This presentation shows that Directions for Affordable Housing Policy in Indonesia.

Framing the Housing Opportunities in Indonesia

1. Urbanization is not delivering economic growth benefits – housing is an entry point
2. Indonesia is rapidly urbanizing with a young population that will demand housing
3. The majority of housing (~80%) in Indonesia is incremental & self-built
4. Affordability for housing is declining, especially for low-income groups
5. Headship rates from 2001-2007 indicate a slowdown in household formation
6. Constraints to the housing market relate to land, access to financing & targeting of subsidies
7. What can be done?
– Leverage Communities and Local Governments in Self-Build Programs
– Reform land and permitting regulations
– Expand access to finance and explore options targeting low-income households
– Improve institutional coordination

6. Where to go from here?

• Forecasts by the UN suggest that Indonesia will add an average of 2.2 million persons per year to cities between 2010 and 2050.
• Demographic trends show that Indonesia has a young population, also representing a large number of potential new households.

• Government-financed programs support about 100,000 new houses per year – 12.5% of the demand
• The public sector should support the housing sector but cannot directly build enough houses for everyone – nor should it!
• BUT: Government policy and programs could leverage, stimulate, and facilitate the market production of houses by households through incremental approaches, as well as a range of private sector and community-based developers for a larger population base.

•Cornerstone of good housing policy: Create conditions that stimulate and enable market provision of various streams of housing supply to different segments.
• Different segments of the population access and combine the basic inputs into housing (Land, Finance, Materials, and Labor) using a range of different methods.
• Analyzing how each different segment of the market accesses housing, and the bottlenecks in this system is a crucial step in formulating Government programs.
• This can indicate priority areas for Government programs and also greatly enhance the efficiency and outcomes of Government subsidies and programs.

GOI can address bottlenecks to housing production across market segments by:
1) Improving coordination and investment in infrastructure by local government
2) Strengthening land policies and management, urban/spatial planning processes, and streamlining housing development regulations
3) Enhancing construction (supply side) finance and mortgage/housing improvement (demand side) finance and better targeting of subsidies

Key elements of the Government’s housing strategy should be to…
1. Increase local government and community involvement in housing
2. Reform land policies and permitting regulations
3. Expand access to, and targeting of, housing finance
4. Coordinate institutional arrangements

… and enable the private sector to support housing construction

Over 80% of all housing is built by people’s own initiative For instance, an unprecedented 300,000 houses were reconstructed by community groups in post-earth Yogyakarta and Klaten (2006-2008), resulting in nearly 100% occupancy.

How can the Government Support this type of process more systematically?

1) Access to Land for the Poor
• Comprehensive look at land administration and management in the country
• Provision of serviced land to the poor at good locations + efficient and dense use of land
• Enforce sanctions on non-supervised and idle land
• Enhance the Land Consolidation approach to urban expansion (see following slides)
• Include communities in the urban planning process and jointly determine land use requirements

2) Resources and Programmatic Support
• Small loans and training programs for small contractors or self-build communities
• Micro-finance for the households financing these homes
• Facilitation and agencies to help coordinate with local Government Infrastructure provision and right-of-ways (aligning with trunk infrastructure services as part of formal plans)
• Knowledge and Outreach programs, technology, materials

In order to facilitate house building, major reform is needed at the local level in several areas:

1. Enhance and revitalize Indonesia’s Land Consolidation Program.

2. Improve the housing development permitting process.

Land consolidation, also known as land pooling and readjustment, allows the government to expand urban infrastructure without having to acquire large amounts of land.
• The government typically uses 30-40% of the land for roads and other public purposes and returns the remaining land to the original owners as reshaped plots for urban use.
• This method has been successful in many countries and also Indonesia – where the scope of the approach should be enhanced
– In Japan, by the end of the 2006 fiscal year, 33% of the urbanized land area
– In South Korea, the Seoul City Government produced 41 large-scale land pooling and readjustment projects.
– In East Asia, Taiwan, Malaysia, and Indonesia have also used such schemes.