Price Cap Not The Solution To Affordable Home Shortage, Says Economist

September 30, 2021

MIEA Debunk Report On Property Value Moving Towards Half-Price In Malaysia

Artificially manipulating the housing market by setting ceiling prices for affordable houses will not address the affordable housing shortage in the country, instead it will only drive up prices, said an economist.

Under the 12th Malaysia Plan, the government plans to implement price caps for affordable houses on the secondary market as well as limit the number of units a person can acquire, in a bid to keep such properties accessible to persons who need them.

“If you put a price ceiling, those who are not in a rush to sell will opt to hold onto their property rather than placing it on the market, if the set price does not meet their expectations,” Center for Market Education CEO Carmelo Ferlito told Free Malaysia Today (FMT).

“Therefore, you will have fewer houses available, rather than more…Furthermore, by creating a negative incentive to sell, and therefore limiting supply, the actual market price will increase rather than fall, and such a spike will be evident if the ceiling (price) is removed.”

He added that putting a price cap would only create a market for corruption within the housing market as sellers are incentivised to look for buyers who are willing to circumvent the price cap with “off the books” payment, reported FMT.

With this, Ferlito urged the Government to come up with a more sensible approach to prioritise access to good homes instead of ownership, since majority of buyers still need to secure loans to acquire these homes even with the price caps.

With household debt at end-2020 hitting 93.3% of the national gross domestic product, he pointed that the emphasis on homeownership should be replaced by providing rental support to enable the lower-income groups to live in areas with better opportunities.

“The government should be promoting social mobility, rather than encouraging people to buy affordable homes in areas that are generally low-income, which would result in the poor remaining poor,” said Ferlito.

 

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