Millennials Finding It Harder to Buy Their Dream Homes
Millennials, also known as Generation Y, refer to those born between 1980 and 1995. This demographic group is now in their productive age and many of them are the first-time homeowners.
Minimum wage workers in Jakarta can only buy houses in remote areas with minimal access to public transportation. The mass transit system should therefore be expanded to areas of new growth.
JAKARTA, KOMPAS — Workers and millennials living in Jakarta on minimum wages can only buy small houses located 30-50 kilometers from the city center. At the same time, the current mass transit system does not serve new settlements that extend to the outskirts of Greater Jakarta.
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Millennials, also known as Generation Y, refer to those born between 1980 and 1995. This demographic group is now in their productive age and many of them are the first-time homeowners.
Based on Kompas’ calculation, on the Jakarta provincial minimum wage (UMP) of Rp 4,416,186 (US$315), workers can only buy houses with a maximum price of Rp 168.8 million, which applies to small houses measuring 36 square meters located in Bogor, Depok, Tangerang, and Bekasi (Bodetabek).
The figure is based on analyzing a residential zoning map from the Agrarian and Spatial Planning Ministry/National Land Agency that consists of 34,000 properties in designated land value zones (ZNTs), along with data on the 2020 prices of more than 2,236 houses found on the internet.
The analysis combined the two data sets to estimate the price of houses in each of the nine ZNTs. The analysis makes it possible to estimate the prices of several house types across Greater Jakarta and surrounding areas.
Based on the analysis, houses with a price of Rp 168.8 million or those affordable for the minimum wage workers are located in a radius of 30-50 kilometers from Jakarta’s city center (National Monument/Monas).
A number of affordable homes closest to downtown Jakarta are located in Rejeg, Tangerang regency, and Parung Panjang, Bogor regency to the west. To the east, affordable homes are located in Babelan and Setu, Bekasi regency, while to the south, they are located in Cijeruk, Bogor regency.
Unfortunately, the results of the analysis also show that residents in these three areas still find it difficult to access public transportation. Using population data from the latest Global Human Settlement Layer (GHSL) published in 2015, it was found that only 59.9 percent of residents in Bekasi regency, 57.9 percent of residents in Tangerang regency and 48.9 percent of residents in Bogor regency have access to commuter trains and toll gates that are located within a 5 km radius from their homes.
Affordability
The estimate that minimum wage workers in Jakarta are only able buy small houses for a maximum price of Rp 168 million was derived by running a credit simulation with installments amounting to a maximum 35 percent of the minimum wage (Rp 1.5 million), a loan term of 15 years, and 8 percent fixed interest per year.
From this simulation, affordable houses range in price from Rp 168 million to Rp 200 million. For workers with monthly incomes of Rp 7 million or monthly installments of Rp 2.5 million, the price of affordable houses range from Rp 250 million to Rp 300 million.
Buying a new house in Jakarta is almost impossible for people with this level of income. It can be seen from the analysis that, due to high land prices, the price of a 36 sqm landed house in Jakarta starts from Rp 556 million. House of this price level is only affordable to workers that earn a monthly income of Rp 14 million or monthly installments of Rp 4.9 million.
The house price-to-income ratio (PIR) categorizes houses as affordable if their prices are no more than three times the annual household income, equivalent to a PIR of 3.
The difficulty in buying a house in Jakarta is also due the wide gap between house prices and incomes. The house price-to-income ratio (PIR) categorizes houses as affordable if their prices are no more than three times the annual household income, equivalent to a PIR of 3.
Using the PIR concept, Kompas also calculated the ability of workers on the Jakarta minimum age to buy a house in 2010-2020. The results showed that minimum wage workers in Jakarta could only buy houses that fell into a price range of between Rp 40.4 million and Rp 158 million. For comparison, the price of 36 sqm landed houses reached between Rp 300 million and Rp 564 million during the same period.
There is a large gap between the ability of workers to buy a house and the price of houses in Jakarta. The gap continued to widen over the past 10 years, almost doubling from Rp 259 million in 2010 to Rp 405 million in 2020.
In the years to come, Jakarta’s minimum wage workers are expected to face even more difficulty in buying homes, because the price of a small house (maximum 36 sqm) and their incomes do not increase proportionally over time.
According to the Residential Property Price Index of Bank Indonesia (BI IHPR), the price of small houses in Greater Jakarta and Banten increased by an average of 6.47 percent on an annual basis over the last decade. The price of medium-sized houses (types 36-70) increased 4.45 percent per year and that of large houses (above type 70) increased 2.72 percent per year.
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Using Bank BTN\'s House Price Index (HPI) data from the last three years, it was found that the prices of nonsubsidized houses in Jakarta’s buffer cities increased at a higher rate than in Jakarta. The per annum HPI BTN increase in Bodetabek was 6.2 percent, higher than the 3.9 percent recorded in Jakarta.
Too late
Housing Director General Khalawi Abdul Hamid at the Public Works and Housing Ministry admitted that it might be too late for the government to manage land for the provision of affordable housing. If the government had set up a land bank 20 years ago, the state could have purchased and managed land, he said. The land banks would have made it easier to provide decent housing for low-income households (MBR) in big cities, he added.
“If you want to build houses for MBR, they should be on affordable land. However, the land prices in Jabodetabek are already exorbitant,” said Khalawi.
He also acknowledged that, due to the absence of a land bank, affordable houses could only be found far from the city. To cope with the problem, the government was encouraging the development of low-cost houses in areas integrated with public transportation, he added. The government’s policy to expand the mass transit system to areas as far as Maja, Lebak regency had led to the development of new growth centers, he said.
The government had also established a Land Bank Agency through Law No. 11/2020 on Job Creation. This institution, Khalawi said, supported the effort to provide affordable housing to the public, namely the One Million Houses program.
The program, which has developed 5.76 million houses since 2015, is expected to reduce the housing backlog, which had reached 16.4 million as of March 2020. The government, through the Public Works and Housing Ministry, had set a maximum price of Rp 168 million for subsidized 36 sqm houses (type 36).
The house they vacated could then be occupied by households still categorized as low-income.
The vice chairwoman of Real Estate Indonesia, Theresia Rustandi, said that one solution the government could implement in ensuring the availability of land for affordable housing was to apply a special zoning rule. Residents who had been "upgraded" to a higher income level must leave certain housing areas. The house they vacated could then be occupied by households still categorized as low-income.
"Otherwise, MBR housing will be pushed further to the outskirts and the government\'s infrastructure development burden will be even heavier," said Theresia.
Meanwhile, vice chairman Nurul Yaqin of the Indonesian Real Estate Brokers Association said that access to public transportation was the most important aspect in buying a house. Areas near toll gates and commuter train stations had now become new centers of growth, he added.
Even though newly developed residential areas are located far from Jakarta, landed homes were still attractive to the younger generation because land value continues to rise. Cofounder Eko Endarto of Finansia Consulting said the trend indicated that buying landed houses was still good for investment. "Because it is the price of the land that increases, not the structure," said Eko.
Apartments did not give big returns, but many people still bought them so they could live in areas closer to their offices to keep down transportation costs arer, said Oneshildt Financial Planning founder Mohamad Andoko. (XNA/PUT/SPW/DAN)
(This article was translated by Hendarsyah Tarmizi).