SMALL, MEDIUM, AND LARGE SIZE HOUSING
2. Controlling Housing Price in Jabodetabek-Banten
The housing market in Jakarta, the capital city of Indonesia, also needs to be monitored. Along with its satellite cities, this area has become a huge economical city called Jabodetabek-banten. Economic activity in this area is very high—it incorporates more than 60% of the national Gross Domestic Product (GDP). In addition, more than 19 million people live in this area, causing a population density of around 10,800 people per km2. This makes it one of the most crowded cities in Indonesia. Therefore, housing need is one of the big issue there.
Figure 4.3. Average Point of Observed Variables of Each Cities Source: Bank of Indonesia
Although the housing price in Jabodetabek-banten is not the worst, but there is a warning for policy makers. Table 4.2 shows that small housing in Jabodetabek-banten is demanded much more than medium and large housing. In addition, there is a very high average yearly growth rate, which is around 7.06%; this is above the general housing market growth of 4.84%. This growth also quite high compared to the average of small housing growth in all cities, which is at 5.76%. Figure 4.3 shows that the COC growth in Jabodetabek-banten should receive special attention. The growth is the highest among 14 observed cities at 2.88%; while the average growth in all cities is only 0.76%.
Due to its significant relationship to the housing price, the government should overcome the high growth of the COC to reduce the rocketing price in this area. Although, statistically, it does not significantly affect the small housing price, construction cost may affect other markets, such as the medium and large housing markets. This may indirectly affect the small housing price. If there is a significant reduction in the price of medium and large housing, then small housing may face price adjustment.
D. Conclusion
This research aims to reveal the impact of interest rate, inflation, aggregate income growth, and construction cost on housing price in Indonesia. There are four kinds of market that are studied—general, small, medium, and large housing markets. Panel data regression method is used to analyze the data, which consist of 14 cities as cross-sectional data and 8 years—2009 to 2016—as the time span.
The result presents that interest rate, inflation, GRDP per capita as aggregate income, and construction cost are statistically significant in affecting the price of the general housing market. All these variables show positive relations to the housing price.
The positive sign of the interest rate is the underlined finding. Other studies discovered the same result (such as H. Zhang et. al. (2016) and Tse et. al. (2014)). Theoretically, the positive relation points out that the supply side of Indonesia’s housing market is more sensitive to the interest rate than the demand side.
Moreover, the result also shows that there are several relational differences among the three housing markets. While the small housing price is only sensitive to the movement of the interest rate and the GRDP per capita, the large housing price is only responsive to the interest rate and the movement of the construction cost, whereas the medium price is statistically affected by all observed macro economy variables—the interest rate, the construction cost, the GDRP per capita, and inflation. All these relations show a positive sign.
Furthermore, the small housing market, with the coefficient 178.098, is the most sensitive in terms of interest rate, followed by the large and medium housing markets, at around 168.410 and 136.748, respectively. In addition, the large housing price is more affected by construction cost change at coefficient 0.091-point base rather than the medium housing price, which is at 0.077 point; GRDP per capita variable has a greater impact on the medium property price at 8.150 point than the small property price at 6.007-point base.
Regarding the sensitivity of the supply side on the interest rate, the government should interfere in the housing supply side by providing low interest rates, especially for affordable housing developers. This may promote higher housing activity and may slow down the rocketing yearly growth of small or moderate housing price. Until now, the Indonesian government has no policy that targets the supply side through a financial scheme, whereas the government tends to run a financial scheme for targeting the demand side, called the Housing Financing Liquidity Facility (FLPP). This policy provides a low interest rate for poor people to own a cheap or small house. Unfortunately, this policy can only promote more demand, which is capable pf lifting the price. With BI rate at around 4.75% at the end of 2016, property production credit should potentially be reduced not only for small housing but also for all types of housing.
Moreover, Jabodetabek-Banten encounters a high average yearly construction cost growth of 2.88%. This growth is more than threefold of the 0.76% average of all cities.
Although housing price growth in Jabodetabek-Banten is not the worst, controlling the cost growth may decrease the rate of growth in house prices. This finding indicates that the government should deliver a policy to control construction cost growth in this area to lower the rapid growth of housing price.
Additionally, there is a chance for further studies. Some studies argued that there are some other variables that have a relationship with housing price, such as land price, population, workforce, and money supply. Adding these explanatory variables may provide a new point of view. Furthermore, there is an argument for the backward relationship between the analyzed dependent and the independent variables. For example, H. Zhang et. al. (2016) explains that housing price also has an impact on inflation. By analyzing wider channel of relationships like this, there is a possibility for a deeper insight of study.