The problems of low resale value; the unintended consequences of cross subidy

Low resale value
Buyers of Low cost houses have also suffered. Especially many of those that have encountered financial hardships and have had their mortgages foreclosed. A cursory study of Auction Notices over the past year has revealed that the Reserve Prices of low-cost flats in locations like Bukit Sentosa, Bukit Beruntung in the north of Kuala Lumpur is around RM9,000, a small fraction of the original selling price; perhaps even lower than the cost of demolishing it!


Figure 10: Declining values: this reserve price of RM9000 is not exceptionally low. There are 11 other apartments similarly priced


Bad for poor house buyers, bad for developers
For many unfortunate people, their low-cost houses are not appreciating assets that can help lift them out of poverty. In these sad situations, the "ownership" of a low cost house has turned into a financial nightmare.

The situation now is absurd! Developers make a loss from building low-cost houses even when they are able to sell all of them - when they remain unsold, their cashflow and profitability can become seriously compromised. But still, they are being forced to build low-cost house that they don't want to build, that the low-income people don't want to buy. Whilst the middle class buy houses that appreciate in value, the buyers of many low-cost flats, especially those out of town, have seen the value of their homes dwindle. Developers being generally smart, shift their focus to the high-end products which can more easily subsidize the 30% or 20% low-cost quota, which they build in less valuable outlying areas; or if they can help it, through delaying tactics and pleas for waiver, not build at all!


Problem of cross subsidization
The burden of a dysfunctional Low cost housing policy is not only on developers and unfortunate buyers. The general house buying public is also affected.

The responsibility of providing Low cost houses by private developers is often described as the developer carrying out his social responsibility. But it is a mistake to say that developers subsidize low cost houses out of his profit. Actually low cost houses are cross-subsidized by taxing other types of houses.

Where the requirement is that 30% of houses have to be low cost, developers find it easier to cross-subsidize by building higher cost units. It is easier to raise the money to subsidize 3 units of low cost houses (say RM 25,000 per unit) from ten units of RM250,000 superlink houses than from ten units of terrace houses priced at RM150,000.

Looked at this way, the 30% low cost requirement is a regressive tax.
The net effect is that, with the 30% requirement in place, developers are discouraged from delivering housing in the price categories just above that of the low cost houses.

A significant segment of the population is thus deprived of homes that they can afford.

Some of the State governments have recognized this problem. One response has been to designate a wider range of lower cost housing. For instance Johor and Selangor have not only requirements low –cost houses but also for low-medium cost houses (RM60,000) and medium cost houses (up to RM100,00). With the recent initiative on “Affordable Housing” – here the range is even wider, going up to RM300,000 in city centres), it appears that the Federal Government too is realizing that the cross subsidy model is too much of a burden on the medium cost housing.

Table 4


Still, the distorting effect on the supply of housing priced just higher than the regulated price segments still remains.

Lessons
The very term "Low Cost Housing" assumes that the challenge is to find innovative ways to reduce the cost of building houses and in doing so, making it affordable to every family to own, regardless of their income level.

From my early work with low cost housing, I learned valuable lessons - the most important ones being that the low cost housing design involved more than the technical and cost problems of construction. For Malaysia at least, I can surmise that the problems of the quality of construction and the space standard of the housing has been adequately addressed. On the issue of quality, the problem was that of community and neighbourhood and how the lack of it could create instant slums. On the issue of cost, it is how to overcome the problems of cost and cross subsidy. All these issues would require further work on the drawing board to find a conceptual solution to this.

Problems of Location and Cost

Problem of Location
Where should the developer place the low cost housing? Low cost housing not only, lose money, they also depress the value of properties adjacent to them, so developers chose the worst portion of their land for them - bits of land that might need more piles and more expensive infrastructure, or low lying land right next to the oxidation pond that need extensive earthworks. These extra costs become a burden on the budget for the construction of the actual homes.
The low cost areas are also often isolated from other types of housing. So they generally end up being a distance from social amenities - schools, nursery, kindergarten and shops. Isolated, the low cost housing area offers few employment opportunities. Placed in a far corner of a housing project, they also lack access to cheap transportation. And transport can eat up a substantial part of the poor man's income.
However, perhaps the worst aspect of low-cost housing projects is the very idea of low cost housing areas: that poor people are concentration in one location - financially and socially stressed - in one location, does not make sense. The higher the concentration of people in these low cost housing areas, the more unmanageable the social problems become. Healthy communities comprise a mix of the rich, the poor and the in-between. Indeed traditional communities like kampongs are not made up exclusively of rich or poor people.

Problems of Cost
Low cost houses are subject to a ceiling price much lower than their construction cost.
Developers pay for this shortfall by putting higher prices on the other houses that they sell, that private developers are unable to cope with rising cost of land and construction. Although some State Governments have increased the ceiling price of low-cost houses, it is still capped at a maximum of RM42,000 per unit, which means developers end up subsidising costs of between RM18,000 and RM28,000 per unit.
You would expect demand for these low cost houses to be high. Yet, there are many completed low cost houses which have yet to find buyers.
Compound effect - Overhang in the supply of low cost houses
“Overhang” refers to completed properties issued with Certificate of Fitness for Occupation and unsold for more than nine months. There has been a persistent overhang in the supply of low cost houses since at least the 1997 recession. Developers lose money on Low cost housing even when they are fully sold. When they can’t be sold, the effect on the developers cash flow and bottom line can be catastrophic.

Table 2: Overhang in Supply, The Sun “Hung up on residential property”, 28-Apr-2006, citing The Property Market Status Report recently released by the National Property Information Centre (Napic) of the Valuation & Property Services Department.
 

Low Cost Housing in Malaysia

Housing Boom
In Malaysia, the housing industry took off in the 1970’s when rising incomes, the availability of housing loans with low interest rates, and urbanization fuelled a building boom that lasted till the end of the 1990’s. In the beginning, the projects involved small pieces of land and were undertaken by developers with limited capacity. By the 1990’s big private sector developers could undertake development involving thousands of acres, building not just homes, but wholly new townships.

Low cost housing program
In the midst of this extended boom, the Government instituted a low-cost housing program that sought to enable the poorer segment of the population to own their own homes. In the 1980’s, the price of these houses was set at RM25,000. This amount has been increased through the years.

Table 1: Low Cost Ceiling Prices, Low cost Ceiling Prices 1998 Revision, from Mohd Razali Agus, “Perumahan Awam di Malaysia (Public Housing in Malaysia)”, 2001


The provision of Low cost houses was shared between the public and private sector. The private sector undertook the construction of Low cost houses through a rule that required housing developers to have 30% of what the houses that they built to be Low cost houses. Throughout the program, the private sector outperformed the public sector.

In the beginning, the low cost houses were mainly single storey terrace houses. As the cost of land for developed increased through the years, developers opted for double storey house. As land became even more valuable, five storey walk up flats and later on, high rise flats were added. The scale of the biggest of these low cost housing projects also became larger and larger.

By the end of the 1990’s weaknesses in the low cost housing policy for the private sector began to show. The main problems can be clustered around the issues of location, cost (that compound each other) and the side effects of the subsidizing the low cost house.

A Low cost architect

I was mildly ill, but extremely busy this last 10 days. It's not a good start to this new series of blogs, but I I can start again now, and with a long post

A lot of the story happens in Malaysia, a middle income country where its population has come a long way from a mainly poor existence in the countryside to a modern urbanized one. A familiar trajectory (albeit compressed) to that experienced by developed countries in the West, and one that less developed countries might want to follow. They shouldn’t have to; they can copy its best parts, avoid the mistakes, and perhaps even leapfrog to the best and most advanced solutions.

So on to the next topic and the question of how to overcome the problem of providing housing for the poor:

A Low cost architect

Research

My starting point in research was in low cost housing. I had always been interested in ways to make it possible for the poor to own their own home. Research meant experimenting with designing new layouts, even when there was no client.

Most walk-up apartments in Malaysia can be described as slab blocks. In a paper written in 2000 I argued that the point block low rise apartment is not only more aesthetically pleasing and socially functional, it is also an economically viable alternative.

In the previous six years,  I had attempted to design low cost and low-medium cost housing that met the strict cost limits required by developers, the rules set by government authorities, and the same time achieve the aesthetic and social aims of my practice.

My firm approached this problem by designing and refining generic designs capable of being applied across the various sites, requirements and parameters of different projects.

Slab versus Point Blocks

In particular, we promoted the point-block low-rise apartment as a generic design which is superior to the ubiquitous slab block low rise apartment.

Figure 1: Perspective of a slab block

Figure 2: Typical floor plan of a slab block

Against to the point-block, the slab block certainly looks cheaper. And therefore it is cheaper goes the implicit commonsense logic. I challenged that common sense conclusion.

I worked with the concept of compact point blocks that have only 4 to eight units that shave only a single staircase and access lobby on every floor, resulting in a minimal amount of circulation space.

Figure 3: Perspective of  a point block

Figure 4: Floor and site plans of point block apartments

The point block walk-up apartment comprises a single staircase in the core and four or more units around that central staircase. Every unit is a corner unit. The point blocks that we’ve designed certainly do not look cheap but there are specific and verifiable reasons why point blocks are cost-effective:

Figure 5: Site plan of an octagonal point block

Density (units/acre)

Land is an important cost factor in housing. Commonly it is 10% - 20% of the total development cost of a mixed housing project. The accepted density for low-cost low rise apartments (in most States in Malaysia )is 60 units/acre. lt is not easy to achieve this density in an aesthetically pleasing and socially acceptable manner. You can maximise units for any given plot of land by using bigger blocks.  Right? Well, not always true.

It you have two similar round vessels of say 1 cubic meter capacity each and fill one vessel with large stones and the other vessel with small pebbles which vessel would contain more material? The vessel with the small pebbles will have more material. There would be less spaces between the pebbles compared with the bigger stones. In a similar manner, small blocks can fill up a site better than standard slab blocks. This tends to be true for big sites, especially sites with irregular shape. In the case of small sites, blocks designed to the shape of the land do better.

Space efficiency (net sellable area / gross area):

Small point blocks are more efficient compared to slab blocks. In particular the corridor is eliminated and the staircase and landing area is minimal. It is usual for point blocks to have 60% or less of corridor and staircase space per unit. It is not in typical for slab block with double loading corridors' to have 76sf (7sm) external circulation space per unit. Slab block with single loading corridors can have external circulation space 96sf (9sm) or more per unit. Architects sometimes think that the more units share staircases, the more cost effective the design, but the corridors that lead to the staircases also add cost.

Figure 6: Floor plan of an octagonal point block

Internal layout efficiency

This is about maximising space usage in units. In the point block generic design, every unit is a corner unit. There is a cost penalty tor this - there is less shared walls between units and there is less shared beams and columns. However there is a benefit - less shared walls means more external walls, and with more external walls for light and ventilation it is easier to design efficient and functional rooms. In our point block designs we try to maximise usable space and minimise circulation space. In intermediate units of slab blocks, external wall is at a premium. Voids have to be cut out in the interior of the block to provide windows to receive what little light and ventilation these air wells can provide. Or else, the exterior elevations require deep indents to bring in light and ventilation to the middle areas.

Figure 7: The floor plans of a slab block versus a point block apartment

The depth of the units, often long in relation to the width, results in long circulation spaces required to access the outer rooms. This layout also involves other substantial compromises in functional design. Firstly, entrances are invariably at the dining area near the kitchen. This is not functional but seems to be the accepted standard even for medium to high cost apartments. Secondly, there will be some bedrooms, the kitchen, drying yard and some toilets which will have to make do with light and ventilation from air wells. Thirdly, entering the apartment from where the kitchen and drying yard is situated creates the impression of entering a home from its backyard. Fourthly, bedrooms are difficult to cluster together in a private zone separate from the semiprivate living and dining areas.

We have found that with point -blocks that have square plan-forms and ample external walls, the abovementioned compromises can be overcome circulation space can be minimised. In fact corridors can be eliminated.

Block footprint

One of the reasons why the point block is able match the density of the slab block is its efficient footprint, There are no internal voids, and the generally we aim for shapes that fit well in a circle. But a small footprint has its own rewards. This has to do with earthworks and the building foundation. Blocks with small footprints require small earth platforms. Blocks with big footprints require larger earth, platforms. A series of small earth platforms generally involve less volume then a series of larger platforms cut out from the same original slope profile. From the same illustration it is also intuitively clear that easier to arrange point blocks to sit on cut ground than it is to arrange slab blocks to meet this same requirement. Having original ground to sit on rather than fill ground can save a lot in foundation costs. Of course slab blocks can be arranged along contours to minimise earthworks, though this limits the flexibility of the layout and is not effective where the land slope in two directions. Another possibility is to stagger the slab block down the slope, this requires retaining walls or stilts which again adds cost, and reduces standardisation.

Figure 8: Point block versus a slab block on a slope

Therefore it can be said that generally point blocks with smaller footprints than slab blocks provide greater flexibility in external layout design, requiring less earthworks and lower foundation costs.

Figure 9: Bird's eye view of an apartment complex for 5000 students

Many variants of this house type got built including a student apartment complex in Batang Berjuntai, in Selangor, Malaysia. I should add that in the end, only a small percentage of the apartments that I got built were actually in the low cost category, which, I will explain later is no bad thing.

In the 1990's I had my first big break the Malaysian government embarked on an attempt to rekindle the low cost housing program which had stalled somewhat. I received a few large commissions, and this gave me my first research budget, and the prospect of having tens of thousands of these units built in the period of a few years. However, the East Asian financial crisis in 1998 resulted in many of these projects being shelved. This for me was a blessing in disguise. I now think that many of these schemes would have ended as slums.

I apologize of course for the inadequacy of my work, but I can say that it was all not my fault: I can share the blame with the social housing policy and the widely held views and common practice amongst architects and town planners.

Topics to come

In the coming months, I hope to tell the story of the ideas behind the Nong Chik Honeycomb project, how these ideas developed, the stage they’re at now, and where I hope they can go. The ideas are simple –it starts with the observation that people are social beings with a natural affinity to living in small groups; in this respect, traditional societies like that found in villages and small towns were better than urban ones.

In the next few posts I will describe the details of Honeycomb housing as an alternative to terrace housing, so ubiquitous in my country. Conventional terrace housing have not been noted as being able to encourage a strong sense of community, and the Honeycomb housing is advocated as a better alternative, while at the same time using land more efficiently (by requiring fewer roads) and reducing the cost of infrastructure.
I will then introduce the reader to a branch of geometry called tessellation - up to now mainly used in the design of tiles to cover walls or floors - now used as a technique to plan the layout of neighbourhoods.


From tile layout design to the planning of neighbourhoods


This will be followed with demonstrations of how this technique is applied to design alternatives to other types of houses - the detached house, the semi-detached house, the zero-lot house, the cluster house, the (Malaysian) townhouse, the low rise walk-up apartment, the (Anglo Chinese) shop house, courtyard housing, and finally, the high rise apartment.


 The Honeycomb detached house layout



The Honeycomb detached house courtyard


The triplex house; an alternative to the semi-detached house

The Honeycomb triplex courtyard



A Mosaic courtyard of zero-lot houses


Honeycomb Apartments



The lobby to the Honeycomb apartments





The internal courtyard of the Kotapuri shop houses



Section through the Kotapuri shop house


A cornerstone of the work I've been doing for more than 10 years now has been the constant effort to always arrange homes around small friendly courtyards: to group small numbers of homes around courtyards that are suitable for children's outdoor play, for social interaction between neighbours and for big trees to be planted, acting as a sort of semi-private space for the residents living around it.
But I also want to achieve all this without costing much more than more conventional types of houses.

The solutions developed thus far have included the layout of “Honeycomb” housing and “Squares” housing, and the courtyard version of shop apartments and low rise apartments, where individual apartments are arranged around lobbies and the apartment blocks circle an external courtyard. So there are designs based on the hexagonal grid, as seen at the hillside Honeycomb project shown in the last post; there will also be solutions based on the rectangular grid.


The Squares courtyard: a rectangular version of the Honeycomb layout

There will be layouts for small sites, and there will be proposals for big sites where it will be a challenge to overcome the negative side effects of trying to achieve the economies of scale – the problems of monotony and the way-finding (how to help people not get lost!).

Fourteen houses on just under an acre of land



Over 160 acres of housing on the Eastern side of this new township

Do these alternatives work? Only a few of the new types of houses proposed have been built. In this blog, the reader is invited to come to evaluate the new designs and come to his or her own conclusion.

Nong Chik Honeycomb Housing

This is my project in Nong Chik Johor. It’s somewhat different from other housing schemes. It is a hillside development on 14 acres of land situated just at the edge of Johor Bahru Central Business District, which will offer a something like a traditional village lifestyle.

Small groups of houses are laid out around a communal courtyard like friends sitting around a table. This makes it easy for neighbours to get to know each other. Strangers entering a cul-de-sac would feel that they were entering a semi-private area, and furthermore they would be easily recognized as strangers by the residents.

It’s like that in the kampong, people know each other; it’s not uncommon to greet a stranger and to politely ask what brought him to the kampong. The loops and bends in the roads leading to the houses, less than 25 metre in any straight stretch, slow down cars to a walking speed - 15 kilometres per hour. Furthermore, with the Honeycomb layout, parents can easily oversee their children playing in the courtyard in front of each home. Indeed, there are many ‘eyes on the street’ that can deter unwanted behaviour.
Giant, fast-growing trees will be planted in the courtyards to shade and cool the outdoors. All these factors will encourage parents to let their small children play outside.
The courtyards not only serve as a recreational area, but are also suitable for weddings and any other community events.

There are three new types of houses, the quadruplex, sextuplex and duplex house designs, which are nothing like the ubiquitous terrace houses, but nevertheless pack more units per acre.
The houses designs will also feature thick roof insulation, generous overhangs and automated night-time ventilation that will reduce radically the need for air-cons.

The hill-side houses will follow closely the existing site contours in a way that minimizes the construction of retaining walls.

The Honeycomb housing can be said to be an attempt at recreating the Malaysian kampong. It seeks to offer a community lifestyle that many used to enjoy in their childhood, but in an urban setting. I saw it also as a cost effective alternative to terrace housing. The pricing for this development, starting at RM295,000 for a 1400sf quadruplex house near the city confirms this.

Kampongs for Cities 

Dear reader, I'm relaunching my blog with this new title.

I think this title captures what I have been working on the last ten years. Kuala Lumpur, where I was born, is a bustling city full of people – mainly of course with people we don’t know. A kampong is a traditional Malay village, and my father came from one. Like many of his contemporaries he moved to Kuala Lumpur in the 1950’s because that is where he could find a job. Kuala Lumpur like many other cities in the world has grown tremendously. I remember when its population was less than 200,000. Now, just over 40 years later, it’s there are about 1.6 million within the city's boundaries; add in the surrounding urban areas that make up the Klang valley, it is more than 7 million.

The city has been good to many people who move to cities – that is where progress is concentrated. Even in squalid slums in the cities of poor countries, the urban poor are much better off than the poor in the countryside. Yet, many urban migrants still long for the country life. The most famous cartoonist in Malaysia is Lat, who made his name with his semi-autobiographical cartoons about growing up in his village, his studies in a provincial town, and work in the big city, and there is no mistaking his fondness of kampong life, and this is something he shares with many of his compatriots.


Urbanization appears to be strongly linked with progress and modernization; the advantages overwhelm the drawbacks: more people, of their own free will, move from country to town than the other way around. As this global trend continues, more houses have to be built: some of empty land in and around cities has to be developed; some of the existing areas which are inefficiently used, or dilapidated, ramshackle and in need of improvement have to be redeveloped. It can be said that the a million cities, or its equivalent, will be needed this century. In particular, new housing will be needed – very many of them and at a price that even poor people can afford.

Otherwise the slums that dominate many cities will continue to grow. But the new houses should also be able to do more than meet human needs, in the basic physical sense of providing shelter, safety and comfort. They should also meet our social needs. I'm suggesting that new urban housing should have some of the features of what living in kampongs used to be like.

If indeed urbanization is inevitable, is it possible to make cities better by making them more conducive to communal life? In particular, can architecture and town-planning make a difference? My hopeful answer is, of course, yes. In new “Honeycomb” neighbourhoods, small groups of houses are arranged around communal courtyards. I will try to show that this arrangement can be used from suburban houses to high rise flats.

There are many aspects that we can look at when we compare life in the city and country, but the differences are largest when we look at children. Growing up in a city for my children is nothing like how my father or Lat grew up. Although progress has made us wealthier, healthier and more educated (let’s not glamorize poverty), but there is something about kampong life that is palpably better than what we have now in cities. Just some of the reasons for this is the green open spaces, the lack of over-concern about safety, and the sense of community that is found in places where people know each other. All these combine to make the kampong an environment where children have most opportunity to play outdoors, independently.

The central thesis of this blog will be that it is possible to recreate some of the features of kampong life for everyone, but especially for children. In the next post. we'll first look at a project that is just about to complete.