Land policy and its implications for housing the poor

Published in the Jakarta Post, September 20, 2011

The market and overall land policy remain major issues when it comes to provision of housing for low-income people in a decentralized Indonesia.

In many of the country’s large and medium-size cities, such as Semarang and Manado, a huge proportion of urban land has actually been registered with the Land Administration Agency (BPN).

Nevertheless, many low-income people are living in dense slums, riverside or flood-prone areas with low ternure security. Some of them build houses on land with title rights (HP), but they informally rent the land from a third party, thus lacking the promised tenure security. This will likely create conflicts over ownership in the long run.

Struggling for better tenure security, many low-income people have been moving from downtown areas to the suburbs, where access to jobs, infrastructure and amenities are minimum, if not absent. However, suburban homebuilders still have to face expensive administration costs to maintain their land.

Why do problems with land registration persist?

The answer is found in both formal and informal complications within the process. In the practice of registering land, local BPN offices face difficulties in adhering to the law and regulations. Yet even within these rules, there is uncertainty regarding the cost and time required to register land.

Many local offices are unable to publish in detail the actual process and fees involved in land registration. In order to obtain land certificates on time, the actual fees paid by applicants vary and are often much higher than that formally stated in the regulations. As a result, many low-income people cannot afford to register their land.

Chief of BPN Regulation No. 1/2010 stipulates that the entire procedure of land registration should last between 38 and 97 days. Nevertheless, in practice, the actual procedure, without involving illegal levies, may take six months to one year.

To some extent, this non-transparent discretionary practice is an outcome of the law and regulations on land administration that provide loopholes or contain unimplemented directives.

A clear example for this is the ruling on the splitting of Building Rights Title (HGB) that allows only five lots at once. Another explanation of the obstacle is perhaps the working system in the local BPN offices, which is inefficient due to lack of qualified human resources and insufficient supporting infrastructure.

As another illustration, the regulation governing the land acquisition process, which is a fundamental process for developers, varies
from one region to another due to different land development permit procedures.

Local regulations on permit procedures can be complicated and contribute to delays in the land
acquisition process. It also encourages developers to violate the procedure by silently acquiring land without prior completion of permit applications.

The central and local governments are facing great challenges in order to improve the access of low-income earners to land for housing. Land policy reform is one of the basic areas that need attention. Several points of recommendation can be suggested.

Clearly, BPN, as a centralized institution, has created a bottleneck in land administration and permits for low-income housing development. Therefore, in the long run, the government should reform BPN to become a decentralized institution in order to extend land administration services to make them closer to the grassroots society and to increase transparency.

Barnes (2003) suggested that the central office of BPN may retain the functions of policymaking, coordination and the establishment of standards and norms, but not necessarily the everyday operation of land registration and development.

Institutional building of BPN should focus on the local level because an effective decentralized land administration system will require adequate human, technical and financial resources to operate the system at this level. Building the capacity of the officials and supporting them with modern infrastructure are more important than just increasing the number of officials.

In addition, the government should develop reliable reward mechanisms, preferably in the form of salary increases for performing officials. The preferred strategies will be able to increase efficiency and minimize room for corruption and bribery.

Another structural recommendation is reform of regulatory framework. In order to speed up the housing development process, regulations on land administration and development procedures shall be made more clear, more simple and more flexible. It is also aimed at minimizing unofficial and unnecessary transactions in the process.

In order to reduce the time and costs involved, BPN should cooperate with local governments to integrate the currently fragmented land administration and development permit systems.

They can establish a joint office to provide “one roof” services for land registration and development permits. Such an integrated system can speed up the bureaucratic process and avoid redundant costs and steps.

Access to land is a primary issue for low-income people in building their houses. The Ministry of Housing can provide financing facilities not only to buy home but also to secure land for housing through, for example, subsidized land registration programs.

The ministry can first set the criteria for eligible low- income groups based on their policy objectives. The local governments have the responsibility in identifying eligible people in their jurisdictions by translating and adjusting the set criteria. The subsidy is given to gradually reduce the unnecessary socio-economic costs involved in land registration.

Finally, the land supply for housing cannot be entirely given to free market mechanism because the lowest income groups do not have equal market access. Besides, small and vulnerable profit margins in combination with high transaction costs of land administration and permits have discouraged private developers from focusing their businesses on low-income housing.

Therefore, local governments should be proactively involved in supplying land and basic infrastructure for housing. The government can cooperate with the private sector in land banking to anticipate low- income housing needs in the future.

In addition, the government can provide incentives in the form of, for example, facilitation, simplification and elimination of parts of land administration and permit procedures for private developers applied to housing for low income people.