©2015 Khazanah Research Institute August 2015
Perpustakaan Negara Malaysia Cataloguing-in-Publication Data
Making housing affordable. – Kuala Lumpur, Malaysia: Khazanah Research Institute
1. Public policy – Malaysia. 2. National Business Systems for Housing – Malaysia.
3. Affordable housing – Malaysia. 4. Institutional arrangements.
5. Economics of governance. 6. Construction procurement route.
I. Title: Making housing affordable. II. Khazanah Research Institute.
This work is available under the Creative Commons Attribution 3.0 Unported license (CC BY3.0) http://creativecommons.org/licenses/by/3.0/. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following attributions:
Attribution – Please cite the work as follows: Khazanah Research Institute. 2015. Making Housing Affordable. Kuala Lumpur: Khazanah Research Institute. License: Creative Commons Attribution CC BY 3.0.
Translations – If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by Khazanah Research Institute and should not be considered an official Khazanah Research Institute translation. Khazanah Research Institute shall not be liable for any content or error in this translation.
Published August 2015
All queries on rights and licenses should be addressed to
Chief Operating Officer’s Office
Khazanah Research Institute
Level 25, Mercu UEM
Jalan Stesen Sentral 5
Kuala Lumpur Sentral
50470 Kuala Lumpur
Fax: +603 2265 0088; email: [email protected]
Publication orders may be placed through our website www.KRInstitute.org
“You cannot write with the view to impact or to response. That way you distort the latter and corrode the integrity of the writing itself.
[_ You cannot anticipate the context of the motives of readers in unconstrained futures. So all you can do is write what you should, whatever that means. _]
A very different sort of obligation.”
Tony Judt (as cited in Homans, 2015)
This report was prepared by the researchers of Khazanah Research Institute, Dr. Suraya Ismail, Intan Nadia Jalil and Puteri Marjan Megat Muzafar.
It was approved by the editorial committee namely, Dato’ Charon Mokhzani, Dr. Muhammed Abdul Khalid, and Wan Khatina Wan Mohd Nawawi.
It was authorised for approval by Dato’ Charon Mokhzani.
We would like to extend our deepest gratitude to the following without whom this report would not have been possible: Sr. Mazli Mohamed Ayob, Operon Asset Advisory Sdn Bhd; Sr. Hj. Jailani Jasmani, JUB Central Sdn Bhd; Professor Emeritus Ezrin Arbi and Associate Professor Dr. Sr. Wan Nor Azriyati Wan Abdul Aziz, University of Malaya; Sr Khuzaimah Abdullah, Sr Aina Edayu Ahmad and Amy anak Pirah, National Property Information Center; Terence Wong, CIMB Group Berhad; Richard Blakeway and Alan Benson, Greater London Authority; Hj Zainuddin Ahamad, Town and Country Planning Department Peninsular Malaysia; Siti Hajar Md Saleh, Syarikat Perumahan Nasional Berhad; Datuk FD Iskandar, Aslinda Mohd Noor and Karen Yeong, REHDA; Ar Kamrudzaman Mat Rejab, PRIMA, Datuk Seri Michael Yam, InvestKL; Tn Hj Azahari Mohd Raslan and Tan Keng Chuan, Department of Statistics; Professor Shlomo Angel and Nicolás Galarza, New York University (NYU); Christopher Herbert, Joint Center for Housing Studies, Harvard University; Hugh Pavletich, Annual Demographia International Housing Affordability Survey; Tan Sri Dato’ Dr. Lin See-Yan, IGB Reit; Chang Kim Loong, House Buyers Association; Dr. Mohd Yusof Saari, Institute of Agricultural and Food Policy Studies; Mohd. Misbah Rembun and Mohd. Rafizan Idris, Construction Industry Development Board (CIDB); Brendan De Frank Gamin, Perbadanan Pembangunan Perumahan (Sarawak); Fauziah Fakurudin, Perbadanan Setiausaha Kerajaan Pulau Pinang, Januario Jesus Atencio, 8990 Holdings and to the 12 firms (property development, construction and architectural firms) that participated in the five Malaysian case studies.
Special thanks are due to Rosli Haron, Assistant Town Planning Officer from the Town and Country Planning Department, Penang for assisting us in constructing the maps used in the report.
We are particularly grateful for the contributions from our colleagues at the Khazanah Research Institute: Yap Gin Bee, Theebalakshmi Kunasekaran and Adibah Abdulhadi, and not forgetting our hard-working interns: Nicholas Khaw Hock-Lu; Siti Hajar [email protected]; Muhammad Nazhan Kamaruzuki and Sivananthan Ramasamy.
In writing this book, we have benefitted tremendously from the contribution of the people mentioned above. However, any fault lies entirely with the authors.
Dr. Suraya Ismail is a Director of Research in Khazanah Research Institute. Before joining the Institute, she was in Think City (a city-making initiative of Khazanah Nasional Berhad), and had previously taught at the University of Malaya. Her research interests include theories of the firm, the economics of governance and the history of economic growth. Suraya was educated at the universities of Malaya, Reading and UCL. She holds a PhD in Institutional Economics and Governance.
Intan Nadia Jalil is a Deputy Director of Research at the Khazanah Research Institute. She was previously the World Bank’s Country Economist for Malaysia. Prior to that, she was an economist with Khazanah Nasional Berhad’s Research and Investment Strategy (KRIS) division. Her research interests cover the interactions between public policy, economic development, urbanisation dynamics and social inclusion. Nadia holds an MSc in Regional and Urban Planning Studies from the London School of Economics and Political Science and graduated from the University of Cambridge, United Kingdom with a BA in Economics.
Puteri Marjan Megat Muzafar is a Research Assistant at the Khazanah Research Institute. Her fields of interest are in the relationship between economic growth and social development with a special interest in educational issues. Puteri Marjan was a Yayasan Khazanah scholar. She holds a first class degree in Economics from the Multimedia University.
Figure 1: Number of property transactions by type of properties (units), 2002-2014
Figure 2: Value of property transactions by type of properties (RM billion), 2002-2014
Figure 3: Number and value of residential transactions, 2002-2014
Figure 4: Malaysia’s house price index, 2000-2014
Figure 5: Breakdown of house prices by state, 2014
Figure 6: Growth in household incomes and house prices, 1997-2014
Figure 7: Percentage distribution of households for each income category in Malaysia (%), 2014
Figure 8: Distribution of house prices, when the median multiple is three times (units)
Figure 9: Simulations for median multiples of two, three, four, five and eight times (units)
Figure 10: Housing affordability relative to median household income (RM), 2002-2014
Figure 11: Number of residential properties launched, by transacted price and house type – ‘severely unaffordable’ markets
Figure 12: Number of residential properties launched, by transacted price and house type – ‘seriously unaffordable’ market
Figure 13: Number of residential properties launched, by transacted price and house type – ‘moderately unaffordable’ and ‘affordable’ markets
Figure 14: Number of launched residential units by price range, 2004-2014
Figure 15: Composition of residential units launched by price range, 2004-2014
Figure 16: Relatively inelastic housing supply meeting relatively elastic demand
Figure 17: Malaysian population size (‘000), 1970-2040
Figure 18: Number of households and household size in Malaysia, 1970-2020
Figure 19: Population density according to mukims in Greater Kuala Lumpur, 2010
Figure 20: Urbanisation level by state (%), 2010
Figure 21: Percentage of monthly expenditure on goods & services by expenditure category (RM), 2010
Figure 22: House prices and construction costs according to states, 2008-2014
Figure 23: Public affordable housing schemes in Malaysia
Figure 24: Theory of housing prices
Figure 25: The industry value chain
Figure 26: Construction sector growth and Malaysian economic trend, 1988-2014
Figure 27: The industry value chain – application to the five case studies in Malaysia
Figure 28: The functional form and the selected governance structure of the five case reports
Figure 29: The DECA Home Residences developed by 8990 Holdings
Figure 30: Examples of the Company’s housing units
Figure 31: The industry value chain: case study in the Philippines
Figure 32: The functional form and the selected governance structure of the five case reports and the suggested new governance structure
Figure 33: The functional form and the suggested new governance structure
Figure 34: Planning and implementation of a National Housing Survey
Table 1: Home ownership rates for selected countries, 2010
Table 2: Comparison between DoS’s housing units and NAPIC’s existing housing stock, 2010
Table 3: Percentage of home ownership in Malaysia, 2010
Table 4: Demographia housing affordability categories
Table 5: Comparison of housing affordability based on annual household median income and median all-house price across states in Malaysia, 2014
Table 6: Range of down-market penetration ratios for selected states, 2014
Table 7: Housing demand and supply interventions in Malaysia
Table 8: Revised RPGT rates
Table 9: Brief profiles of companies in the Malaysian case studies
Table 10: Monthly gross income breakdown of the Company’s home-buyers
Table 11: Comparison between 8990 Holdings and Malaysian property developers
Box 1: Indicators for housing affordability
Box 2: BNM measures to reduce the burden of households’ housing debt
Box 3: Measures to curb house price speculation – examples from other countries
Box 4: Fragmentation and the social organisation of construction projects – the case of traditional general contracting
Box 5: DECA Homes Pre-cast Technology
Box 6: Key Findings from Section 3
Box 7: Key Findings from Section 2
Box 8: Key findings from Section 2 and 3
This report examines the issue of housing affordability in Malaysia, viewing it within the context of housing as an economic sector rather than simply as a social welfare concern. Housing interventions have focused primarily on demand, and in doing so, subsidizes a non-responsive supply sector. We examine housing affordability with the view of ensuring that supply is able to meet effective demand, thus improving the affordability of housing in general.
The provision of affordable homes remains a major problem facing policymakers around the world, with Malaysia being no exception. Malaysian policy initiatives which focus on ensuring affordable housing have typically involved the transfer of physical or financial resources to low-income households who cannot house themselves adequately. The scarcity of such resources then forces government housing agencies to focus on a small and limited housing agenda and stymies efforts to understand or manage the housing sector as a whole.
Gaps are beginning to appear in the system, exemplified by the growing concern of middle-income households who are neither eligible for social housing nor are able to afford private sector-supplied houses. The challenge is particularly prevalent in urban areas: while Malaysian home ownership as a whole stood at 72.5% in 2010 (the year of the latest Population and Housing Census), urban home ownership was 69.1%. In Kuala Lumpur, it was 53.5%.
Demographic factors will make the problem more acute: our population is growing at around 2% per year and will reach 38.6 million by 2040; urbanisation is increasing; and households are getting smaller – in 1970 there were 182 households for every 1,000 people, by 2020 there will be 250 households for every 1,000.
Housing affordability is a function of both house prices and income. At the national level, median house prices were 4.4 times median annual household income in 2014. According to global standards, this signifies a ‘seriously unaffordable’ housing market. An ‘affordable’ market should have a ‘median multiple’ (median house prices as a multiple of median annual household income) of 3.0x. However, house prices are also heavily dependent on location, and so some states in Malaysia have more affordable housing markets than others. Melaka for instance is ‘affordable’, with a median multiple of 3.0x whereas Kuala Lumpur (5.4x) and Pulau Pinang (5.2x) are both ‘severely unaffordable’.
The 3.0x median multiple signals that the market provides a distribution of housing and house prices that are subject to minimal distortions – housing supply is responsive and able to meet effective demand. Unaffordable housing markets are ones in which supply either falls far below demand, or is too inelastic to changes in demand. It is a measure of how affordable the housing market as a whole is performing. It is not a measure of what any particular household can afford as that would depend on that particular household’s circumstances.
Interventions in the housing market have largely been on the demand side, by making housing financing cheaper or providing subsidies for home-buyers. The supply side interventions have been by direct provision of low-cost houses or subsidising housing costs. These measures are unsustainable as they can drive price increases, result in more household debt, and also incur opportunity costs on government finances that potentially could be used more productively.
Housing supply is driven by land costs and use, planning policy, and construction costs. High housing prices are often blamed on land costs, but the causality actually runs in the opposite direction; rising house prices result in rising land prices as the price a developer is willing to pay for new land rises as the market price for housing increases. As for construction costs, in Malaysia these have been falling with no attendant drop in house prices.
The answer to making housing more affordable then, lies in improving the elasticity of housing supply or, in other words, in making the supply of housing more responsive to the needs of all sections of population. In this report, we examined the national business and procurement systems for housing through five case studies of Malaysian property developers. The findings were then compared to a case study in the Philippines housing sector – 8990 Holdings, Inc. – which is a mass housing market developer that has managed to supply affordable homes by marrying cost and time-saving building technology with highly integrated procurement and business systems.
The national procurement route for housing – traditional general contracting (TGC) – is fragmented, and this contributes towards a similarly fragmented national business system for the sector. Supply is relatively inelastic as productivity has been hampered and there are few incentives for investments in R&D. We have been unable to properly implement integrated building systems (IBS) technology for instance because we lack a highly-integrated construction business system that allows designers and contractors to collaborate and implement the technology on site.
We therefore recommend institutionalising reforms and restructuring for the national procurement system in order to improve delivery of housing supply in terms of time, costs and quality of construction projects. These interlinked reforms and measures include:
Available evidence suggests that the provision of social housing for the majority of the population will exert unnecessary financial pressures on government spending. While the problem in Malaysia may not be as acute at the present moment, as Malaysia becomes more urbanized, the demand for affordable housing will only increase. Trends in Malaysia indicate that both the bottom 40% and middle 40% of income earners are likely to require social housing if the relevant interventions are not made urgently. We have to reform the supply-side for housing and strengthen market efficiency in the sector.
The provision of adequate housing is critical for the growth and well-being of society. The issue of housing is a multifaceted one, for it encompasses not only shelter, but also security, privacy, investment, and personal identity.
For households, housing serves as both a major motivation for savings and a significant influence on consumption. In addition, the locational aspect of housing directly influences labour mobility and therefore human capital, economic growth, and productivity.
In the wider economy, housing is an integral part of the construction industry, with residential construction comprising 27% of total construction output as at 2014 1 . Although construction in turn comprised only 4.3% of total GDP in the same year, the sector returns an output multiplier of 1.9 times for the economy. This means that every additional RM1
of output in the construction sector leads to an RM1.90 increase in total output for the economy, with residential construction alone having a multiplier of 2.0 times2. The housing sector is thus a key economic sector, and must be perceived and managed as an integral part of overall economic management.
Unfortunately, this perception of housing as a key economic driver has yet to take root. Housing is too often seen by governments as a welfare issue, requiring the transfer of physical or financial resources to low-income households who are unable to house themselves adequately. Such resources, however, are rarely adequate. As a result, government housing agencies limit their activities to direct housing provision for a small minority of potential beneficiaries, ignoring the interests of most of the population. By focusing on a small and limited housing agenda, these agencies fail to either understand or manage the housing sector as a whole.
This can be seen from the growing concern among middle-income households regarding their capacity to purchase homes. This group is often ineligible for public low-cost housing programmes, but are unable to afford housing supplied by private real housing developers.
Therefore, it is important to move towards a broader agenda of guiding and managing the housing sector as a whole. The sector must also be viewed as one that is important and productive, where policies have serious repercussions for overall economic performance and not, as is commonly viewed (especially for low-cost housing) as a sector which is a drain on productive resources. Our case study in the Philippines (8990 Holdings, Inc.) demonstrates the point that building houses for low-income households can be profitable.
This report considers the problem of supplying affordable houses to the general public from the perspectives of both institutions (the national business system) and firms (industry value chain analysis and the economics of governance). This is based on the premise that improvements are needed at the level of construction projects and firms in order to increase the affordability of houses at the national level.
Until now, policies have focused on controlling house prices once the consumer receives the house at the end of the production process. This report adopts a different approach as evidence shows that it is far more efficient to enhance capacity on the supply side in order to develop a sustainable and responsive housing sector that caters for all sections of the population.
This is the first in a series of reports undertaken to examine the various dimensions of the housing industry. Future studies will focus on matters relating to land and it’s attendant regulations, the financing of housing and how housing must be understood as a critical component of city-making.
“Consumers seek adequate housing that does not take up an undue portion of household income. They seek good location and amenities, secure tenure, access to housing finance and a degree of mobility and choice. This is the purpose of housing in society.”3
The United Nations Declaration of Human Rights explicitly includes housing as an inalienable human right:
“Everyone has the standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services …”4
Accordingly, the challenge of providing affordable homes for all households has captured the focus of policymakers from around the world, with Malaysia being no exception. Ranging from initiatives such as ‘Projek Perumahan Rakyat’ (PPR) (People’s Housing Projects) to the Malaysia My First Home Scheme, Malaysian housing policy has focused on either the direct provision of low-cost housing, or subsidising the cost of housing for home-buyers, particularly those buying homes for the first time.
The effectiveness of these policies however, needs to be based on the specific conditions of the Malaysian housing market, primarily housing affordability and the factors driving it.
This section provides an overview of the Malaysian housing market. Thereafter, it introduces standards for housing affordability and assesses the Malaysian housing market according to these measures.
Home ownership and informality
According to the latest available official figures, Malaysia has a home ownership rate of 72.5%^5^ . This is a relatively high number considering that home ownership rates in developed countries – apart from Singapore – were below 70% in the same year (Table 1).
Source: Each countries’ Statistical Office (2011)
However, Malaysia’s home ownership rates, which are published by the Malaysian Department of Statistics (DoS), also include ownership of informal houses. For instance, houses built by families at buffer zones of rivers are illegal, but are still considered as owned homes in the Population and Housing Census.
The Malaysian Housing Market
Formal housing stock is defined as housing which has been built with development orders from local authorities being issued. Conversely, informal housing stock are houses built without development orders and/or houses built by the community, and may include ‘kampung’ houses6.
There is a significant amount of housing stock that falls within the housing unit count in the 2010 Population and Housing Census that is not included in the estimates for housing stock published by the National Property and Information Centre (NAPIC), which only takes into account formal housing. In 2010, the former exceeded the latter by 2.9 million (Table 2).
Typically, informal houses are located in rural areas. While 72.5% of households owned the homes they live in as at 2010, the figure is much lower in urban areas (Table 3).
Department of Statistics
National Property Information Centre
Source: NAPIC (2014d), DoS (2012), KRI calculations
Source: DoS (2013)
As the formal sector grows in each state along with urbanisation, it is important to ensure that the percentage of households owning a home does not decrease.
The residential market dominates property transactions
The residential sector has always dominated the Malaysian property market (see Figure 1, Figure 2, and Figure 3). In 2013 and 2014, the number of residential transactions represented about 64% of the total transactions.
These transactions represented approximately RM67.8 billion, RM72.1 billion, and RM82.1 billion worth of transactions in 2012, 2013, and 2014 respectively.
The average value of residential properties also rose from RM248,514 in 2012 to RM292,661 in 2013, and increased to RM331,888 in 2014.
Figure 3 demonstrates that the growth rate for values transacted has outstripped the growth rate of transacted units, which in turn indicates that the houses have been transacted at higher prices year-onyear, on average.
Source: NAPIC (various years), KRI calculations
Source: NAPIC (various years), KRI calculations
Source: NAPIC (various years), KRI calculations
House prices have accelerated
Source: NAPIC (2014b), KRI calculations.
According to NAPIC’s house price index (HPI)^7^ , the Malaysian all-house price has grown steadily since 2000, and accelerated between 2009 and 2014 (Figure 4). While the all-house price grew at a CAGR of 5.6% between 2000 and 2014, between 2009 and 2014, it grew at a CAGR of 10.1% (2000-2009: 3.1%).
Given the heterogeneity of housing markets and with location being a key driver of housing prices, it is best analysed according to different submarkets, segmented into different types and localities. For instance, a terrace house in Sabah was three times more expensive in 2014 compared to 2000, while in Selangor, it has grown twice as expensive (Figure 5).
Source: NAPIC (2014b), KRI calculations
With regards to affordability, over the past 13 years, household incomes have generally moved in tandem with house prices (Figure 6).
Source: DoS (2015b), NAPIC (2014b), KRI calculations
How Affordable is the Malaysian Housing Market?
Given these conditions, the question remains as to whether or not Malaysian households find housing unaffordable. Further answers lie within the distribution of household incomes and distribution of houses offered in the market, otherwise known as the ‘median multiple’ and ‘down-market penetration’ respectively (see Box 1).
In this report, we use two measures to assess housing affordability in Malaysia, based on available data:
The median multiple is based on the assumption that as housing prices become higher relative to incomes, a smaller proportion of households can afford to buy houses, other factors holding constant. More importantly, deviations of this indicator from global norms can signal serious distortions in the housing market. When its value is excessively high, these distortions may indicate that the housing sector is restricted in its ability to supply sufficient housing to meet effective demand. In these instances, it has been found that housing quality and space are depressed below levels typically found in countries with well-functioning and responsive markets. Conversely, abnormally low values signals insecurity of tenure, and can lead to a reduced willingness of the population to invest in housing, and thereafter a lower than necessary quality of housing8.
How Affordable is the Malaysian Housing Market?
Subsequent empirical research by the UNCHS and the World Bank utilising international data and adapted in the Annual Demographia International Housing Surveys9 founddemograpia_tbl that the ‘global norm’ for affordability was three times, meaning that if the median price for the whole of a housing market was three times the median gross annual household income, this signals a well-functioning housing market10 (Table 4).
Rather, the three times median multiple signals that the market provides a distribution of housing and house prices that are subject to minimal distortions if any, and where supply is able to meet effective demand.
This indicator is rooted in the ‘filtering’ model of housing consumption, in which low-income households are generally restricted to informal housing or ‘filtered-down’
older formal-sector housing. The ratio captures the fact that in some housing markets, the private sector generally supplies housing for high-income groups, but not to low-income consumers while in others the converse is the case. In general, the down-market penetration ratio is compared with the median multiple to indicate the extent to which the market supplies to below-median income households.
While no global standards exist for acceptable ranges of down-market penetration, the global median value in 1990 as stated by the UNCHS Global Survey of Housing Indicators was 3.411.
In general, taken together, a median-multiple within the ‘affordable’ range along with a down-market penetration ratio at or below the global median indicates a well-functioning housing market.
The household income data are sourced from the 2014 Household Income Survey12 while the house price data are sourced from NAPIC.
How Affordable is the Malaysian Housing Market?
Source: DoS (2015b), KRI calculations
Source: DoS (2015b), NAPIC (2015), KRI calculations
How Affordable is the Malaysian Housing Market?
According to the simulation, when the median multiple is three times, the mode for the distribution of house prices falls below the median (Figure 8), which mimics the distribution of household incomes (Figure 7).
Comparatively, simulations of median multiples of four, five and eight times result in a distribution that is either bordering on (four times) or skewed to the right (five and eight times), signalling that in general the distribution of house prices exceed affordability as indicated by the distribution of household income.
On the other hand, when a median multiple of two times is simulated, the distribution of house prices is skewed too far to the left, potentially indicating a depressed housing market (Figure 9).
The results of the simulation exercise indicate that housing affordability in Malaysia does indeed follow global norms, ie a median multiple of three times signals an affordable housing market.
Source: DoS (2015b), NAPIC (2015), KRI calculations
How Affordable is the Malaysian Housing Market?
The three times median multiple was also cited by the Housing Buyers’ Association13 as well as in the 11th Malaysia Plan14 as an appropriate threshold for the affordability of the nation’s housing market.
Figure 10 illustrates the median price for the Malaysian housing market as measured by NAPIC’s all-house price calculations relative to median gross annual household income.
Source: DoS (2015b), NAPIC (2015), KRI calculations
How Affordable is the Malaysian Housing Market?
In general the median price for the Malaysian housing market exceeds the three times median annual household income threshold for affordability. In 2014, it stood at 4.4 times, and has consistently exceeded 4.0 times from 2002 to 2014. Affordability however, is dynamic, and depends on both the distribution of household incomes and housing units supplied and transacted in the market for each year.
The median-multiple figures presented here are different from those presented in our State of Households Report15. This is because while the former utilised official median house price data newly obtained from NAPIC, the latter used medianmultiples sourced from Cagamas16.
More importantly, as mentioned, although DoS’ household income statistics measure both informal and formal income, there is a significant amount of housing units that are not accounted for in NAPIC’s calculations for housing stock. This means that the median all-house price calculated by NAPIC does not comprise the entire number of housing units.
To adjust for this potential shortfall, we have assumed that house prices in states where 60% or more of housing stock is accounted for by NAPIC are representative of the overall housing market (Table 5).
Given this cut-off, our analysis of median-multiple affordability of each state’s housing market focused on Kuala Lumpur, Pulau Pinang, Johor, Selangor, Negeri Sembilan, and Melaka, with the other states being deemed as having insufficient house price data for the assessment.
How Affordable is the Malaysian Housing Market?
Source: DoS (2015b), NAPIC (2015), KRI calculations
How Affordable is the Malaysian Housing Market?
Within the list of state housing markets being assessed, Kuala Lumpur and Pulau Pinang stand out as ‘severely unaffordable’ markets, with median multiples of 5.4 and 5.2 respectively.
One of the reasons behind this extent of unaffordability would be the unresponsiveness of housing supply to effective demand. Of the new properties launched in Kuala Lumpur in 2014 (Figure 11a), there were no properties launched below the RM250,000- RM1 m price bracket, with the bulk of newly launched properties situated in the RM500,000-RM1 m bracket.
Given that the three times median multiple price in Kuala Lumpur in 2014 would have been RM274,320, the absence of houses launched below RM250,000 would have skewed the distribution of house prices in the city to the right significantly.
The housing market in Pulau Pinang has a lower median multiple compared to Kuala Lumpur (Figure 11b) with some houses being supplied in the RM50,000- RM100,000 bracket. However, given that the state’s median household income is much lower than Kuala Lumpur’s, the lack of houses launched below the three times median multiple price combined with a high number of high-end launches contributes towards the severely unaffordable state of its housing market.
The case of Johor (Figure 12) illustrates an example of a housing market that is slightly more responsive than that of Kuala Lumpur’s and Pulau Pinang’s, albeit still relatively imbalanced, with the bulk of residential properties launched still exceeding the three times median multiple price.
Finally, the examples of Selangor, Negeri Sembilan and Melaka (Figure 13a – c) further illustrate the important role played by the distribution of housing supplied in ensuring affordability. The new housing units launched in these markets are within a more dispersed range of price brackets with a significant number of new launches located at or below three times median multiple.
How Affordable is the Malaysian Housing Market?
How Affordable is the Malaysian Housing Market?
Another measure of affordability is down-market penetration. An overview of Malaysia’s residential market reveals that in aggregate, new launches within the lowest-price range has dropped from 36.4% out of total launches in 2004 to only 19.7% in 2014 (Figure 14 and Figure 15).
Since publicly-available house price data for Malaysia is only in the form of price ranges, the data depicted in Figure 14 is used to estimate the range of downmarket penetration for the Malaysian housing market.
In 2014, the down-market penetration for the lowest-priced dwelling unit ranged from 0.9 to 1.8 times, quite significantly below the 3.4 global value previously estimated. Relatively low down-market penetration ratios also held in the six state housing markets analysed in the previous section, even for the ‘severely unaffordable’ markets of Kuala Lumpur and Pulau Pinang (Table 6).
An important caveat when assessing down-market penetration ratios for Malaysia is that while the house price data supplied by NAPIC only includes prices for houses supplied by the private sector, NAPIC cannot certify whether these houses were built without the benefit of subsidies, including land-swap arrangements with the government. Hence, the down-market penetration ratio estimated from this data may be an underestimation of actual values.
Nonetheless, the available data signal that nationally and within these markets, privately supplied housing does reach some below-median households, although without more disaggregated and detailed data, it is unclear whether the allocation of such housing is adequate.
For the last five years, 60,000 houses have been launched on average.
How Affordable is the Malaysian Housing Market?
Source: NAPIC (various years), KRI calculations
k = thousand
m = million
How Affordable is the Malaysian Housing Market?
While it would seem from the assessment of median multiples and down-market penetration ratios that the problem of unaffordable housing markets is restricted to selected states in Malaysia, there are warning signs that housing affordability – particularly for lower income households – will worsen if left unchecked.
These signs include the dramatic reduction in housing supplied at prices below the three times median multiple, especially in states with relatively high population densities. The effect of this shortfall on the distribution of house prices is exacerbated by a surge in the supply of houses at the higher end, exceeding RM500,000.
The following chapters will elaborate on factors which drive the demand, supply and price of housing in Malaysia, and subsequently the interventions that affect these parameters.
Housing affordability is a function of price and income. While the latter drives demand, the former depends on the interaction of both demand and supply. This section highlights the theoretical underpinnings of housing demand, supply, and prices, applying them to Malaysia.
Interventions to improve housing affordability have primarily focused on the demand side, either by the direct provision of low-cost houses, subsidising housing costs, or by making housing financing cheaper. These measures are unsustainable as they can contribute towards price increases and also incur opportunity costs on government finances that could potentially be used more productively. Conversely, when prices are deemed to escalate too rapidly, government measures are introduced to temper property speculation.
We argue that interventions aimed at strengthening affordability for housing should also focus on the supply-side, primarily by making supply more elastic, hence more responsive to demand.
Many factors affect the demand for and supply of housing. For demand, these include:
The factors that affect supply include:
Changes in the factors affecting demand can shift the demand curve. As we will see in the rest of this section, in Malaysia, the factors that affect demand – in particular demographics – are shifting the demand curve to the right (from D to D1 – see Figure 16).
On the other hand, housing supply is not elastic in the short term (Ss). In fact, because of our unresponsive housing sector, the supply curve is almost vertical (Sm) in the immediate term. This means that when demand shifts to the right, prices rise rapidly and highly. If we had a more elastic supply curve (Sl) (ie one that is flatter), prices would not rise as high.
Quantity demanded and supplied (units)
Source: Harvey (1992)
Interventions so far seem to accept this vertical supply curve, and therefore most are aimed at enabling consumers to afford houses as they become increasingly more expensive. These include policies that are designed to allow consumers to borrow more, or that in effect subsidise the costs of houses18. We will elaborate on these later in the section.
Malaysia’s population has been growing, with forecasts that it will continue to grow (Figure 17).
Source: DoS (2015c)
F denotes projected figures
The size of households is getting smaller (Figure 18). In 1970 there was an average of 5.5 people per household or, to put it another way, there were about 182 households for every 1,000 people. By 2020 the forecast is that the average will be 4 people, or 250 households for every 1,000 people. The number of households is therefore increasing at a faster rate than the growth of the population. This unalterable demographic fact is what is one of the drivers for housing demand.
Source: DoS (various years), KRI calculations F denotes forecasts
Housing Factors in Malaysia
The demand for housing is also driven by households’ demographic profile. In the maps below we see the different population densities of different age groups in the Greater Kuala Lumpur area (Figure 19).
Across age-groups, the working-age adult population (24-39 year-olds, Figure 19c) is the highest compared to the others. When the age groups are considered separately, the overall pattern of population density resembles a doughnut, particularly for workingage adults and children (0-14 year-olds, Figure 19b). The ‘hole’ of the doughnut is the city of Petaling Jaya, where population densities are relatively lower compared to the ‘ring’ which contains the Kuala Lumpur city centre and suburban mukims such as Damansara and Ampang (where the concentration of children, which implies young families, is the highest).
Housing Factors in Malaysia
Source: DoS (2011d)
Housing Factors in Malaysia
For statistical purposes, the government defines an urban area as essentially a place with more than 10,000 people19. More specifically it is an area that:
Source: DoS (2011d)
Housing Factors in Malaysia
As urbanisation increases, the demand for formal housing will also increase. The problems we now see in Kuala Lumpur and Penang could soon extend to the other states.
Affordability is also about income. If household incomes are high, then even quarter-of-a-million ringgit houses are affordable, as is the case in Kuala Lumpur20.
Indeed, the more one can afford to spend the lower the proportion of one’s spending is on housing (Figure 21).
Source: DoS (2011e)
Housing Factors in Malaysia
Raising household incomes is a subject by itself and goes beyond affordable housing. It is, or ought to be, the core of our economic policy21.
Very few can buy a house with cash. For the vast majority, buying a house requires credit and so the availability and cost of credit are important factors in the demand for housing.
Government policy and interventions can affect the availability and cost of credit. Having credit however does not make a house cheaper, even if government policy and interventions can make the monthly instalment payments lower22.
If credit is more available and less costly, then this would tend to shift the demand curve to the right (from D0 to D1 in Figure 16). More people would be able to buy a house at any particular price. Given the inelastic supply of housing, this would paradoxically make housing even more expensive!
While measures to make credit more available and less costly may seem to make housing affordable, our position is that affordable housing means lowering the price of housing and not increasing the debt burden of households.
Bank Negara Malaysia (BNM) recognised this burden and in 2013 introduced micro-prudential measures to curb household housing debt (Box 2).
In 2013, BNM introduced micro-prudential measures to alleviate risks from household housing debt. “Multi-generational housing loans” which had a 45 year repayment period and interest capitalisation schemes (ICS)^23^ where interest costs are capitalized (for instance, built into the sale price) instead of being paid by the borrower as they are incurred were found to have inflated property prices by as much as 30%.
BNM therefore banned those housing loans (the maximum repayment period is now 35 years) and prohibited banks from lending to developers that offered ICS.
In our next report on affordable housing we will look in detail at how financing can be made more affordable and more available.
Housing Factors in Malaysia
Arguably, the exemption from the Real Property Gains Tax (RPGT) which was in effect between 2007 and 2010 contributed towards the acceleration in house prices by encouraging the speculative demand for housing. Hence, beginning in 2010, the government introduced cooling measures to curb speculative activities. We elaborate on these measures later in the report.
As is the case for most goods, the demand for housing is also an expression of personal preferences. Some people may prefer, and would pay more for, landed properties, while others would be willing to sacrifice land for more amenities.
Land costs, land use, and planning policy
These are related. The World Bank in 198924 stated that Malaysia’s high standards for land use and infrastructure (eg the road width requirements and the large set-asides for public areas) contribute to the high cost of land for housing.
The time taken to get relevant approvals also contributes to the overall costs of building houses. A development planning application can take up to six months before it is approved and construction can commence25.
We will see later how land and housing prices escalate due to our unresponsive housing sector.
Given that these have been falling, it is expected that housing prices would fall accordingly. The contrary seems to be the case (Figure 22a – d).
Housing Factors in Malaysia
As mentioned, interventions in the housing market have mostly focused on improving affordability by leveraging on demand, either by allowing consumers to borrow more, or subsiding the costs of houses. On the supply-side, the Federal and State governments have mainly focused on the direct provision of affordable homes, either through public agencies or through partnerships with private developers.
Examples of these interventions are summarised in Table 7.
Affordable housing schemes range from low-cost homes priced below RM100,000 to the RM400,000 houses sold under the PR1MA scheme (Figure 23). Four of these public affordable housing programs not only provide assistance to the bottom-40% of households, but the middle-40% as well; housing affordability is not only a lower-income challenge.
For details of the housing schemes, see also Appendix 2.
Housing Factors in Malaysia
Source: Various government agencies, KRI calculations
k = thousand
Houses priced below RM50,000 have been excluded.
Housing Factors in Malaysia
These types of policies are not sustainable in the long run. Allowing consumers to borrow more does not reduce the cost of housing, but instead increases household debt, and a government subsidy to developers is a needless drain on government finances.
Affordable housing is not a welfare issue. It is a structural issue caused by an unresponsive housing sector. As we will discuss in more detail in the following chapters, it is possible for us to have a productive and profitable housing sector that provides affordable housing without requiring government subsidies.
National Housing Survey
The 11th Malaysia Plan outlines a target of 653,000 units of affordable housing to be built during the Plan period (2016- 2020), or an average of 130,000 houses built a year. Given that an average of 60,000 houses were launched in the housing market overall over the last five years, it is unclear whether this target has been based on an analysis of demand for affordable housing, and whether there is sufficient capacity for supply.
Given the need to coordinate supply and demand factors in the housing market, the 11th Malaysia Plan therefore refers to establishing “an integrated database on housing … to ensure housing supply matches the needs according to the location, price and target group”26.
We support this. There is currently limited data available to allow each State to adequately plan for the housing needs of the population and to allow house buyers to make informed purchasing decisions. These limitations include data on existing formal and informal housing stock, as well as detailed data on demand factors, particularly at the mukim level.
We propose a National Housing Survey, collected at the mukim level, to provide input for the integrated housing database, covering:
For many goods, if demand increases for that good then the producers of that good will make more of them to meet the increased demand. Take cars for example, if there is an increase in demand, car manufacturers produce more cars to meet that demand. Car prices therefore do not go up much as there are enough new cars being built to satisfy the extra demand.
It is different in the housing market. First, in Malaysia it takes a long time for new houses to be built. Second, there is a large stock of existing houses. As of 2010 there were about 4.4 m houses in the formal sector27. Every year, 100,000 new houses are built and 200,000 houses out of the existing stock are sold.
Since far more existing houses are being sold than new houses, it is the price of existing houses that determines the price that new houses are being sold at. If demand increases, there are not enough new houses and a limited supply of existing houses to satisfy the new demand. House prices therefore go up. So even if the actual cost of the new houses is far lower than the market price, they will be sold at that higher market price (Figure 24).
Source: Adapted from Harvey and Jowsey (2004)
House Prices and Speculators
Land Costs and Speculators
The price a developer is willing to pay for new land will go up as the market price for new housing increases.
Suppose a developer wants to buy a site to erect a house. If old houses in the vicinity are being sold at RM150,000 and it costs him (including his normal profit) RM100,000 to build the house, then he will be willing to bid up to RM50,000 for the land. If prices of existing houses continue to rise due to increased demand, then this will lead to higher land prices and a vicious cycle of ever increasing prices.
Short term speculative behaviour exacerbates the situation. By this we mean purchasers who buy houses and sell them soon thereafter, instead of after five to ten years. If supply is inelastic (as it is in Malaysia) every time a speculator buys a house and re-sells it at a higher price, that new higher price becomes the benchmark price for all similar houses. Prices rise faster than they otherwise would without this speculative behaviour.
For those interested in the economic theory behind the effects of speculation, we present in Appendix 3 a stylised model of how rational actions by agents in the housing market may still lead to inefficiencies in equilibrium price outcomes and, consequently, to a possible asset bubble.
Malaysia, like many other countries, has put in place measures to curb speculation.
In the Federal Budget 2014, RPGT was significantly increased (Table 8) and the threshold for foreign buyers of property was raised to RM1 m.
Source: Ministry of Finance (MoF) (2013)
RPGT = Real Property Gains Tax)
PR = permanent residents
House Prices and Speculators
We also have moratoriums on the sale of certain properties. For instance, PR1MA homes are subject to a ten-year moratorium, during which the property cannot be sold and bought without the prior approval of PR1MA. They have the effect of slowing down the escalation of PR1MA house prices as home owners cannot immediately ‘flip’ their property.
The drawbacks however are that they also prevent homeowners from accessing their equity in their house should they need do to so and that they also impede mobility as they can prevent people from moving to an area more suited to their needs (eg somewhere closer to work, to schools, etc). A well designed moratorium should therefore be as short as possible and allow for exceptions in true cases of need.
As we will see more of later, we would recommend that new housing built under the national business and procurement system we are proposing also be subject to a moratorium of five years. This is sufficient time for new developments to be built under this system so that there is a steady stream of new affordable housing. The moratorium acts as a buffer period to allow for the subsequent batches of affordable homes to be supplied at prices that make speculative behaviour redundant.
Following a temporary slump in the wake of the 2008 Global Financial Crisis, property prices in certain countries began to rebound, leading to overvaluations in some markets. Among the 50 countries surveyed in the International Monetary Fund’s (IMF) Global Housing Watch, real house prices in 17 of these countries (including Malaysia) are now around 25 % higher than they were before the crisis, while real estate markets in 33 countries, including the United Kingdom – which experienced sharper drops than the former group – are recovering28. The Economist reported in August 2014 that house prices in the UK are overvalued by around 24%, despite its market not yet having fully recovered to pre-2008 levels. As a result, Australia, Hong Kong, Singapore, and the UK – along with Malaysia) – who were among the above-mentioned group of 17 countries – have implemented measures to cool their housing markets in the past year.
Australia: The Reserve Bank of Australia warned in September that the country’s housing market was becoming “unbalanced”, as record low interest rates and strong competition among lenders prompted a surge in lending to investors, who make up 40% of the value of home loans. Meanwhile, the Australian Prudential Regulation Authority (APRA) warned banks that it would be strengthening scrutiny of lending practices and force banks to hold more capital if they engage in “risky lending”. Promising a review of banks’ lending practices in the first quarter of 2015, APRA cautioned that growth above 10% in loans issued to property investors would “attract concern and possible action”. It also recommended that lenders should incorporate buffers of at least 2 pp. above loan product rates and a floor lending rate of at least 7% when assessing borrowers’ ability to service loans.
Hong Kong: Between 2010 and 2013, the Hong Kong government introduced the following cooling measures:
In February 2013, the government introduced more demand-side measures:
The Hong Kong Mortgage Corporation announced that only mortgage loans on properties with a value of HKD4 m or less will be eligible for the maximum mortgage insurance cover of 90% LTV. Properties with a value of HKD4.5 m or more will only be eligible for the maximum insurance coverage of 80% of LTV, with the cap remaining unchanged at HKD6 m.
In the seventh-round of measures announced in February 2015, the Hong Kong Monetary Authority imposed the following:
Singapore: In January 2013, Singapore increased the stamp duty for house purchases by between five and seven pp. In addition, permanent residents will have to pay the additional tax when purchasing their first homes, whereas Singaporeans are subject to the levy with their second purchase.
The government also tightened the LTV limits for buyers seeking a second mortgage as well as increased the cash down-payment requirements for second loans from 10% to 25%. In addition, Singapore also imposed the following supply-side requirements:
United Kingdom: In July 2014, the Bank of England announced:
In Section 2, we stated that there is a need to improve housing affordability by making supply more responsive to demand, by either reducing the time period required to build houses or ensuring a steady supply of affordable homes. This section builds on that position, and analyses possible measures to make housing supply more elastic.
Our analysis of house-building focuses on the agents responsible for producing housing – firms and related public agencies – and places them within the context of the national business system. A concept rooted in institutional economics, the national business system is defined as a set of interlocking structures and institutions in different spheres of economic and social life that combine to create a nationally distinct pattern of organizing economic activity29.
The national business system in turn operates against the backdrop of the national procurement system for housing, which – as will be explained – erects institutional barriers which impede efficiency.
A structural analysis of the Malaysian national business system for construction highlights the issues of fragmentation between firms and the choices these firms make as a result of such a structure.
This analysis was augmented by case studies of five Malaysian housing developers and comparing them with one firm from the Philippines. The case study highlighted the following symptoms of fragmentation:
(Appendices 3 and 4 provide a more detailed explanation of the concepts and methodology employed).
Given these barriers to improving the cost- and time-efficiency needed to create a more responsive housing supply, supply-side interventions are therefore required.
The National Procurement Route for Housing in Malaysia
The main actors in the national business system for housing construction are the housing developers, architects and designers, and contractors who operate within the context of the national procurement system.
Traditional general contracting: the national procurement route for housing
In Malaysia, the main procurement route used for property construction is traditional general contracting (TGC – see Box 4)^31^, where there is a clear demarcation between the actors undertaking the design of the project,and those undertaking the construction. Although other alternatives exist32, the main reason given by practitioners for retaining TGC – otherwise known as ‘design-bid-build’ – is familiarity bred by long-term use by consultants and key advisors to construction projects33.
TGC is also mandatory for publicsector clients because the system fulfils the key requirements of transparency and accountability required for public projects34. Another reason cited is that most clients are not “repeat” or “experienced” clients, and therefore do not possess the necessary knowledge nor expertise to evaluate the choices made available to them when making decisions about the construction project35.
Historically, the separation of roles between the client, the architect and the contractor – otherwise known as fragmentation – has been a phenomenon of social organisation for construction sectors in countries that were under British colonial rule, including Malaysia. This social organisation is expressed within the particular procurement route for construction projects in Malaysia, known as traditional general contracting.
The British system is governed predominantly by professional regulation. Since the 19th century, the construction business system in the United Kingdom (UK) has
been based on the separation of design and construction, with the former being undertaken by architects and engineers bound by strong professional loyalties. The professional bodies are responsible for setting entry qualifications, accrediting educational courses and for determining the scope of the works carried out by their members. An architect not only leads the design team (for buildings) but also acts as the client’s representative in managing the works36.
On the other hand, contractors have traditionally been appointed through a competitive tender based on fully detailed drawings accompanied by a “bill of quantities” prepared by a quantity surveyor. The contractor acts as a “general” contractor, appointing and co-ordinating the specialist subcontractors and taking overall responsibility for delivery and for the quality of the final output. Under this system, there is strict separation of responsibilities, with the architect taking overall responsibility for the design and being required to approve any variations (proposed by either the client or the contractor)^37^.
Fragmentation between design and construction reduces efficiency and raises the costs of production. One result of fragmentation of the construction process has been the low level of investment in research and development (R&D) within firms in the construction industry in several countries38. Fragmentation between design and construction, and within the production process dominated by the main contractors and trades contractors, reduces clients’ effective power over the process, and therefore their ability to manage the process effectively.
Some clients, in their attempt to achieve greater control of the construction processes, have internalised the “project management” function within their own organisation to overcome the problems of fragmentation of the production process and thus ensure the overall success of the construction project39.
The problems that have emerged from the structural fragmentation of the construction process in countries that follow the professional system have been highlighted in several reports and studies:
National Procurement System for Housing
How are Houses Supplied? The National Construction Business System and TGC at Work
A typical construction project for a building will be initiated by the owner of the land, ie the client. Thereafter the following processes take place:
This method of production in construction follows the Royal Institute of British Architects (RIBA) Plan of Work, and typifies sequential interdependence of work45.
The national business system can also be illustrated in the form of a production value chain for housing (Figure 25).The four main components in the value chain are defined as follows:
Components (1) and (2) are embedded in the “Design” phase, while (3) and (4) form part of the “Construct” phase of the project.
Source: Adapted from Campagnac et al. (1997)
National Procurement System for Housing
Contracts that support TGC
Within the TGC, two contracts play a role and act as interface between the two main phases of the construction project. The first transaction – denoted A in Figure 25 occurs when the client initiates the project and explains to the architect the needs and financial limits to be taken into account. This transaction is governed by the professional system in Malaysia. The architect, together with the other members of the design team, prepare alternative proposals for the client during the definition phase. In this phase the contracts that bind the architect (and the other consultants) to the client are the “Letter of Awards” and “Terms of Engagement”46.
Two underlying principles appear to underpin these contracts:
Once the client accepts the design proposal made by the design team, the proposal will go through a series of improvements during the description stage. Thereafter, the second contract is prepared to effect Transaction B in Figure 25, which is used to select the contractor from the market.
Currently, the most common selection process is open tendering based on price. This is because the building plans, drawings and technical specifications of the design (prepared during the ‘design’ phase by the architect and designers) will have been sufficiently detailed to provide the information necessary for contractors to submit the tender. During this exercise,the quantity surveyor will be the “control actor’” for the client in terms of providing advice on the tendered prices48. After the contractor has been selected, a contract will be formed by the client and the contractor.
The contract that supports this transaction is the Persatuan Arkitek Malaysia (PAM) Standard Form of Building Contract 1998, which is based on the JCT Forms of Contract used in the UK49. The contractor then builds the structure and does the installation and finishes of the facility. Finally, the finished constructed facility will be delivered to the client50.
National Procurement System for Housing
The Project Environment and the National Business System
The Malaysian construction industry is characterised by the one-off nature of construction projects, because most construction projects have definite project durations and the project organisation is of a temporary multiorganisation structure. Construction demand is a series of one-off projects,each with its own unique design, tendered competitively on price, and with its own temporary project coalition, ie groups of firms which contract temporarily to complete these one-off projects. Set against the naturally volatile nature of the construction industry (Figure 26), contractors tend to focus on the acquisition of new contracts rather than focusing on efficiently delivering projects currently in hand.
Source: DoS (various years), IMF (2015), KRI calculations.
GDP is at constant price.
Recovering from the downturn in the aftermath of the 1997 Asian Financial Crisis, the Malaysian construction sector – which contributes approximately 4-5% of GDP 51 – has continued to grow steadily, driven, among others, by consistent demand for infrastructure projects in addition to housing.
Six case studies were conducted in order to examine the mechanisms adopted by firms to implement good order and workable arrangements in their construction projects. Five case studies were of firms from Selangor, Johor Bahru and Pulau Pinang in Malaysia52, and one case study was of a firm from the Philippines
Malaysia Case Studies
Six criteria were devised to identify eligible participants for the case studies in Malaysia. These criteria suggest that the companies selected have had experience and are successful in building houses and therefore can provide the “highest resolution” in terms of giving their perspectives on the subject matter being investigated. (Refer to Appendix 4 for a detailed description of the case study methodology used for the study)
The Criteria Were:
A group of experienced developers were selected to provide insights as to how their organisations performed within the institutional framework as well as instituting economic governance53 in the multi-organisation created for the selected projects54.
The selection of the construction projects was also based on predetermined criteria to provide consistency in the types of development under analysis in order to produce the high resolution needed in describing the patterns and themes observed. These criteria were:
All data were collected on a confidential basis both within and between cases. For this reason, information which might reveal the identity of the cases is not used.
Source: Ismail (2012) HD: Housing development companies
The projects undertaken by the housing development companies have all achieved 100% sales during the first year of launch to the public. All of the housing developers interviewed have won awards for building good quality homes.
The sales patterns of the housing products from the housing developers to the final consumers for all five case studies is similar. For example, the developers will launch their products in the first month, and when there is a 70% take-up rate from the market, they will start construction on site. Due to the fact that they are recognized for delivering high quality products, they normally and frequently will achieve 70%-80% percent sales within three months of the product/ housing launch. One particular developer enjoyed 100% total sales within two weeks of their launch.
Two of the companies have internal architecture and planning departments. All five have internal project management departments.
In terms of contractors:
The five case studies demonstrated the following basic characteristics of the national housing business system, within the context of TGC:
The case studies revealed the following governance structure (Figure 28):
Overall, the five case studies show that the consolidation of the main players in the temporary project coalition (developer, architect, quantity surveyor, contractors, etc.) led to better working arrangements between the parties involved. For example, adaptations in pricings due to variation orders can be made in a sequential way without the need to consult or revise inter-firm agreements. The changes in the materials used or quantity adjustments to materials (as a result of design changes) are also made internally whenever the need arises.
However, the efficiency of the temporary project coalition in terms of management did not transcend inefficiencies due to the technical production discontinuity of the project. The actors of the project behaved as one entity in terms of producing “workable order” as an organisational construct (decision-making and adaptation) but not in terms of technical continuity (a production construct).
The consolidation also did not lead to any improvements in productivity nor did it create any incentives to invest in R&D of construction technology to reduce construction costs. The design did not take into account ease of assembly on site, nor were any new techniques of construction developed between the design and construction team.
Therefore, consolidation − with no improvements in either the speed of delivery or productivity − appears to be a missed opportunity in terms of product innovation and the ability to reduce construction costs.
Source: Adapted from Ismail (2012)
1. The dark green coloured boxes represent the governance structure that was used in the five case studies.
8990 Holdings, Inc.
The case study from the Philippines, 8990 Holdings, was selected based on similar criteria to those used for the selection of the Malaysian case studies. This case study was also selected due to its product innovation and the associated reduction of production costs that has been passed to home buyers, and has made their houses more affordable to the general public.
Located in Mintal. Davao City, Philippines. Two bedroom houses start at PHP715,000 (approximately RM57,200 at market exchange rate).
Source: With permission from 8990 Holdings, Inc.
8990 Holdings, Inc. (“the Company”) is widely recognised as the most successful company in the Philippines in the area of providing affordable housing to low- to middle-income earners. It has received several awards such as Q Asia Magazine’s best housing developer for the years 2012 and 2013 56.
The Company reported a gross income of 3,389.1 million pesos or USD76.3 million for the year 2013. The gross income margin for the Company in 2013 had increased to 63.3% compared to the figure for 2012 which was 62.2%. This increase was attributed to the acquisition of land banks and to its efficient project budgeting process.
Focus on mass housing market
The Company launched its mass housing project under the DECA Homes brand in 1991. These projects were developed in high growth areas across Visayas, Mindanao and Luzon. More than half of its home-buyers had a monthly gross (individual) income of more than PHP25,000 (RM2,000) while 18% of home-buyers had incomes of PHP8,000- 15,000 (RM640-1,200) (Table 10).
The Company also offers a financing scheme for consumers who do not have enough accumulated savings for a downpayment, but do have enough recurring income for monthly amortisation.
Construction materials, methods and technology
Rather than using traditional building methods, the Company adopts a pre-cast construction process which accelerates the completion of its housing projects. Through continually investing, upgrading and utilising the technology (see Box 5), the Company is capable of constructing townhouses and single attached units within eight to ten days, taking an additional five days to construct singlestorey houses with lofts.
The pre-cast is manufactured in a controlled casting environment. This makes it easier to control the mix, placement, and curing, which facilitates quality control. The panels created from the pre-cast moulds can withstand approximately four times as much pressure per square inch than traditional cinder block structures.
The technology has also contributed towards reducing the construction cost, particularly labour costs, as the construction phase is shorter than the average time required to construct housing using traditional building methods.
The quality of the Company’s project was tested during the earthquake in October 2013 which affected Cebu and Bohol. Independent structural engineers commissioned to inspect the units in the projects that were affected stated that there was only minor superficial damage and that the units remained structurally stable and fit for occupancy.
Source: With permission from 8990 Holdings, Inc.
Integrated procurement and business systems
_ Framework agreement with key material suppliers _
The raw materials used for the Company’s housing development projects are sourced from domestic suppliers, and the Company maintains relationships with 200 of them. They are selected according to a set of criteria which include the quality and prices of raw materials supplied, reliability of supply, delivery time as well as the financial and industrial strength of the supplier.
The Company’s strategy is to use bulk supply contracts which allow it to negotiate for lower prices due to the high volume of transactions. Because the Company – instead of its contractors – handles the purchases of materials directly, only the cost of labour and profit in the bill of estimates is negotiated with the contractor. This gives the Company more control over the cost of materials.
materials earlier than the date of commencement of work on site. These purchases are done in cash. This is in contrast to other Filipino developers who usually work through an association to negotiate with the suppliers for better pricing deals for future projects. However, there is no guarantee as to when the projects will commence, which leads to an unstable cash flow for the suppliers. Furthermore, the association uses a 30-day credit loan, which restricts the suppliers’ cash flow.
In the case of 8890 however, the payment in advance enables a healthy cash flow for the supplier without facing pressure to produce the materials immediately. This gives an advantage to the Company, as the suppliers are more willing to provide the materials at a cheaper price owing to the commitment it has made. Hence, the Company is able to reduce its material costs, which increases its profit margin as the materials are cheaper than the market and discounted association price.
The Company is also able to gain more control over the cost of materials through advance payment as it can lockin the relevant prices. This works well especially in the case of price-sensitive materials such as steel. Finally, advance payment allows the company to receive the items only when they need them so it does not have to incur high storage costs on site.
_ Integrated production system _
Similar to other developers, the Company outsources the site development and construction work. However, rather than going through the usual tendering process, the company uses a system of inhouse nomination whereby it has a list of pre-qualified and accredited independent contractors at its disposal.
Formal arrangements with the contractors ensure that they work exclusively for the company. The long-term relationships and the training provided by the company to the contractors. This, the Company claims, has generated a high level of trust between both parties and create a successful working arrangement which, in turn, increases the efficacy of the development projects.
Since the Company operates with the same group of contractors, communication is easier as both sides are familiar with each other’s working cultures. Frequent coordination meetings are held with the contractors to ensure that the constructed facilities meet the technical design specifications. During the early days of the Company’s establishment, more emphasis was placed on training the selected contractors to meet the high design and construction standards of the company.
As the relationship of the Company and its contractors developed over the years, the good working conditions have enabled all parties to contribute to the continuous improvement of the design and construction of the houses. The Company states that using contractors who are experienced with the DECA Homes Pre-cast Technology (see Box 5) has enabled greater efficiency and higher precision of construction on site. Thus the company is able to shift its focus from explaining and instructing to the design and construction detailings.
_ Maintenance _
The final phase of the process is maintenance. This is important in enabling residents to continue enjoying their residential units after they have been purchased from the developers. The normal procedure is that after the housing units have been built by the developers, the amenities are given to the home owners’ association or the local government to be maintained and preserved.
However, the company adopts a different strategy whereby some of the amenities are not turned over and are therefore retained under their management. These are usually the larger and more complex facilities such as its lakes and waterpark amenities. This is because the company has more resources to ensure the maintenance of these special amenities.
This leads to a lower risk of the amenities being neglected and deteriorating, as the company itself controls the maintenance. Furthermore, the company is able to earn extra income as it can charge the public for using the special amenities (although residents of their housing projects are able to use them for free).
With the continuous investment in training for in-house contractors, the Company is able to shift its focus from explaining and instructing the contractors to refining the construction technology and processes. In this way, it ensures that the technology created can be executed on site.
The Company believes in building houses that would create the physical environment and space to nurture families and communities. This can be seen from their commitment to building spacious homes and relatively low-density developments even in mass housing schemes (see Figure 29 and Figure 30).
In terms of the housing production value chain, the case study highlighted the following characteristics demonstrated by 8990 Holdings (Figure 31):
[“Being in the housing business is not all about business. It’s also about changing lives” JJ Atencio, President and CEO of 8990 Holdings in an interview
with Khazanah Research Institute]
What are Our Limitations in Producing Affordable Homes based on Current Institutional Context?
The New Way – A New Institutional Structure for a New Method of Production
These conclusions (Table 11) suggest that the consolidation of the supply chain follows best practices as exemplified by 8990, whereby firms themselves invest in adopting new technologies as well as in training site operatives to execute the newly introduced technology.
We propose that the relevant government agencies work with a select group of committed and experienced companies who will have a framework agreement with the material supply section in order to improve the overall efficacy of the delivery of housing units.
The economics of governance is an effort to implement the study of good order and workable arrangements (see Appendix 5). Therefore the alliances of firms will need to be anchored within a new designated national procurement system. This entails a move away from using the TGC procurement route towards a design-and-build or turnkey governance structure.
The new structure is designed to change attitudes and alter the way in which members of the professions and contractors interact with one another, with a view to creating a fully motivated and cooperative building team and removing the duplication of effort between designers, quantity surveyors and contractors, which is prevalent under the TGC governance structure.
The nature of the integrated approach should promote the creation of designer– contractor–supplier clusters. Figure 32 shows the difference between the existing and the new proposed governance structure.
The suggested structure has the characteristics listed below:
In this report, we consider the problem of supplying affordable houses to the general public from the perspectives of both an institutional arrangement (national business system) and the firms (industry value chain analysis and the economics of governance). This is based on the premise that improvements are needed at the level of construction projects and firms in order to increase the affordability of houses at the national level.
The recommendation for institutionalising reforms and restructuring the procurement system is important since it will improve the overall efficacy of the firms that are involved in the production process in terms of time, costs and quality at the construction project level. This will lead to cost efficiencies for the housebuilding industry.
If the restructuring of the procurement system is not made to reflect the new production value-chain, then firms will not have the opportunities to innovate or invest in technological advancements. This is the primary recommendation of this report: the creation of a conducive institutional and governance structure for firms to anchor their new production methods.
As demonstrated by 8990 Holdings, a willingness to participate in the wider concerns of building liveable cities and communities will ensure that these cost efficiencies will be passed to housing consumers. But more importantly, these measures have proven to be a sustainable business model and financially viable for the company and its allied industries in the long-term.
The policy recommendations and the actions needed are interlinked supply-side interventions to the housing market:
It is encouraging to note that some of these policy measures have been outlined as recommendations in the recently-released 11th Malaysia Plan (Refer to Appendix 7).
Develop Measures to Improve the Efficacy of the Construction Industry’s Delivery System to Supply Housing at Affordable Prices
The existing national business system for construction is one which is highly fragmented, underpinned by a rigid procurement system that provides little incentive for innovation, which in turn reduces efficiencies and keeps costs high.
Property developers rely on construction firms to innovate without themselves investing financially in R&D and innovative production methods. Contractors on the other hand depend solely on external IBS or proprietary systems. Lack of training for construction workers will mean that the design will not be able to be assembled on site.
The policy recommendation is to develop a designated procurement route to consolidate the resources of the firms involved in delivering affordable houses.
The 11th Malaysian plan has in its Strategy D2 (see Appendix 7), a focus on driving productivity by increasing technology adoption, modernisation of construction methods and on reducing dependency on low-skilled labour.
It also encourages the adoption of the IBS by the industry through revision of the public procurement policy and Uniform Building By-Laws; as well as wanting to improve on existing regulations to ease construction-related business processes. The below policy recommendation and steps will attain the desired objectives of Strategy D2.
The blue coloured boxes represent the suggested new governance structure.
Key Findings and Policy Recommendations
Develop Measures to Reduce Pressures Leading to Rapid House Price Escalation
Land is a derived demand and the rapid escalation of house prices will induce bidding for land prices to their maximum potential returns away from other types of competing uses. From 2000 to 2014, the Malaysian house price index showed a compound annual growth rate of 5.6% as well as an overall increase of 131.5% in house prices.
Short-term speculative behaviour will only serve to increase house prices and therefore the derived demand for land in an artificial way, but the impact is permanent. As can be seen from the house price theory and the dominance of existing stocks from incoming flows, the existing stock of houses will determine the prices of new stock. Ceteris paribus, when no other cost items are increasing, the high economic rent of proposed new stock will be used to bid higher prices for land. This creates a vicious cycle of escalating land and house prices.
The policy recommendation is to impose a moratorium of five years on selling houses that are built through the new designated procurement route:
Develop Measures to Plan for a Steady Supply of Housing at Affordable Prices
It is difficult to plan for a steady supply of stock that will effectively reduce the inflationary pressures of an inelastic supply when effective demand can neither be estimated at the state nor the mukim level.
Effective demand for housing is dynamic in nature since it reflects the demographics and future prospects of the local population at each specific site. There is also an internal dynamism at the level of the individual family in terms of the types of housing demanded according to family composition and the progressive changes in families’ income in the long term.
While the objective of the National Housing Policy59 is to provide adequate, comfortable, good-quality and affordable houses to improve the well-being of the people, it does not provide the data and evidence on this housing need or on the effective demand that would be necessary to implement the policy in a coherent and sustainable manner.
The policy recommendation is to undertake a National Housing Survey.
The 11th Malaysia Plan60 has highlighted the mismatch in demand and supply for affordable housing. The document highlighted the escalating House Prices in Major Cities (following the World Bank Affordability Index which is three times the annual household income) and cited the lack of integrated planning and implementation as one of the reasons for this problem. In Strategy B2: Strengthening planning and implementation for better management of public housing, the document recommends the establishment of an integrated database for all relevant stakeholders (to ensure housing supply matches demand according to locality, price and target groups). The policy option of creating a National Housing Survey as detailed below will have the desired outcome of Strategy B2.
Key Findings and Policy Recommendations
The demand- and supply-side survey and analysis performed for each state could be repeated every five years to reflect the dynamic and organic nature of housing programmes.
As shown in Figure 34, the National Housing Survey will provide input to each State to enable it to plan for adequate and suitable housing stock to meet the different needs of the general population at strategic locations. The state and local councils would be required to monitor the quality and quantity of these new housing stocks and provide more information (input) for the next National Housing Survey.
In most developed countries, issues of affordability for the economically disadvantaged are dealt with through social housing schemes. Social housing is seen as a necessary means of ensuring a decent home for all. However, in certain countries, this means housing very few households directly, while at the other extreme, the scale of provision can be as high as one in three households. The trends in Malaysia suggest that both the bottom 40% and the middle 40% of household income earners are likely to end up in some form of social housing if the relevant interventions are not made urgently.
The available evidence suggests that unless immediate action is taken, the provision of social housing for the vast majority of the population will put unnecessary financial pressures on government spending. It makes more economic sense to ensure that the purchase of a home is financially viable to the general public than it does to rely on existing models for the provision of social housing.
The calculation of average and compound annual growth rate (CAGR) follows DoS’s method of calculation in the Household Income and Basic Amenities Survey publications.
Average annual growth rate
Compound annual growth rate
We present a stylised model describing how perfectly rational actions by agents in the housing market may still lead to inefficiencies in equilibrium price outcomes and, consequently, to a possible asset bubble. An influential paper by Bernanke and Gertler (1999) states that an asset bubble exists whenever the market price of the given asset, St, differs from its fundamental value, Qt, defined as the present value of the dividends (or returns) the asset is expected to generate. Furthermore, they formally describe asset bubble persistence, where they assume that if a bubble exists at date t, it persists with probability p and grows as follows:
with p < a < 1. a is a time friction factor and is included to make the more realistic assumption that events in time t do not translate one for one to events in time t+1. However, note that because a/p > 1, the bubble will grow until it bursts.
The concept of a bubble is not unfamiliar in the housing market literature. For instance, research by Haughwout et al. (2011) find that speculative behaviour driven by highly leveraged loans was “much more important in the housing boom and bust during the 2000s than previously thought.” Put another way, speculative behaviour contributed significantly to the United States housing bubble of the 2000s that ultimately led to the global financial crisis of 2008 and 2009.
The question that arises is how does speculation occur and how does speculation persist. These questions are important in relation to affordable housing for two reasons. First, as mentioned above, speculation may lead to bubbles and bubbles are tricky to navigate and they force authorities to make difficult decisions based on highly incomplete information, which may have severe negative consequences. For a more detailed discussion, see Bernanke (2002), Assenmacher-Wesche and Gerlach (2008), Bernanke and Gertler (2001), Bordo and Jeanne (2002), Kohn (2006), among others. Second, if we want affordable housing to live up to its name, then any instance where market prices for affordable housing deviate from the true value of affordable homes is undesirable and hence, must be curbed.
The first question is in the realm of monetary policy which is best discussed elsewhere. The second, however, is within the scope of this report. We use a simple herding behaviour model, first developed by Banerjee (1992), to show how even the actions of one single speculator in the housing market may lead to a Bayesian Nash equilibrium where every house is sold for more than its market value – for entirely rational reasons, as opposed to the “animal spirits” of Akerlof and Shiller (2009) – thereby potentially defeating the purpose of affordable housing. In fact, herding behaviour has been shown to meaningfully impact housing prices. Research by Baddeley (2005) argues that the housing market is more effectively
modelled when bubbles, herding and frenzies are introduced into the analysis. This is corroborated with evidence from Hott (2009) who finds that herding is able to explain price bubbles in Switzerland, the Netherlands, the United Kingdom and Japan much better than the fundamental price.
The Herding Model
The model setup is as follows. A housing sellers’ population of size N is trying to decide the price at which to sell their houses. We can index these prices as p ϵ [0,1] with 0 representing the market value for the house. The distribution is uniform. Note that each point in the range [0,1] is just an index for a price. There is a unique p* such that u(p) = 0 for all p ≠ p* and u(p*) > 0. No one has perfect information and, consequently, no one knows p* for sure. Essentially, p* is the highest price that a seller can sell her house at in the market given all possible constraints in the economy 61 . Each seller in the population receives a signal telling her that the true p* is p~ with probability
α. However, the signal need not be true, and the probability that the signal is false is 1 – β.Therefore, each seller may or may not receive a signal and conditional on receiving a signal, that signal may or may not be true.
With this setup, the next step is participating in the housing market itself. Clearly, an assumption here is that there is always more than sufficient demand for houses; otherwise, a lack of demand would mean that housing prices could not increase through speculation. So, of the N sellers, one person, chosen at random, takes her decision first on the price at which she will sell her house. The next person goes next but is allowed to observe the choice made by the previous person although she does not know for certain whether the person before her actually got a signal, since each seller only receives a signal with probability α. After everybody has made her choice, payoffs are realised, and the game ends. The structure of the game and the assumption of Bayesian rationality (updating of priors at every stage) are common knowledge. Therefore, each person’s strategy is a decision rule that tells us, for each possible history, what that person will choose.
If everyone acts rationally, we can identify a Bayesian Nash equilibrium in these strategies. The nature of the equilibrium play, however, depends on three critical tie-breaking assumptions which are:
Assumption A – Whenever a decisionmaker has no signal and everyone else has chosen p = 0, she always chooses p = 0.
Assumption B – When decision-makers are indifferent between following their own signal and following someone else’s choice, they always follow their own signal.
Assumption C – When a decision-maker is indifferent between following more than one of the previous decision-makers, she chooses to follow the one who has the highest value of p.
Assumption A basically states that the “default” sales price is the value of the house; if there is no updating of information from others, and a decisionmaker has no signal, then she has to sell at the house value. Assumption B states that everyone’s signal is of the same quality as the others and choosing their own signal is just a tie-breaking choice. Assumption C states that given when the decisionmaker values all other signals equally, she will make a tie-breaking choice to pick the sales price that is of the highest index.
With the model setup and assumptions as described, Banerjee’s key result is a proof that shows that once one option has been chosen by two people, the next person should always follow that option unless her signal matches one of the options that has already been chosen; in that case, she should follow her own signal. A full description and proof of the equilibrium are given in the paper. Figure I is an illustration of what each decisionmaker would do depending on whether there was a signal or not and given the history of choices made, and thus the Bayesian Nash equilibrium of the game.
Banerjee states that the equilibrium decision rule in the model is “… characterized by extensive herding; agents abandon their own signals and follow others even when they are not really sure that the other person is right.” For instance, if the first person chooses p > 0 and the second person follows her, the third person will always follow the first two according to Banerjee’s proof. All subsequent decision-makers will also choose the same option. Another instance of herding is where the first and second person, and the third and fourth person choose different options. After n ϵ N options have been chosen, if the next decision-maker does not have a signal, she will choose the option with the highest value of p that has already been chosen. Following this, all subsequent decision-makers will choose that value of p unless one of their own signals matches one of the options already chosen, which can happen only if the optimal p* has already been chosen which, as we know, is given by probability β. Thus, there will be herding at an incorrect option unless the first decision-maker to have a signal made the correct choice, or someone coming after her, but before the first subsequent decision-maker without a signal, made the correct choice.
In fact, we can calculate the probability that no one in the population chooses the right option. This probability is given KHAZANAH RESEARCH INSTITUTE 90 by [1 – α(1 – β)]-1(1 – α)(1 – β). Thus, the probability that no one chooses the optimal option is decreasing in β and in α. Intuitively, if the probability that the signal is optimal is decreasing and if the probability that a decision-maker gets a signal is decreasing, then the probability that no one in the population chooses the optimal option will decrease as, firstly, their probability of getting it right is lower and, secondly, the probability of getting the opportunity to get it right is also lower.
Tying this back to the price of affordable housing, we can then easily see how the final p chosen in the setup will not be at p = 0 as long as α > 0. As long as one individual gets a signal that they should sell at p > 0, herding will occur and is likely to be at suboptimal levels62 . Therefore, all it takes is for one individual to convey the wrong signal and we can get a market that is highly speculative and may lead to a bubble. The bursting of a housing bubble can have dire consequences. A 2003 World Economic Outlook report estimates that while equity price crashes were associated with a 4% decrease in gross domestic product (GDP), housing price crashes were associated with an 8% decrease in GDP. The report also lists five reasons why housing busts are more severe than equity busts: housing price busts have more substantial wealth effects on consumption, are associated with stronger and faster adverse effects on the banking system, are more likely to have been preceded by a boom so that there are larger imbalances to be unwound, are more likely to be associated with generalised asset price bear markets or even busts, and are associated with tighter monetary policy. Thus, rather than risk the possibility of a burst housing bubble, it may be prudent to prevent possible bubbles in the first place and thus curb speculation on affordable prices that arises from herding which will, in turn, contribute to ensuring that affordable houses are, indeed, affordable.
Multiple Case Studies
The research took a process approach that regards human conduct as a process of “becoming” and aims to “capture” this reality in context63. Social processes are deeply embedded in the contexts that produce and are produced by them64. Consequently, it is important to examine the contexts concerned (at the organisation and project coalition levels) and how firms interact with each other within the traditional general contracting governance structure.
The method advocated here is a multiple case survey, the essence of which is the articulation of new insights and pattern recognition across cases. Therefore there must be a sufficient number of case studies to allow for meaningful frequency counts across the cases and to enable the study to attain some measure of “replication logic”65. The unit of analysis is the production units of the project, which are defined here as those responsible for architectural design, for project management and for actual construction. The basic fieldwork approach is the case study, and the objective is a metaanalysis of existing cases and the lines of enquiry follow “replication logic” in their formulation.
The essence of a case study is that it tries to illuminate a decision or set of decisions, including: why they were taken, how they were implemented, and with what results 66.
It is often useful to get an idea of how the mechanisms within the units of analysis (say within a situation) are affected by the causes, and produce the effects. It is necessary to have an indicator of whether the individuals or organisations are thought of as a backdrop against which the variables act, or as actors who take account of the variable and produce the effect67.
Theoretical Sampling and Data Saturation
Theoretical sampling is concerned with theory construction and the concern is to check and refine the researcher’s emerging categories of the phenomenon68. Strauss and Corbin69 suggest that sampling should be directed by the logic and types of coding procedures used in analysing and interpreting data. The method of analysis used in this situation is described as open coding, and sampling is open to those people, places or situations that would provide the greatest opportunity for discovery.
The following criteria were devised to correctly identify eligible participants for the case studies in Malaysia. These criteria suggest that these companies have had experience and are successful in building houses and therefore can provide the “highest resolution” in terms of giving their perspectives on the subject matter being investigated:
The selection of the construction projects was also based on predetermined criteria to provide consistency in the types of development under analysis in order to produce the high resolution needed in describing the patterns and themes observed. The criteria are as follows:
In this sense, the housing developers are preselected according to a set of criteria that typifies a group of expert clients and therefore there exists only one category on the axial coding. This gives consistency to the axial “line” and enables the research to focus the analysis of the nodal codings or label phenomena that that will emerge from the data. It was also considered important that the projects selected (a subset of the “axial coding”) are also deemed to comprise one category in order to provide a “constant” axial code to the phenomena under scrutiny.
The case study from the Philippines complied with the above set of criteria in the host country with the exception of item (2) for contract documentation.
The case survey methodology must be applied consistently to all cases selected for the study and requires the standardised collection of some key data. It was therefore decided to use a more structured research instrument than is normal with case studies. The instrument formed the basis of interviews with key informants in the cases studied. The aim was to interview the professionals responsible for the design and construction process, and for the management of the total process. Each set of interviews, together with supporting documentation, was written up as a case study and returned to each of the informants concerned for validation. Their comments were incorporated in a second version of the case study, which formed the basis for the data analysis. A feedback session was held at the end of the analysis. The purpose of this feedback session was to enable the researcher to present and discuss key findings of the research with the informants.
Analysis of Data
A case study protocol is aimed to collect data from each case study and to guide the researcher in writing the case study report for each project70. The protocol developed for the case studies in Malaysia had the following elements:
This is the recommended way of writing up a case study project; bearing in mind that Yin71 suggested that there is no uniformly accepted outline and that it is rare that each case study will be reported as part of a thesis in its entirety. The most important element is that a case study protocol will assist the investigator with the collection of relevant data, in the appropriate format, and will reduce the possibility that a return visit to a case study site will be needed. At the same time, the existence of such an outline should not imply rigid adherence to a predesigned protocol. One needs to be a result of the initial data collection and that this flexibility is to be encouraged and can be beneficial to a case study strategy.
The main aim of interpretation is to discover the perceptions and experiences of the participants so that the researcher can identify themes. These themes are then grouped into categories that relate to the phenomenon under investigation. Data are transcribed from interviews and coded using an “open coding” technique72. The open coding technique is a process of discovering the properties and dimensions of the concepts contained in each of the interviews. It allows the researcher to expose the thoughts, ideas and meanings contained within the text of the interviews. In the open coding process, data is broken down into discrete parts, closely examined and compared to detect similarities or differences. This allows the researcher to identify concepts or label phenomena.
The coded interviews are then set aside with each concept or phenomenon (nodal coding) clearly identified and labelled. This process is repeated with the information gathered from each additional interview from the same case study to add to the facts or to confirm the existing nodal coding. Different participants in the project were asked to give evidence about the phenomena that they observed. This data was then compared with the evidence from documents and records of the project. This multi-method data accumulation is also known as triangulation, which approaches the observed phenomenon in question from different methodological standpoints. Each case study is written in this manner and a cross-comparison of nodal coding within the different case studies is done. At the end of this process, the researcher can draw cross-case conclusions and review the new coded data or “patterns” and compare them with the existing theory and literature.
Internal and External Validity
A good research design is judged by the way it approaches the two issues of comparison and control. Leedy and Ormrod73 posed two basic questions that demonstrate the validity (accuracy, meaningfulness and credibility) of a research project:
Question (1) concerns the internal validity of a research project and whether its design and data allow the researcher to draw accurate conclusions from the study. In this report, internal validity is addressed by triangulation of the collected evidence. Data is collected from multiple sources to support the theory and this approach is especially common in qualitative research74. In this study, the researcher conducted in-depth interviews, made informal observations and collected evidence from the project records and minutes of meetings. The researcher could then look for common themes that appear in the data collected by these three methods.
Question (2) addresses the external validity of the research, by asking to what extent the conclusions of this particular study can be generalised to other contexts. The concepts of internal and external validity originated in discussions ofexperimental design75. However, qualitative researchers have begun to question their relevance to qualitative designs76. This is because there is a clear difference between “experimental science” and the naturalistic study of human phenomena. In the former, specificity is a key issue. Natural sciences research is aimed at “generalizable findings” and therefore may have general implications for theory. However, with studies of human behaviour, generalisation from one group of people to another, or from one institution to another, is often suspect. This is because there are too many elements that are specific to a particular group or institution. Lincoln, Guba and Cresswell77 have even suggested that words such as credibility, verification, dependability, conformability and transferability be used instead of the term validity.
Carson et al.78 suggest that credibility, dependability and conformability can be achieved by the following:
Each of these strategies must be considered and certain criteria have been proposed for use in evaluating credibility, dependability and conformability of qualitative findings. The present study used the following strategies and techniques:
Economics of governance
The economics of governance is an effort to implement the study of good order and workable arrangements, whereby it includes both spontaneous order in the market and intentional order in firms79. Spontaneous order in the market has been a venerated tradition in economics, and the interplay of supply and demand, ie the price mechanism, has been the defining factor in allocating scarce resources for their chosen uses80.
Intentional order, on the other hand, is “conscious, deliberate, purposeful” resource allocation, undertaken by the management of a firm81, but within the general institutional arrangements (in this case the national business system) in which the firms operate. Workable arrangements mean “feasible modes of organisation”, with the hypothetical ideals between the two extreme ends of the spectrum of markets (spontaneous) and firms (intentional)^82^. The object of study is to work out the efficiency logic for managing transactions by alternative modes of governance – principally spot markets, various long-term contracts (hybrids), and hierarchies (firms)^83^.
In contrast to the orthodox approach of choices (prices and output, supply and demand), the economics of governance is an approach embedded in contract construction whereby it is observed as a “mutuality of advantage from voluntary exchange”84. In this sense, the economics of governance is principally an exercise in bilateral private ordering, insofar as the immediate parties to an exchange are actively involved in the provision of good order and workable arrangements. However, the need for private ordering varies with the institutional arrangements as provided by the state; therefore the institutional arrangements need to be explored as well.
New institutional economics
The area of new institutional economics with regard to analyses of the nature of institutions and the consequences of institutions for economic performance has developed rapidly over the past three decades into two broad approaches: North’s interplay of firms within institutional arrangements and Williamson’s transaction costs economics85.
North86 tries to explain the reasons for incremental institutional change over the years by looking at the nature of institutions involved in economic growth as well as their interaction with agents’ behaviour. For example, North87 has addressed the question of “collective action”, that is, why certain firms would want to cooperate and come together in order to procure jobs, and whether this collective action transcends Axelrod’s88 behavioural assumptions89.
North90 claimed that the deliberate effort of human beings to control their environment is the key reason why economic performances can be improved. The neo-classical approach – that competition would eliminate inefficiencies in the market and the invisible hand would fulfil the role of a “central planning unit” for coordination was a false premise. However, North qualifies that there is nothing to suggest or imply that institutions are efficient, because there is a gap between the competence of an agent in deciphering the problems surrounding the issues and the difficulty in selecting the most preferred alternatives91. Heiner92 also postulated that activities will be subject to more regularised conditions if the gap is wider. 85
North93 defines institutions as any form of constraint humans devise to shape human interactions. These constraints would include formal constraints such as rules, statutes and regulations and informal constraints such as culture, conventions and codes of behaviour. Furthermore, North94 defined organisations as a structure of human interactions that operate within the institutional arrangements. Therefore, the terms organisations and institutions were used interchangeably in North’s work.
North95 provided a useful metaphor for institutional arrangements and institutions/organisations by comparing them to the rules of a game in a competitive team sport. These rules define how the game should be played and the players’ skills, strategy and coordination then determine whether they will win the game or not. The “players” in this metaphor is a direct reference to organisations. Therefore institutional arrangements are the “reality” of the political-economic system96.
The other direction in which new institutional economics has made significant progress is with the microanalytical approach97. Following Coase, who extended his analysis of the nature of the firm98 to all modes of organisation with the concept of institutional structures of production99, Williamson100 has elaborated tools for exploring the mechanisms of governance. Based on this work, a significant amount of research and empirical testing has been performed and theories have been put forward about the different structures of governance that can support and secure transactions101.
Williamson102 considers that transaction costs economics can:
Williamson103 contends, (following Coase) that transaction costs economics can explain the emergence, the existence and the evolution of organisations by showing that they result from a constant search for ways of economising on transaction costs on the part of individuals.
A transaction following Williamson’s definition is:
…the microanalytic unit analysis in transaction cost economics. A transaction occurs when a good or service is transferred across a technological separable interface. Transactions are mediated by governance structure”
Williamson, 1975: 1, 1996: 379.
A technologically separable interface in the construction industry would refer to a service contracted from the design team and the construction team, where both teams’ activities from a production process’s point of view are perceived as being technologically separated. Although some aspects of the work might overlap, each team has its own professional institutions, and the teams are separated from each other by the existence of discrete firms, or by the different technology and nature of the work104.
This is rarely the case, however, and therefore a two-stage tendering process may be adopted. The tender documentation in the first stage will only provide sketches and a bill of approximate quantities. Contractors are invited to submit tenders on this basis, after which the successful tenderer is normally notified of the client’s intention to engage him under a contract if certain conditions are met. The final tender figure agreed will be based upon total re-measurement of the project once working drawings are available.
In negotiated contracts, a contractor can be appointed early in the design stage based on his past credentials (skills and knowledge) to provide advice on buildability, value engineering and construction methods. Subsequently, the contractor will agree on a contract price for the project before commencing work on site.
In fee-based contracts, goods and services are provided at an agreed rate as a function of an agreed parameter. Fee-based contracts are used where it is possible to identify broadly the types of resources required, but not the amount required. Such contracts are typically used in situations of high uncertainty, such as in the early stages of design, and in maintenance on a schedule of rates. Indeed, they are the predominant way of procuring architectural and engineering design services. In construction, there are two ways of letting fee-based contracts. The first is a cost-reimbursable contract, where the parameter is the costs incurred by the supplier itself on the basis of an agreed rate (frequently time-based) for the provision of the required resources (typically skilled people). The second is where the parameter is the price of the contract let for the execution of the works on site.
Incentive contracts combine features of both fee-based and lump-sum contracts. There is a wide variety of such contracts, but what unites them is the attempt to provide positive incentives within the contract to motivate performance through gainsharing between parties. Incentive contracts usually consist of a target price (TP) for the facility consisting of an estimated actual cost (ACe) for inputs required to construct the facility, plus a percentage fee to cover supplier’s overheads and profit. If outturn actual cost (ACo) is greater than the estimated ACe, then the contractor pays (ie is not reimbursed for) an agreed share of the excess; if ACo is less than ACe, then the contractor is paid an agreed share of the saving. These relationships need not be linear, and can be capped to limit the risk to one of the parties relative to the other.
CHAPTER 3: ENCHANCING INCLUSIVENESS TOWARDS AN EQUITABLE SOCIETY
[Focus area A: Uplifting B40 households towards a middle-class society
Strategy A2: Addressing the increasing cost of living]
[Focus area C: Transforming rural areas to uplift wellbeing of rural communities
Strategy C3: Improving rural-urban linkages]
CHAPTER 4: IMPROVING WELLBEING FOR ALL
[Focus area B: Providing adequate and quality affordable housing to poor, lowand middle-income households
Strategy B1: Increasing access to affordable housing for targeted groups]
Strategy B2: Strengthening planning and implementation for better management of public housing
Strategy B3: Encouraging environmentfriendly facilities for enhanced liveability
Strategy Paper: Issues and challenges
CHAPTER 8: RE-ENGINEERING ECONOMIC GROWTH FOR GREATER PROSPERITY
[Focus area D: Transforming construction
Strategy D1: Enhancing knowledge content]
Strategy D2: Driving productivity
Strategy D4: Increasing the internationalisation of construction firms
8990 Holdings, Inc. (2014). Company’s Prospectus.
Abdul Rashid, K. [Kamaluddin]. (2009). Industrialised Building Systems: The JKR Perspectives. Malaysian Construction Research Journal, 4(1), 1–9.
Abdul Rashid, K. [Khairuddin]. (2002). Construction Procurement in Malaysia: Processes and Systems: Constraints and Strategies. Research Centre, International Islamic University Malaysia.
Abdullah, N. (2001). Pengenalan Kepada Kontrak Binaan. Unit Penerbitan Akademik (UPENA): Universiti Teknologi MARA.
Akerlof, G. A., & Shiller, R. J. (2010). Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism. Princeton University Press.
Angel, S. (2000). Housing Policy Matters: A Global Analysis: A Global Analysis. Oxford University Press.
Angel, S., Mayo, S. K., & Stephens, W. L. (1993). The Housing Indicators Program: A Report on Progress and Plans for the Future. Journal of Housing and the Built Environment, 8(1), 13-48.
Aoki, M., Gustafsson, B., and Williamson, O.E. (1990). The Firm as a Nexus of Treaties. London: Sage Publications.
Assenmacher-Wesche, K. & Gerlach, S. (2008). Can Monetary Policy Really be used to Stabilize Asset Prices? The First Global Financial Crisis of the 21st Century. London: Center for Economic Policy Research, 163–166.
Axelrod, R. (1984). The Evolution of Cooperation. Cambridge: Harvard University Press.
Baddeley, M. (2005). Housing bubbles, herds and frenzies: evidence from British housing markets. CEPP Policy Brief, No. 02/05.
Banerjee, A. V. (1992). A simple model of herd behavior. The Quarterly Journal of Economics, 107(3), 797–817.
Bank of England. (2014). The potential impact of higher interest rates on the household sector: evidence from the 2014 NMG Consulting Survey. Quarterly Bulletin Surveys Articles, 2014 Q4.
Barnard, C.I. (1938). The Functions of the Executive. Cambridge: Harvard University Press.
Bernanke, B. S. (2002). Asset-price ‘bubbles’ and monetary policy. Remarks before the New York Chapter of the National Association for Business Economics, New York, 15.
Bernanke, B. S., & Gertler, M. (1999). Monetary Policy and Asset Price Volatility. New Challenges for Monetary Policy, 77-128. Kansas City: Federal Reserve Bank of Kansas City.
_____________ (2001). Should Central Banks Respond to Movements in Asset Prices? American Economic Review, 91(2), 253-257.
Bordo, M. D. & Jeanne, O. (2002). Monetary policy and asset prices: does “benign neglect” make sense? International Finance, 5(2), 139–164.
Bryman, A. (1996). Quantity and Quality in Social Research. London: Routledge.
Buchanan, J. (2001). Game theory, mathematics and economics. Journal of Economic Methodology, 8(1), 27–32.
Cagamas Holdings Berhad. (2013). Housing the Nation: Policies, Issues and Prospects. Kuala Lumpur: Cagamas Holdings.
Campagnac, E., & Winch, G. (1997). The social regulation of technical expertise: the corps and profession in France and Great Britain. Governance at Work: The Social Regulations of Economic Relations. Oxford University Press, Oxford, 86-104.
Campbell, D.T. & Stanley, J.C. (1963). “Experimental and quasi-experimental designs for research on teaching” in N.L. Gage ed. Handbook of Research on Teaching. Chicago, IL: Rand McNally, pp. 171–246.
Carson, D., Gilmore, A., Perry, C. & Gronhaug, K. (2001). Qualitative Marketing Research. London: Sage Publications.
Chan, A.P.C., Yung, E.H.K., Lam, P.T.I., Tam, C.M. & Cheung, S.O. (2001). Application of Delphi method in selection of procurement systems for construction projects. Construction Management and Economics, 19, 699–718.
Coase, R. (1937). “The Nature of the Firm” in O.E. Williamson and S.G. Winter, eds. (1993) The Nature of the Firm: Origins, Evolution, and Development. New York: Oxford University Press.
_____________ (1991). “1991 Alfred Nobel Memorial Prize Lecture in Economic Sciences, Nobel Foundation: The Institutional Structure of Production” in O.E. Williamson and S.G. Winter, eds. (1993) The Nature of the Firm: Origins, Evolution, and Development. New York: Oxford University Press.
Construction Industry Development Board. (2015a). Construction Costs: Building Materials Cost Index, Labour Cost Index and Machinery & Equipment Cost Index. Retrieved from http://www.cidb.gov.my/cidbv4/index.php?option=com_ content&view=article&id=153&Itemid=421&lang=en
_____________ (2015b). Construction Statistics Quarterly Bulletin, 2006 - 2015. Retrieved from http://www.cidb.gov.my/cidbv4/index.php?option=com_ content&view=article&id=84&Itemid=293&lang=en
Construction Industry Review Committee. (2001). Construct for excellence. Report of the Construction Industry Review Committee. Hong Kong: Special Administrative Region.
Courtney, R., Ismail, S. & Winch, G.M. (2005). International Review of Procedures for Selecting Procurement Routes for Construction Projects – Final Report. Contract reference: 9015040005.
Creswell, J.W. (1998). Qualitative Inquiry and Research Design: Choosing Among Five Traditions. California: Sage Publications.
Demographia. (2015). 11th Annual Demographia International Housing Affordability Survey: 2015. Retrieved from http://www.demographia.com/dhi.pdf
Department of Statistics. (2007). Monograph Series No.4: Urbanisation and Urban Growth in Malaysia. Putrajaya: Department of Statistics.
_____________ (2010). Population and Housing Census of Malaysia 2010: Preliminary Count Report. Putrajaya: Department of Statistics.
_____________ (2011a). Gross Domestic Product by kind of economic activity at current prices, 2000 – 2014 [statistics]. Available from MysIDC database.
_____________ (2011b). Number of households by state, 2000–2014, Malaysia [statistics]. Available from MysIDC database.
_____________ (2011c). Population Distribution and Basic Demographic Characteristic Report 2010.
_____________ (2011d). Population Distribution by Local Authority Areas and Mukims, 2010. Putrajaya: Department of Statistics.
_____________ (2011e). Report on Household Expenditure Survey. Putrajaya: Department of Statistics.
_____________ (2012). Characteristics of Living Quarters 2010. Putrajaya: Department of Statistics.
_____________ (2013). Characteristics of Household 2010. Putrajaya: Department of Statistics.
_____________ 2014a). Input – Ouput Tables: Malaysia 2010. Putrajaya: Department of Statistics.
_____________ (2014b). Malaysia Economics Statistics – Time Series 2013. Putrajaya: Department of Statistics.
_____________ (2015a). Annual National Accounts: Gross Domestic Product 2010 – 2014. Putrajaya: Department of Statistics.
_____________ (2015b). Household Income and Basic Amenities Survey Report 2014. Putrajaya: Department of Statistics.
_____________ (2015c). Number of population 1970 – 2040, Malaysia [statistics]. Available from Population Quick Info database.
Dixit, A. (1996). The Making of Economic Policy: A Transaction Cost Politics Approach. Cambridge, MA: MIT Press.
Dulaimi, M.F., Ling, F.Y.Y., Ofori, G. & De Silva, N. (2002). Enhancing integration and innovation in construction. Building Research and Information, 30(4), 237–247.
Economic Planning Unit. (2015). Eleventh Malaysia Plan 2016-2020: Anchoring Growth on People. Retrieved from http://rmkll.epu.gov.my/index.php/en/
Egan, J. (1998). Rethinking Construction, Construction Task Force Report for Department of the Environment, Transport and the Regions.
Giddens, A. (1984). The Constitutions of Society. Cambridge: Polity Press.
Gruneberg, S.L. & Ive, G.J. (2000). The Economics of the Modern Construction Firm. Basingstoke: MacMillan Press.
Guba, E.G. and Lincoln, Y. (1989), Fourth Generation Evaluation. Newbury Park, CA: Sage
Hackett, M., Robinson, I. & Statham, G. (2007). The Aqua Group guide to Procurement, Tendering & Contract Administration. Oxford: Wiley-Blackwell.
Haron, N. A., Abdul Rahman, H., & Hanid, M. (2009). A Literature Review of the Advantages and Barriers to the Implementation of Industrialised Building System (IBS) in Construction Industry. Malaysian Construction Research Journal, 4(1), 10–14.
Haron, N.A., Hassim, S., Abd. Kadir, M. R., Jaafar, M. S. (2005). Building Cost Comparison between Conventional and Formwork System. Jurnal Teknologi, 43(B), 1–11.
Harvey, J. (1992). Urban land economics. (3rd ed.). Macmillan.
Harvey, J. & Jowsey, E. (2004). Urban Land Economics (6th ed.). London: Palgrave Macmillan.
Hashim, M. (1996) “The effects of procurement systems on performance of construction projects in Malaysia”. In: Proceedings of CIB W92-Procurement Systems. North Meets South: Developing Ideas. University of Natal, Durban, South Africa.
Haughwout, A., Lee, D., Tracy, J. S. & Van der Klaauw, W. (2011). Real estate investors, the leverage cycle, and the housing market crisis. FRB of New York Staff Report, (514).
Hayek, F.A. (1945). The use of knowledge in society. American Economic Review, 35(4), 519–530.
Heiner, R. (1983). The origin of predictable behavior. American Economic Review, 73(4), 560–595.
Hott, C. (2009). Explaining house price fluctuations (No. 2009-05). Swiss National Bank.
International Monetary Fund. (2014). Global Housing Watch October 2014. Retrieved from http://www.imf.org/external/research/housing/
_____________ (2015). Malaysia: GDP Deflator base year 2010, 1970 – 2014. Available from CEIC Database.
Ismail, S. (2012). Analyzing Coordination Function within a Governance Structure: Evidence from Case Studies of Selected Housing Projects in Malaysia. University Malaya. Unpublished PhD thesis
Ive, G.J. and Gruneberg, S.L. (2000) The Economics of Modern Construction Sector. MacMillan Press: Basingstoke.
Khazanah Research Institute. (2014). The State of Households. Kuala Lumpur.
Khian Seng. (2007). The PAM 2006 Contract. Paper presented at Seminar on PAM 2006 Contract, Institute of Surveyors, Malaysia.
Kohn, D.L. (2006). Monetary policy and asset prices. Economic and Financial Review – European Economics and Financial Centre, 13(3), 135.
Langdon, D. (2008). PAM Contract 2006 & PAM Sub-Contract 2006 – A Step Towards the Right Direction. Paper presented at Seminar on PAM 2006 Contract, Institute of Surveyors, Malaysia. DLS Management (M) Sdn. Bhd.
Leedy, P.L. & Ormrod, J.E. (2005). Practical Research: Planning and Design (8th ed.). New Jersey: Pearson Merrill Prentice Hall.
Mumford, L. (1937). What is a city. Architectural Record, 82(5), 59-62.
Masterman, J.W.E. (2002). Introduction to Building Procurement System (2nd ed.). London: E &F.N. Spon.
Menard, C. (2004). The Economics of Hybrid Organizations. Journal of Institutional and Theoretical Economics, 160(2), 345–376.
Miles, M.B. & Huberman, A.M. (1994). Qualitative Data Analysis: An Expanded Sourcebook. Thousand Oaks, CA: Sage Publications.
Ministry of Finance. (2013). Review of Real Property Gains Tax (RGPT). Retrieved from http://www.treasury.gov.my/pdf/budget/speech/appendices12.pdf
Mayo, S. (1991). Housing Policy and Housing Research: The View from the World Bank. Housing Finance International. Retrieved from http://www.housingfinance.org/ uploads/Publicationsmanager/9112_Wor.pdf
Murdoch, J. & Hughes, W. (2008). Construction Contracts: Law and Management (4th ed.). London: Taylor and Francis.
National Property Information Centre. (2003). Annual Property Market Report 2003. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2004a). Annual Property Market Report 2004. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2004b). Property Market Status Report, 2004. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2005a). Annual Property Market Report 2005. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2005b). Property Market Status Report, 2005. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2006a). Annual Property Market Report 2006. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2006b). Property Market Status Report, 2006. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2007a). Annual Property Market Report 2007. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2007b). Property Market Status Report, 2007. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2008a). Annual Property Market Report 2008. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2008b). Property Market Status Report, 2008. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2009a). Annual Property Market Report 2009. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2009b). Property Market Status Report, 2009. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2010a). Annual Property Market Report 2010. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2010b). Property Market Status Report, 2010. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2011a). Annual Property Market Report 2011. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2011b). Property Market Status Report, 2011. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2012a). Annual Property Market Report 2012. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2012b). Property Market Status Report, 2012. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2013a). Annual Property Market Report 2013. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2013b). Property Market Status Report, 2013. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2014a). Annual Property Market Report 2014. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2014b). Malaysian House Price Index 2014. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2014c). Property Market Status Report, 2014. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
_____________ (2014d). Residential Property Stock (RPS): Existing Stock 1/12/2000 to 1/12/2014 [statistics]. Available from CEIC database.
_____________ (2015). Property Market Status Report, 2015. Retrieved from http://napic.jpph.gov.my/portal/web/guest/publication
North, D.C. (1981). Structure and Change in Economic History. New York: Norton.
_____________ (1990). Institutions, Institutional Change, and Economic Performance. Cambridge: Cambridge University Press.
_____________ (2004). Understanding the Process of Economic Change. Princeton NJ: Princeton University Press.
O’Sullivan, A. (2003). Urban economics. McGraw-Hill/Irwin.
Pettigrew, A.M. (1997). What is processual analysis? Scandinavian Journal of Management, 13(4), 334–348.
Real Estate Housing Developers’ Association Malaysia. (2008). Towards Sustainable Development: Improving the One-Stop Center (OSC). REHDA Bulletin January 2008.
Smith, A. (1776). The Wealth of Nations. London: W. Strahan and T. Cadell.
Schramm, W. (1971). The nature of communication between humans. The process and effects of mass communication. Urbana: University of Illinois, pp. 3–53.
Singapore Construction Task Force. (1999). Construction 21 (C21) Report.
Stinchcombe, A.L. (2005) The Logic of Social Research. Chicago: The University of Chicago Press.
Strauss, A. & Corbin, J. (1998). Basis of Qualitative Research: Techniques and Procedures for Developing Grounded Theory. Thousand Oaks, CA: Sage Publications.
United Nations. (1948). Universal Declaration of Human Rights. UN General Assembly.
Urquhart, C. & Fernandez, W. (2006). Grounded theory method: the researcher as blank slate and other myths. ICIS 2006 Proceedings.
Whitley, R. (1992). Business Systems in East Asia. London: Sage.
Williamson, O.E. (1971). The vertical integration of production: market failure considerations. The American Economic Review, 61(2), 112–123.
_____________ (1975). Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press.
_____________ (1985). The Economic Institutions of Capitalism. New York: The Free Press.
_____________ (1992). Markets, hierarchies, and the modern corporation: An unfolding perspective. Journal of Economic Behavior & Organization, 17(3), 335–352.
_____________ (1996). The Mechanisms of Governance. Oxford University Press.
_____________ (2005). The economics of governance (Richard T. Ely Lecture). American Economic Review, 95(2), 1–18.
Winch, G. (2002). Managing Construction Projects: An Information Processing Approach. Blackwell: Oxford.
Wolcott, H.F. (1990). Writing Up Qualitative Research. Newbury Park, CA: Sage.
World Bank. (1989). Getting the incentives right. Urban Notes, 1(1). Urban Development Division of PPR.
Yin, R.K. (2003). Application of Case Study Research. (2nd ed.). Thousand Oaks, CA: Sage.
The provision of adequate housing is critical for the growth and well-being of society. The issue of housing is a multi-faceted one, for it encompasses not only shelter, but also security, privacy, investment, and personal identity. For households, housing serves as both a major motivation for savings and a significant influence on consumption. In addition, the locational aspect of housing directly influences labour mobility and therefore human capital, economic growth, and productivity. In the wider economy, housing is an integral part of the construction industry, with residential construction comprising 27% of total construction output as at 2014. Although construction in turn comprised only 4.3% of total GDP in the same year, the sector returns an output multiplier of 1.9 times for the economy. This means that every additional RM1 of output in the construction sector leads to an RM1.90 increase in total output for the economy, with residential construction alone having a multiplier of 2.0 times. The housing sector is thus a key economic sector, and must be perceived and managed as an integral part of overall economic management. Unfortunately, this perception of housing as a key economic driver has yet to take root. Housing is too often seen by governments as a welfare issue, requiring the transfer of physical or financial resources to low-income households who are unable to house themselves adequately. Such resources, however, are rarely adequate. As a result, government housing agencies limit their activities to direct housing provision for a small minority of potential beneficiaries, ignoring the interests of most of the population. By focusing on a small and limited housing agenda, these agencies fail to either understand or manage the housing sector as a whole. This can be seen from the growing concern among middle-income households regarding their capacity to purchase homes. This group is often ineligible for public low-cost housing programmes, but are unable to afford housing supplied by private real housing developers. Therefore, it is important to move towards a broader agenda of guiding and managing the housing sector as a whole. The sector must also be viewed as one that is important and productive, where policies have serious repercussions for overall economic performance and not, as is commonly viewed (especially for low-cost housing) as a sector which is a drain on productive resources. Our case study in the Philippines (8990 Holdings, Inc.) demonstrates the point that building houses for low-income households can be profitable. This report considers the problem of supplying affordable houses to the general public from the perspectives of both institutions (the national business system) and firms (industry value chain analysis and the economics of governance). This is based on the premise that improvements are needed at the level of construction projects and firms in order to increase the affordability of houses at the national level. Until now, policies have focused on controlling house prices once the consumer receives the house at the end of the production process. This report adopts a different approach as evidence shows that it is far more efficient to enhance capacity on the supply side in order to develop a sustainable and responsive housing sector that caters for all sections of the population. This is the first in a series of reports undertaken to examine the various dimensions of the housing industry. Future studies will focus on matters relating to land and it's attendant regulations, the financing of housing and how housing must be understood as a critical component of city-making.