Rethinking Housing Supply: Build for Rental Housing

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Recently, a director of Bank Negara Malaysia announced that the house prices in Malaysia is very unaffordable. [i] This is not news. The issue of high price of houses has been plaguing the nation since the 2000s. Simple economic theory dictates that if supply overweight demand, price will fall. Somehow this principle does not work here. Overhanging properties (those already in the market but remain unsold) are being flaunted to foreign buyers which seem to have very deep pockets, thus negate the supply demand curve price fixing mechanism. In a way it is a manipulation of the curve that push developers to wait for price increase.

So, the people, whom the right for housing should be accorded to, will still be left in socioeconomic wasteland.

How else do we push the price of houses down? given that the need for housing is ever increasing? One possible way is to push the rental sector to provide for houses. This would compete with the demand for properties for sale. Sound neat huh? But what does the prospect look like? This article will look into several trends currently taking place all over the world.

In many countries, "Build to Rent" housing trend is rising. These are houses built by developers specifically for rent, as opposed to houses bought by individuals and rented out. On top of the issue of soaring house price, there is also the rising population of "empty nesters" that push this trend forward. These are people who are looking to downsize their houses due to their children moving out of their homes.

China has certainly set the wheel in motion. In October 2018, Chinese President Xi Jinping’s urged for a new housing model of developing the rental market to quash speculation. The market has been swift in response. State-owned banks such as China Construction Bank (CCB), Industrial and Commercial Bank of China and Bank of Communications have provided a combined 1.3 trillion yuan (US$206.7 billion) of credit to developers for their rental home developments. CCB and Citic Bank agreed to lend at least 50 billion yuan to Country Garden for its rental home plan.  Similarly, local governments have generously offered land for rental projects. Beijing said it planned to build 500,000 rental homes, or one-third of total home supply in the next five years. Shanghai has promised to develop 700,000 units, accounting for over 40 per cent of total home supply through 2020. Shenzhen told developers that at least 20 per cent of their land acquired through public auctions must be set aside for rental homes.[ii]
  
Australia is among the countries that is pushing for the rental sector as an answer to the growing need of the population. In Melbourne, the rental sector in the city is rising while house sales go down. And an emerging trend is some owners will sell first, rent and wait to see if house prices drop, then buy again later.[iii]

In Victoria, Assemble, a build to rent developer began offering rental houses with a slight twist to the concept: Build to rent to own. Renters would have the option to buy the property at the end of a 5-year period at a discounted price. The move towards build to rent (BTR) need push and cooperation from other dynamics in the housing sector. The Property Council of Victoria has sought a number of improvements to policy settings including land tax relief, flexibility to design standards to accommodate shared facilities, planning call-ins to streamline developments and floor area uplift where projects can demonstrate excellence in amenity and sustainability practices

Similar trend is surging in the USA. As reported by CNBC in July 2019, especially single-family build to rent homes. [iv] However the trend here is people are looking at renting high end houses due to the facilitites they offer. Many  of these homes come with central gym, high speed internet, HD TVs, cctv and swimming pools. The US code has special glossary on the definition of Multi family Dwelling (Built To rent) According to 12 USCS § 1715z-22a(1), the term multifamily housing means “housing accommodations on the mortgaged property that are designed principally for residential use, conform to standards satisfactory to the Secretary, and consist of not less than 5 rental units on 1 site. These units may be detached, semi-detached, row house, or multifamily structures.”)[v]


With all these developments, Malaysia should start exploring these avenues yesterday. True market dynamics will not work as long as the buying power of foreign buyers invading local house market is not curbed. Build to rent sector has the potential as an alternative market player that will push the current price lower.

Another issue that is worth looking into the rental sector is the service for multi storey dwellings. Low to medium cost apartments suffers social issues such as maintenance of elevators and common areas, security, hygiene, waste disposal etc. It is difficult to enforce houseowners to abide by rules and regulations since they know they can never be evicted from their property for breach of rules. However, rental contract can be terminated if any party breach the terms spelled in it.

Looking at the market dynamics currently in the country, the cost of rental property might not be too attractive due to unproven business model. One factor that might be a barrier is the price of land, again due to speculative activities of developers. If the government sees land as right of people, various mechanism can be introduced. In some cases, land owners just hold on to their properties without doing anything with the hope of fetching future higher prices. Idle Land Tax can be enforced by the government to curb this unhealthy market dynamics.

[i] https://www.bharian.com.my/bisnes/hartanah/2019/10/621097/harga-rumah-di-malaysia-sangat-tidak-mampu-milik?
[ii] https://www.scmp.com/property/hong-kong-china/article/2132209/will-chinas-rental-home-drive-quash-speculation-fuel).
[iii] https://www.domain.com.au/news/wait-and-see-the-new-trend-thats-changing-melbournes-rental-market-793989/
[iv] https://www.cnbc.com/2019/07/26/this-is-the-fastest-growing-trend-in-the-housing-industry.html
[v] https://glidegroup.co.uk/news-insight/2019-07-24-what-uk-build-to-rent-can-learn-from-us-multi-family

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