COMMENT | Often, there are voices proclaiming that the government has done too little to regulate house prices in the market, leading to the widening gap between income and house price, and hence, deteriorating the people’s ability to afford housing.
Given that housing is a merit good that an individual should have on the basis of need, house prices should be controlled in order to ensure they are affordable to the average rakyat.
While such an argument can be defended on the ground of social justice, one must realise that interfering with house prices can further propagate the deviation of house prices from its fundamentals, resulting in a profound structural problem to the country’s housing supply-delivery system.
This is because the entire housing industry functions as a balanced ecosystem, with various stakeholders – manufacturers, contractors, developers, real estate agents, insurances, bankers, house buyers, investors, government agencies, etc. – inextricably connected to each other, in such a way that each entity in the industry affects and is affected by others.
Disturbing the balance of the ecosystem can pose a negative impact on all stakeholders relying on it.
The negative impact of price control can be seen through the housing policy implemented in New York City...