Developing Houses, Developing Concerns

If you ever saunter down the thoroughfare, there is a good chance that you see housing or other kinds of properties billboards placed all over the city.  Most of them can be found on radio and TV as well. We also can see so many properties are being built massively and extensively. To some extent, it can be interpreted as a good indication of the current state of our national economy. However, there lie social and economic concerns regarding this large-scale development.

To give us some perspective, let's take a look at the megaproject being done by one of the biggest construction firms in the country and located in one of the towns in Bekasi Regency, West Java. The project, as per the developer, was initiated in 2014 aiming to be one of the most important cities in Indonesia. It offers a concept of truly integrated, modern city no one has ever seen with first-class facilities surrounding it. 

The project is marketed as a 500-hectare development with 100 hectares of open green space, 250,000 units of prime residential property and 1,500,000 square metres of prime commercial space. In order to achieve that goal, the developer launched a massive scale advertising amounting to a stellar Rp.1,5 trillion. The development of Light Rapid Transit (LRT), four-layer-road network, as well as high-speed rail linking Jakarta and Bandung is also included in their ads as a bounty. It seems so lucrative, or... does it?

Well, building such infrastructure may attract consumers, particularly those who want to get away from Jakarta's hellish traffic, to buy properties. However, not many realize that the plan to build more facilities actually encourages people to use it more extensively. This is known as induced demand. Once roads are built, it will alter land use patterns as people choose homes and workplace locations farther away than they would have without the expanded road capacity. 

In 2009, two economists---Matthew Turner of the University of Toronto and Gilles Duranton of the University of Pennsylvania---decided to compare the number of new roads and highways built in different U.S. cities between 1980 and 2000 , and the total number of miles driven in those cities over the same period. The result was astounding: that's perfect one-to-one relationship, meaning the amount of increase in a city's road capacity will be matched perfectly by the amount of driving in the same city.

In short, new roads will create new drivers, resulting in the intensity of traffic staying the same. Still, according to the same authors, increases in public transit do not reduce traffic. Most advertisements seem to overlook this and often overvalue the notion of moving to the less dense area. Solving traffic problem isn't that easy, Ferguso. Moving to a new, more sparse area doesn't necessarily make your life better in the long term.

Besides, today's modern developers are the ones that decide how and to whom cities are designed. Implicitly, they exclude the citizens from shaping their own community and hamper organic growth in neighborhood relationship by setting up the facilities unilaterally and therefore be utilized by those who are able and willing to move on to the place. Properties built by the government, to some extent, also pose the same problem. The prevalence of upper middle and lower middle class in the properties built by private developers and the government, respectively, may prove to be the differentiator nonetheless.

The financialization of housing, referring to structural changes in housing and financial markets and global investment whereby housing is treated as a commodity and thereby conceiving speculators who view real estate more as an investment rather than just a place to live in is definitely the bte noire in this case. 

Many of them keep holding the properties when they move out and wait for the right moment to sell for a considerable profit. If the owner opts to rent out his property, there won't be any substantial problem. However, this financialized housing market that caters to the desires of market speculators begets many luxury properties being built (to give the best possible return and thus ignores the need for affordable houses) but left inhabited and that's exactly where the problem is.

 In Indonesia, there are reportedly more than 2 million homes are inhabited or sat vacant.  The figure is even higher in Australia, amounting to nearly 10 million homes being left inhabited. Investment in real estate becomes a self-fulfilling prognosis since the influx of investors boosts the price and there come more investors. 

There will be competition over inadequate resource and that means prices will persist in ballooning. Eventually, the trend perpetuates and those unfortunate to afford the property they need will, therefore, be forced to accept homes that are poorly located, small and oftentimes of substandard quality and with restricted chances of upgrading. This results in greater urban and social segregation, an increase in the disparity in access to urban services, a worsening of local living conditions, increased environmental damage and urban security problems.

            Moreover, whether realized or not, the existence of giant developers in Indonesia are surreptitiously causing harm to our society and the related institution (re: government) seem to do nothing to keep them away from 'tearing many lives down'. The bribery case regarding the issuance of property permits for the modern city in Bekasi Regency involving government officials divulges nefarious reality of our frail bureaucracy. 

Unclear planning permissions, tiresome administrations, and destitute law enforcement are the ones to blame. Rules intended to provide better public service in lieu of the effects of the development planning on the local area are oft dodged easily, thanks to the practice of corruption. The government, who are supposed to oversee and monitor anything done by the private sector fail to do their task. 

The presence of decentralization, introduced under the notion of 'local government know their area better', which should have been a major gain for the regional government to take advantage of and create better welfare for the people is seemingly ineffective. The bureaucracy is way too vulnerable to exploitation (re: corruption or any negative noun you'd like to put in). Our poor institution costs us really much as they act on behalf of the public but misuse their privilege as civil servant. This can't last for any longer and something has to be done.

Call for change

People cannot afford to suffer again anymore and there is a sense of urgency to strengthen our institution. So, first and foremost is to ensure that those acting on behalf of us with the people's interest in mind.  Second, the bureaucracy must be well-established, transparent, and have savoir faire so that there will be clear-defined laws and low transaction cost in sorting the problems related to large-scale development out. Therefore, a massive and structural reform is a sine qua non. 

Thereupon, we can start talking about what regulations will suit us the best. There are a handful of policies we can possibly impose, namely the vacant property tax, height restrictions, or zoning limit. Such regulations will hopefully bolster faster supply of real estate at lower prices. New initiatives should be made headway to bridge the interest of all parties concerned so that the social function of housing can be accommodated without overriding its financial aspects too much. Only by doing that we can dream of a better future for all of us.

By: Yoshua Caesar Justinus | Economics 2017 | Staff of Kanopi Studies Division