Institutionalizing Housing Solutions: Building Hope for Homes

This article is originally published on The Jakarta Post on February 2025

President Prabowo Subianto’s target of constructing three million houses annually is a noble step toward addressing Indonesia’s persistent housing crisis. It is also a deeply ambitious one whose scale dwarfs that of the United States, which built 1.56 million new houses in 2023, and is half that of China, which constructed 6.61 million residential properties in the same year.

The projected costs for meeting this target are substantial, requiring approximately Rp 600 trillion (US$40 billion) a year—a figure that far exceeds the current state budget. The government must take a brave leap to ensure a just, comprehensive and lasting end to the nation’s housing crisis. This ambition needs a fundamental change that focuses on institutional development that can iron out this chronic problem.

At least 9.9 million Indonesian households currently lack housing of their own, a figure that constitutes 13.56 percent of all households in the country, according to Statistics Indonesia (BPS). Not to mention, 34.75 percent of homeowners live in uninhabitable houses. This deficit is chiefly caused by increases in housing prices outstripping increases in wage growth.

In Indonesia, housing prices throughout the provinces are increasing at an average rate of 10-20 percent annually, while wages are only growing by 3-5 percent. This problem is especially pronounced in Jakarta, where housing costs account for 10.3 percent of annual income.

This number is significantly higher than other cities facing much-publicized housing crises, for instance, in London, where housing accounts for 8.5 percent of annual income, and 5.7 percent in New York.

The high costs of transportation from peripheral areas, where most new housing is built, also eat up 30 percent of household expenses, reducing purchasing power and further putting housing out of reach for many. Indonesians also face the highest mortgage rates in Southeast Asia at 9.98 percent, further setting back homeownership aspirations.

A recent survey by Pinhome summarizes the concerns of Indonesia’s sandwich generation as the following: Difficulties in finding the right house, high monthly installments, excessive additional costs, communication problems with banks and realtors and in saving for a down payment.

The housing crisis is a global problem, and many other countries have adopted a wide range of approaches that Indonesia can learn from. South Korea’s Land Housing Corporation (LHC) offers an interesting model. The LHC oversees public-private partnerships for housing developments and manages Korea’s land supply for housing, all supported by a robust regulatory framework.

Furthermore, Korea also possesses a unique jeonse system of housing rental payments. Under jeonse, renters are only obligated to pay a deposit of around 50 to 80 percent of the property’s value. The deposit is then returned at the end of the renter’s lease, with the expectation that the landowners will have made a profit by reinvesting the deposit elsewhere. This allows for lower costs of living for renters for the duration of the lease.

While the Korean approach has been effective, it has also led to complaints of limited housing diversity, and the Korean construction industry has also been pushed to capacity to meet the demands of the LHC. The jeonse system, while admirable, may not also be directly transferable to Indonesia, as it is deeply rooted in Korean cultural norms and practices.

China’s response to its housing crisis has perhaps been the most dramatic and ambitious in human history, transforming Chinese cities into bustling hubs of high-rises and human activities. The Chinese government leased land to private developers in 70-year leases, which represent important revenue sources for Chinese cities. On these plots, Chinese cities are built upward, creating superblocks that are equivalent in density to 11 Manhattan blocks or 64 Tokyo blocks.

Three forms of housing are typically available in Chinese cities. Public rental units, for low-income urban families; government-subsidized units, for new urban residents and younger graduates; and shared ownership units, for higher-income residents who are still unable to afford houses, such as those in specialized industries such as tech or nursing.

The Chinese government’s principal measure of financing its housing industry is through subsidies and lending. More recently, the Chinese government has introduced a scheme to loan money to local municipalities to convert unsold housing units into affordable housing.

Critics contend, however, that China’s rapid urbanization has resulted in high-density urban sprawl, and that its land-use repeats the mistakes of the suburbanization of American cities by prioritizing sprawl and a car-centric culture on the periphery. Finally, Indonesia and China both have differences in governance structures and economic development stages that would make directly copying the Chinese model difficult.

Several examples, however, present themselves to Indonesia. Both in Korea, China and elsewhere, governments have created strong institutional frameworks and bodies for tackling the housing crisis. Indonesia must lay down a robust and integrated institution for addressing these perennial housing and settlement problems.

The government with the support of the House of Representatives should strengthen the legal framework in the form of a revolutionary property omnibus law. This law needs to regulate the governance of public housing and settlement development, starting from spatial planning, land acquisition, location selection, financing schemes and implementation and allocation arrangements, which will involve relevant governments and other stakeholders.

To innovatively finance its housing programs, the government could firstly utilize its limited budget as a seed fund to catalyze private sector investment. The existing Tapera and other facilitating policies can be further strengthened to encourage public participation in housing finance, as well as to make borrowing easier for prospective homeowners.

To foster collaboration and build trust between the public and private sectors, the government can strengthen various models, including joint ventures, the existing FLPP (housing finance liquidity facility), SBUM (down payment assistance subsidy) and build-operate-transfer (BOT) schemes. International investors are encouraged to participate by building a competitive market mechanism in the housing industry.

Urban spatial planning must be regulated and developed by shifting its orientation to a transit-based approach, prioritizing the development of settlements around public transport hubs. For instance, in Jakarta, new spaces should be created around transport points. Each transit-oriented development (TOD) area should offer a mix of free rentals, leasable subsidized properties and properties available for purchase. These partnerships can leverage the expertise and resources of private developers while ensuring that housing projects align with government priorities.

This approach will not only optimize land use but also improve accessibility for residents and reduce reliance on personal vehicles. Furthermore, the mix of housing options will cater to diverse income levels, promoting social equity and inclusivity.

Finally, the focus should extend beyond mere physical construction, but also toward constructing homes that foster societal progress and well-being—building homes, not just houses. While meeting numerical targets is necessary, building people’s trust and confidence is the most important aspect that helps with long-term success.

By adopting these innovative solutions, Indonesia can not only surmount its housing crisis, but also improve the quality of life of its citizens.