The Importance of State Intervention in Low Cost Housing Allocation in

In document Role of the state and market in low cost housing provision : the case of Open Registration System (ORS) for low cost house buyers in Malaysia (Page 193-200)

CHAPTER 6: CASE STUDY: THE OPEN REGISTRATION SYSTEM (ORS) AT THE

6.2 The Importance of State Intervention in Low Cost Housing Allocation in

As explained earlier in Chapter 5, state intervention in low cost housing allocation was not only limited to public housing, but also to that built by the private sector. The government has been involved in low cost housing allocation since the 1950s and shows no sign of giving up the responsibility to the market. Therefore, this section will discuss the importance of government intervention in low cost housing allocation.

Based on an analysis of secondary and empirical data, it can be said that there are four main reasons for state intervention in low cost housing allocation in Malaysia.

The first is to maintain the country’s economy and social and political stability. Unlike other countries in the region, Malaysia has an ethnic-religious heterogeneous population comprising 61.4 percent Bumiputera, 23.7 percent Chinese, 7.1 percent Indian and 0.7 percent others in 2010. Government intervention in low cost housing allocation was crucial to ensure balanced home ownership among various races in Malaysia following the racial clash in May 1969 (Trezzini, 2001, p.328). The introduction of the New Economic Policy (NEP) in 1971 was the turning point in state intervention in low cost housing allocation in Malaysia. Under NEP, a minimum 30 percent of low cost housing was allocated for the Bumiputera as part of the strategy to increase home ownership and to eradicate poverty (Salleh, 1997). Low cost home ownership was part of the government’s wealth distribution strategy which contributed to the rise of Bumiputera equity ownership of share capital and property from 2.4 percent in 1970 to 19.3 percent in 1990 (Jomo, 2004, p.9). At the same time, the incidence of poverty was significantly reduced from 42.4 percent in 1971 to 17.1 in 1990 (Rasiah and Shari, 2001, p. 10) which was partly caused by increased home ownership among people with a low income. The policy still continues today, despite the NEP formally ending in 1990.

This reason was supported by the Federal Officer 2 when asked about the need for the government to intervene in low cost housing

allocation:-“...the control was done in relation to our development philosophy.

First is because we are multiracial society. Our development thrust at that time under NEP since 1971 was to restructure the society and asset. We don’t want to repeat the 13th May 1969 tragedy because imbalance asset ownership according to ethnic and income category...” (Federal Officer 2, age mid 50s, has worked for more than 20 years with the Ministry o f Housing and Local Government).

Clearly imbalanced asset ownership among the different races has far greater consequences than failing to provide adequate housing for the people in the case of Malaysia. Thus, state intervention in low cost housing allocation in Malaysia is necessary not only to ensure people with a low income can buy low cost houses, but also for economic, social and political stability in the country. With more than 30 percent of the population considered to be earning a low income in 2000 (Malaysia, 2001), state intervention in low cost housing allocation was still required even after 1990.

The second reason is to provide better access to low cost housing for people with a low income. State intervention was important due to the government’s policy of encouraging homeownership among this group. Malaysia, like many other East Asian countries, sees the development of home ownership is mainly achieved "’through the activities of private developers and private households rather than product of pervasive and direct state intervention and orchestration” (Lee et al., 2003, p.4). The private sector has contributed significantly to low cost housing provision, as explained in Chapter Five. Thus, state intervention is crucial to ensuring people with a low income have access to private low cost housing in Malaysia.

Access to low cost housing was a common problem for people with a low income in many developing countries, which led to the formation of squatters and slums (UN, 2003). Therefore, since the 1950s, the government in Malaysia has continuously tried to improve access to low cost housing for this group. Through a more systematic and transparent low cost house buyer’s registration system, it was easier for the Federal and State governments to identify and allocate houses to buyers with a low income.

Most importantly, competition from people with a middle and high income could be eliminated and thus provide a better opportunity for people with a low income to buy low cost houses. The actions taken by the Malaysian government to improve people’s access to low cost housing was consistent with the recommendation from the United Nations under the Habitat Agenda to ensure adequate shelter for all (UNCHS, 1996).

Meanwhile, in the context of private low cost housing allocation in Malaysia, the government usually acted as a mediator between the market and house buyers. Since most people with a low income have poor knowledge of the property buying process, they faced difficulty buying low cost houses from private housing developers.

Therefore, they relied on the government to provide market information and assistance

in the low cost house buying process. The situation prompted the need for the government to create a mechanism not only to manage the low cost house buyers’

registration and allocation, but also to obtain private sector low cost housing information. The State government Officer interviewed also highlighted the importance of state intervention in low cost housing allocation in order to give the opportunity to people with a low income to buy a low cost house:

“In my opinion at the moment we have to take care o f low income people welfare so they can buy a house...there are people still need low cost house. If we open to developers to allocate, they will restrict chances of low income to buy the house. It still required government intervention.

That the only way we can give the opportunity to low income to buy the house...” (State Officer 1, aged mid 30s and has worked for more than five years for the Selangor Housing Board).

The third reason is to optimise public and private sector financial investment in low cost housing provision. The public and private sector have spent a large amount of money on low cost housing provision, particularly since the 1980s. However, the government were continuously criticised by private housing developers and the public for failing to ensure people with a low income had the opportunity to buy low cost houses (Sirat et al., 1998). Therefore, it is important for the government to take the necessary actions to prevent people with middle and high incomes from buying low cost houses. The Federal government, who spend a lot of money on public low cost housing programmes, really wanted to ensure the houses were bought by the low income group in order to prevent them from living in squatter and slum areas. By the mid 1990s it was clear the government needed to ensure that public and private sector investment in low cost housing was directed to the most needy people at the right time and in the right location in order to minimise the waste of money.

The final reason is to facilitate private housing developers in low cost housing provision. This is in line with recommendations by the World Bank for the government to become a facilitator and enabler for the market to work (World Bank, 1993). Since the role of low cost housing provision shifted from the public to the private sector during the early 1990s, the government had to do whatever it could to facilitate the market to work. Their experience during the implementation of the Special Low Cost Housing Programme (SPLCH) from 1986-89 taught an important lesson to the government on how to encourage the private sector to build low cost houses. Without reliable data on housing demand according to location, most private housing developers were generally reluctant to build low cost houses and this lack eventually

contributed to the failure of the programme. Therefore, the Federal government realised the establishment of a centralised low cost house registration system could provide valuable information to the private sector with regard to their housing provision planning. A list of eligible buyers obtained from the system meant housing developers generally didn’t have to worry about the demand and saleability of low cost houses.

Based on the factors explained earlier, it was considered important for the state to intervene in low cost housing allocation in Malaysia. The Federal and State governments continued to intervene in low cost housing allocation during the 1990s with the introduction of the Open Registration System (ORS) for low cost house buyers. In the next section, the discussion will focus on the reasons which led to the establishment of the ORS by the Federal government in 1997.

6.3 WHY DID THE FEDERAL GOVERNMENT ESTABLISH ORS?

The analysis of official documents related to ORS obtained from the Ministry of Housing and Local Government Malaysia (MHLG, 1997; MHLG, 1998; MHLG, 2006) did not give a detailed and clear explanation of the events which led to its establishment. Moreover, some of the original documents related to the establishment of ORS could not be traced for further analysis due to poor record management by the ministry. Thus, the analysis in this section will be based on the interviews conducted with Federal government officers involved in the establishment of the ORS and limited information obtained from the ministry’s official documents. The analysis revealed several reasons which led to the decision by the Federal government to establish the ORS in 1997.

The first was the need to reduce and eventually eliminate corruption in the low cost housing selling and buying process. In many South East Asian countries, including Malaysia, “Bureaucracies are subject to various forms of corruption with varying degrees from one country to another and from one department of the public service to another. Nepotism, bribery, speed money, extortion red tape, and inefficiency could be found in the different departments of public administration...” (Ahmed, 2005, p. 158).

Meanwhile, according to Transparency International’s Corruption Perception Index (CPI), in 1997 Malaysia ranked 32nd in the list of countries studied compared to 23rd in 1995. It shows there was an increasing trend of corruption in Malaysia during the mid 1990s. Therefore, the low cost housing administration and allocation process in

Malaysia was also not immune from corruption. Federal Officer 2, when interviewed, admitted there were corrupt practices in the low cost housing administration and allocation process during the 1990s:

“...what happen, I believe some people involved in the system operation are not ethical. So he can delete or amend the applicant’s information, this made them (house buyers) more desperate...”

(Federal Officer 2).

Federal Officer 2 also pointed out that some of the State governments’ officers who were responsible for low cost housing allocation could manipulate the system for their own benefit. Changes made to the applicants’ information such as income or the number of dependents could increase the applicants’ chances, but at the same time deprive other eligible applicants of the opportunity to buy low cost houses. Another common practice in the public sector in Malaysia was ‘speed money’ or money paid to expedite any process in government departments (Ahmed, 2005, p. 50). Although Ahmed did not specifically mention the practice within the low cost housing buying process, it could still have happened.

There is a possibility that money could have been paid by the applicants to state housing officers in order to expedite the allocation process or to jump the waiting list.

However, it was difficult for the Federal and State governments to take action against those involved in corruption due to a lack of evidence and witnesses and partly a lack of manpower in Malaysia’s Anti Corruption Agency (ACA). From 1991-1997 a total of 58,290 cases were reported, but only 1,349 cases (or 2.3 percent) were brought to justice by the ACA (Siddique, 2010, p. 50). In view of the difficulty of bringing the culprits to justice, the ACA recommended prevention as a major strategy to combat corruption in Malaysia (Siddique, 2010, p. 158).

Thus, the implementation of the ORS was part of the prevention approach taken by the MHLG to reduce corruption in the housing allocation process. With the system linked directly to the ministry, officers at the state level were unlikely to be able to delete or change the applicant’s information without informing and updating the applicant’s database held by the ministry. At the same time, it also promoted greater transparency and fairness in the low cost house buyer selection process. Moreover, the introduction of the ORS was very important to restore the confidence of the people and private sector with regard to the low cost housing allocation system in Malaysia. The effort was also in line with government strategy to improve public sector management and

governance, as promoted by the World Bank during the early 1990s (World Bank, 1993).

The second reason was to eliminate fraud in the low cost house buying process. Poor coordination and information ‘cross-checking’ among the 14 States in Malaysia allowed some unscrupulous buyers to buy more than one low cost house unit in different states. Since 1976, low cost housing allocation has been under the responsibility of the respective State government; therefore, it was difficult to cross­

check the applicants’ backgrounds and their status regarding low cost house ownership. As explained by Federal Officer 1, with regard to the problem of multiple ownership of low cost houses:

"...previously, there are some people own 2 or 3 units of low cost house.

In one cheating case, he registered in Kedah and he knows our system weaknesses so he went to Johor and register again. Eventually he got 2 low cost houses. That the weaknesses of the system especially on the monitoring aspect in addition to lack of manpower...” (Federal Officer 1, aged early 60s).

Federal policy clearly stated that people with a low income were only allowed to own one unit of low cost housing (MHLG, 1997). A combination of corruption and the weaknesses of the low cost housing allocation system allowed buyers to buy more than one low cost house in other states in Malaysia undetected. The statement confirms an earlier study by Salleh and Lee (1997, p. 23) as they describe “... the mechanism for the allocation of low houses is defective because of favouritism, patronage, indifference, fraud and inadequate database resulting the units being allocated to the undeserving (i.e. well-to-do).” However, no available statistics on the number of fraud cases in low cost house buying have been revealed by the ministry or State governments for further analysis.

Meanwhile, in some cases, the applicant did not declare they already owned a low cost house and submitted false information to support the application. Most people were still willing to take the risk of buying a low cost house, despite the consequences.

All the applicants were required to make a statutory declaration in the presence of a Commissioner for Oaths, Judges of Session Court or Magistrate under the Statutory Declaration Act, 1960 in the application form. However, many still submitted false information in order to increase their chances of buying a house. The most common false information given by the applicant was related to household income and the number of dependents which was used to determine the buyer’s eligibility and

awarded the highest points (MHLG, 2006, p.55). Under the Statutory Declaration Act, those caught giving a false declaration were punishable under Section 199 and 200 of the Penal Code (Act 574, 2006) which carries the penalty of up to seven years imprisonment and fines. Furthermore, the house purchased using false information could also be confiscated. However, due to political and social sensitivity, it was difficult for State governments to take action against the culprits and bring them to justice. There was no reported case of any State government taking action against fraudsters under the law. In order to solve the problem, the Federal government, through the MHLG, needed to intervene and eliminate the corrupt practices in low cost housing allocation.

The third reason was to provide the information required for the planning of low cost housing by the public and the private sector. In the public sector, the MHLG required comprehensive data to plan for low cost housing planning in the Five Year Malaysia Economic Plan. Together with other demand for demographic and housing data, the ministry was able to plan low cost housing requirements more accurately according to state in Malaysia. The State governments then could determine the number of low cost houses to be built according to location based on actual demand. The low cost housing programme by the government could thus target the areas with high demand.

As explained by Federal Officer 1:

“...the data is very important when formulating the National Housing Policy especially to identify the housing need. Because when we (ministry) planned for the housing for each state, let say 100,000 units for the State of Selangor but we don’t know where to build? State of Selangor is very big. So if we have the housing need data we can use it. Let say we built 10,000 in the (district of) Gombak, Shah Alam, Hulu Selangor, that exactly match the need. If there is no housing need, so no point we built the house. May be we don’t have to build at all, why wasting money...’’(Federal Officer 1).

Data obtained from the system could also be used to guide future policies related to low cost housing provision. The decision to reduce or abandon the low cost housing quota imposed by the State governments on private housing developers could be decided based on actual housing demand data rather than assumption. Meanwhile, similar to the public sector, the data obtained from the ORS database could be used for low cost housing planning by the private sector. Federal Officer 3, when interviewed, described the importance of ORS data for private housing developers:

“...first we want to know who get the house. Secondly is in term of planning according to location requested by the applicants. During the application stage we already know the district and mukim (sub-district) requested. If properly planned, developers should know where to build the house? Where the demand is? They will know where to built low cost house?” (Federal Officer 3).

The data are important to avoid a mismatch between supply and demand of low cost housing, particularly with the introduction of a 30 percent low cost house unit quota for private sector residential development after 1981. The ORS database has been used to justify changes to low cost housing policy in Malaysia since 1998. This includes a reduction made by the MHLG to the low cost housing quota for private housing developers from 30 percent to 20 percent in 2002. A further revision was made in 2006 when the MHLG recommended that private housing developers should provide low cost housing units according to demand in a particular area rather than meet a blanket 20-30 percent quota as in the past (MHLG, 2006). This shows the significant contribution of the ORS to low cost housing policy formulation in Malaysia. At the same time, it helped the market to operate efficiently with accurate low cost housing demand data. Most importantly, both public and private sectors have been building low cost

The data are important to avoid a mismatch between supply and demand of low cost housing, particularly with the introduction of a 30 percent low cost house unit quota for private sector residential development after 1981. The ORS database has been used to justify changes to low cost housing policy in Malaysia since 1998. This includes a reduction made by the MHLG to the low cost housing quota for private housing developers from 30 percent to 20 percent in 2002. A further revision was made in 2006 when the MHLG recommended that private housing developers should provide low cost housing units according to demand in a particular area rather than meet a blanket 20-30 percent quota as in the past (MHLG, 2006). This shows the significant contribution of the ORS to low cost housing policy formulation in Malaysia. At the same time, it helped the market to operate efficiently with accurate low cost housing demand data. Most importantly, both public and private sectors have been building low cost

In document Role of the state and market in low cost housing provision : the case of Open Registration System (ORS) for low cost house buyers in Malaysia (Page 193-200)