Executive director of Jakarta Property Institute
Jakarta is one of the world’s most expensive cities, out of reach of most people. The solution is not rocket science. The government can tackle the problem by simplifying construction permits and creating more floor space to increase supply.
A World Bank report on urbanization, launched on 0ct. 3, shows that house price-to-income ratio in Jakarta is higher than in Kuala Lumpur, Singapore and even New York City, the United States. More than half (55 percent) of Jakarta residents’ expenditure, on average, is spent on housing and related services, according to Statistics Indonesia (BPS). The Finance Ministry claims that only half of Jakarta’s families own a place to live. The city is dogged by a housing backlog of 1.27 million units with no sign of significant improvement.
Ironically, an estimated 60 percent of Jakarta's civil servants are unable to afford to live in the city they serve. They cannot even vote for the governor for which they work. They are pushed, as with countless others, by market forces to live on the fringes: Bogor, Depok and Bekasi in West Java and Tangerang in Banten. This results in a disastrous urban sprawl that gobbles up otherwise productive agricultural land and energy-draining commutes.
During the day, Jakarta is like a cone. People flock to the center. All of us prefer to be near amenities and close to each other as it saves time to meet others and makes us more productive. The presence of others helps us to be creative. Meanwhile, at night and on weekends, Jabodetabek is hollow in the center like a doughnut.
Many of us live in the suburbs not because we prefer to, but sadly because we simply do not have a choice. Sure, the government should support people in the low (and maybe also lower-middle) income bracket through subsidies, but when the upper-middle class cannot afford to live in the city, something is seriously dysfunctional about the housing market. Here, the government is the culprit.
Government policies affect the supply of housing units. When demand (to live in Jakarta) is high, it is only natural that housing prices soar. But does an apartment need to be this expensive? Price is determined not only by demand, but also by supply. In that respect, the government is guilty of artificially suppressing supply, distorting the housing market and allowing housing to be more expensive than it should be.
How can the government rectify this situation?
First, by making the process of obtaining building permits (IMB) clear and efficient. In Indonesia, local governments authorize the IMB. In Jakarta, getting this permit for large buildings is arduous and costly. The formal and especially informal time and red tape associated with the application easily adds 20 percent to the construction cost. This cost is eventually shouldered by the end buyers.
In research about the IMB process for buildings with more than eight floors or 5,000 square meters of floor area, the Jakarta Property Institute (JPI) identified seven government institutions involved. There are 39 laws and regulations. At least 12 of those are either unclear or conflict with each other. Frustrated by how local governments are hindering investment, the central government is questioning the effectiveness of the IMB, as seen in the recent media statements in September.
Second, by encouraging more vertical housing units. Jakarta’s Detailed Spatial Plan allows for much less floor area than what is demanded. If someone wants to build more space than what is stipulated in the Plan, he or she is penalized. This is a direct cap on housing supply, decided unilaterally by the Jakarta government. Their usual argument is that Jakarta has limited carrying capacity and therefore should not be “too dense”. That Jakarta is dense is merely a perception as it spreads horizontally. The total floor area built in Jakarta is approximately only two times its land area. In Singapore, it’s eight. Jakarta’s ad hoc planning creates pockets of density while leaving many swathes of land inaccessible and underutilized.
But carrying capacity can be expanded through infrastructure while keeping the environment intact. Nowadays, nobody complains that Manhattan is “too dense”. This is because Manhattan is well managed. “Too dense” is an excuse for inaction. Lifts and reinforced concrete accommodate many people vertically on a small plot of land; mass public transportation increases the carrying capacity of a city without generating extra road traffic; expansion of the piped water service sustains more people in urban areas without the need to extract ground water, which causes the city to sink.
Of course, water catchment areas should not have been built in the first place and this is where the government erred the most. They make it so hard to build in the existing city, but so easy to pour concrete over rice fields, wetlands, riparian areas, forests and the sea.
Jakarta does not have to be as expensive as it is now. The price of a house or a flat is determined by the demand and supply of living space. When demand to live in Jakarta is constant, increasing the supply of housing units will have a direct impact on affordability. Yes, land in Jakarta proper is limited and expensive, but if more floor area is allowed, then the per-meter price of an apartment can be reduced. If done properly, providing more housing units in the city should not damage the environment. In fact, making cities denser may help the environment if it restricts development in areas that should be protected.
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.