxurious home to purchase. More specifically, it is to curb price increase through demand control.

I am unconvinced how this will help, especially if the policy is unaccompanied with supply-related policy. The government does grant home permits but I think that is pretty much given out without much restrictions (Not that I am advocating controls. I am just describing the situation).

The ceiling alone may apply in the short run and only for pre-existing homes. In a slightly longer time frame when new supply of homes are available in the market, the ceiling will be rendered ineffective as market agents adapt to the new rules and regulations. This could be in the time frame of several years and maybe, even less than two. It does not take that long to build homes.

Suppliers of home will adapt to rules and regulations so that their endeavor is a profitable one. It is quite possible that at the current floor, home suppliers are already taking domestic and foreign demand into account.

If you take foreign demand out, these suppliers of home may decide to reduce supply in the appropriate home segment and increase supply in others accordingly so that prices stabilize in the longer time frame.

As I have mentioned, in the short run, it may be effective because home suppliers may have trouble to adjust. It takes time to construct home.

Then again, if the new regulations give suppliers enough time to adapt, i.e. the suppliers are given a grace period, then there will be no short term effect. Suppliers will adapt in time and price trend remains as they are.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
[1] — NUSAJAYA: Johor is looking at raising the present RM500,000 ceiling to RM1mil for foreign house buyers to check the spiralling price of houses. Local Government, Housing, Arts, Culture and Heritage Committee chairman Datuk Ahmad Zahri Jamil said the state Economic Planning Unit (UPEN) was studying ways to tighten the rules on foreign ownership and a decision would be made this year. “If there is going to be an increase, then foreigners will only be able to purchase homes above RM1mil,” he told reporters here. [Nelson Benjamin Johor looking to raise foreign house ownership ceiling to RM1mil. The Star. January 10 2013]

Categories
Economics Society

[2446] Homeownership isn’t the only way

It is not a crime to dream of a place to call one’s own. It is hard to beat having a roof none can take away in the worst of times. If anything happens, at least there is a home to run to. It is a comforting feeling to have a haven. That is the sort of sentiment fuelling the dream of homeownership. So pervasive is the thought that the inability to own one is seen as a problem by many.

Across the Pacific Ocean, the American Dream is invariably linked to having a good home. With a government subscribed to the Dream, measures were taken to encourage homeownership. As the housing market crashed partly due to the pro-homeownership policy, the Dream grew distant to create a pessimistic American worldview.

Across the straits, the Singapore government built high-rise flats all over the island, partly to encourage homeownership. The product of that encouragement is a contemporary culture. These flats are ubiquitous enough to form part of the Singaporean consciousness. The Complaints Choir of Singapore sings: ”I’m stuck with my parents till I’m 35, ”˜cause I can’t apply for HDB.” Failure to own a home is a source of shame.

It is no different in Malaysia. Homeownership occupies the collective mind. The high prices of ordinary homes stand as a barrier. That barrier is stirring up discontent among the middle class and down.

The Malaysian government knows this and it has introduced various incentives to make homeownership a cheaper endeavor for Malaysians.

For the longest time, the government has relied on low-cost housing projects to encourage homeownership. Despite the name, the term low-cost can be a misnomer. What is cheap for the financially well-off Malaysians may not be cheap for the impoverished. The whole enterprise can add too much financial burden to would-be owners, pulling them down into a deep unsustainable debt hole.

That concern does not stop the Najib administration from expanding its pro-homeownership policy by introducing the 1 Malaysia Housing Program. Proponents of the program tout the initiative as an affordable home program. Just as the term low-cost can be misleading, so too can the term affordable.

In the eagerness to translate private dream into reality through very public means, not many have asked, is there a better option to homeownership?

Popular opinion immediately accepts homeownership as the only respectable option.

The debates on homeownership ignore other housing options altogether.

For one, renting can be a superior option to ownership. That can be so when rental cost can be much cheaper than mortgage payment, when mortgage payment eats too much of current income and when the financial market is sophisticated enough to handle the substantial saving arising from the difference between the mortgage and the rental rate. The saving can present a whole lot of possibilities that homeownership cannot. There is virtue in flexibility and whatever virtue homeownership has, flexibility is not one of them.

Perhaps more substantially, one has to realize the importance of having decent home. If a decent home means homeownership, so be it. The relationship can be true but it is not necessarily true. Neither does homeownership absolutely mean decent home.

Pro-homeownership sentiment ignores this complexity and instead falsely assumes homeownership stands above having a decent home or that homeownership is about having a decent home.

Despite an alternative that focuses on having a decent home instead of homeownership, many individuals and the government continue to believe in the virtue of homeownership without question. The former complains about the affordability of homeownership and the latter, indulging the former, refuses to believe and to adapt to a new reality.

Ownership must have made sense in the past but just as time changes, so too can the justification for homeownership. It could very well be that individual and societal preferences, formed after years when the financial logic actually made sense, lag behind the market. When expectation lags behind market and with the government supporting the indulgence, something bad is bound to happen.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malaysian Insider on October 24 2011.

Categories
Economics

[1468] Of homeownership should not be encouraged?

A finding that might affect housing policies (via):

Andrew Oswald, an economist at the University of Warwick, found that homeownership makes workers less mobile, which brakes economic growth and worsens unemployment, especially in areas blighted by the decline of locally dominant industries. Strictly speaking, whether this is a social problem is debatable. The costs of unemployment are borne mostly by the unemployed, not by others. Workers in company towns might be wise to spread their risk rather than sink their savings into a house close to the plant—but, you might argue, that is for them to decide. Yet Oswald argues that homeownership helps to calcify whole economies, which weakens the case for subsidy (and introduces the case for new taxes to discourage homeownership). [Housebound. Clive Crook. The Atlantic. December 2007]