A Roadmap For Housing Policy Reform

Indonesia
A ROADMAP FOR HOUSING POLICY REFORM

January 2015
January 2015
Indonesia
A ROADMAP FOR HOUSING POLICY REFORM
Acknowledgments
This report was produced with advisory from the World Bank and nancial support provided by
the FIRST Initiative and the Australian Department of Foreign Affairs and Trade via the Indonesia
Infrastructure Support Trust Fund. It has been prepared for the Government of Indonesia, in
collaboration with Bappenas, Directorates of Housing and Settlements and of Land and Spatial
Planning, and the Ministry of Public Works and Housing.
The recommendations put forward in this report originated from a consultative planning process,
supported by Focus Group Discussions held by Bappenas and the Ministry of Public Works
and Housing, stakeholder forums, one-on-one meetings and regular inputs by the Core Team
for Housing Policy Reform and the Inter-Ministerial Working Group for Housing and Settlements
(Pokja PKP). Technical ndings and policy recommendations also beneted from the input from a
large team of international and national housing experts.
We are grateful to all the government counterparts and stakeholders who participated in this
process. In particular, we would like to express our special gratitude to the following individuals
whose facilitation and guidance has been essential to the development of the Roadmap:
Mr. Dedy Supriadi Priatna, Director Minister for Infrastructure, Bappenas
Mr. Nugroho Tri Utomo, Director of Housing and Settlements, Bappenas
Mr. Oswar Mungkasa, Director of Land and Spatial Planning, Bappenas
Mr. Hardi Simamora, Head of Bureau of Planning and Budgeting, Ministry of Housing
While the comments and inputs to the proposed Roadmap have come from many contributors,
all shortcomings of the work rest solely with the authors.
ii
Indonesia | Roadmap for Housing Policy Reform
Contributors
Government of Indonesia
The World Bank
Bappenas, Directorate of Housing and

Settlements
WB Team Leads
Nugroho Tri Utomo, Housing and Settlements Director

Hari Kristijo, Head of Housing Development Subdivision
Nurul Wajah Mujahid, Planning Staff
Rizqi Luthana Khairu Nisa, Supporting Staff
Taimur Samad, Task Team Leader, Sr. Urban Economist,

GSURR
Rumana Huque, Co-Task Team Leader, Sr. Urban
Specialist, GSURR
Josephine McVitty, Urban Specialist, GSURR
Tiara Anggita, Supporting Staff

Sheny Diah Puspita, Planning Staff
National Contributors
Dodo Juliman Widianto, Incremental Housing Specialist
Mahditia Paramita, Rental Housing Policy Specialist
Bappenas, Directorate of Land and

Spatial Planning
Miya Irawati, Urban Land Policy Specialist
Oswar Mungkasa, Land and Spatial Planning Director
Ruslan Prijadi, Housing Finance Specialist
Uke Moh Hussein, Head of Land Sub-Directorate
Anindiaztuti Rachmadani, Housing Finance Analyst
Gita Nurrahmi, Supporting Staff
Adhitya Wirayasa, Urban Land Policy Analyst
Budi Prayitno, Housing Sector Governance Specialist

Wied Winaktoe, Housing Sector Governance Analyst
Ministry of Public Works and Housing

Nostra Tarigan, Head of Program Division, Planning Bureau
International Contributors
Andrey Milyutin, Sr. Housing Finance Specialist, GFMDR
Rochdianto, Head of Self help Housing Strategy, Self Help

Housing Deputy
Victor Mints, Operations Ofcer, GFMDR
Merlina Rubiyati, Head of Formal Housing Strategy, Formal

Housing Strategy Deputy
Dao Harrison, Housing Policy Specialist
Haryo Bekti, Head of Program and Budgeting, Housing

Finance Deputy
Olivier Hassler, Sr. Housing Finance Specialist

Duong Huynh, Housing Policy Analyst
Deidre Schmidt, Public Housing Policy Specialist
Diah Parahita, Head of Foreign Cooperation Administration

Sub-Division, Bureau of Planning and Budget
Matthias Nohn, Incremental Housing Policy Specialist
Rika Revireza, Supporting Staff
Raven Anderson, Urban Development Analyst, GSURR
Geoffrey Payne, Sr. Urban Land Policy Specialist
iii
Contents
Acknowledgments
ii
Contributors
iii
iii
Chapter 1
Key Messages of the Roadmap
Chapter 2
Objectives of the Roadmap
Chapter 3
Why Indonesia Needs Housing Policy Reform
Chapter 4
Strategic Framework for Housing Policy Reform
17
Chapter 5
Targets and Budgets
21
Chapter 6
Description of Policy Actions
25
1.
Develop a Comprehensive Slum Upgrading Program
26
2.
Reformulate the Approach to Formal Subsidized

Housing
29
3.
Redesign Support to Home Improvement
34
4.
Enable the Affordable Formal Housing Market
37
5.
Build Robust Delivery Systems
43
6.
Mobilize Urban Land for Settlements
49
Chapter 7
Roadmap Implementation
Annexes
iv
53
59
1.
Principles of Housing Policy Reform
59
2.
Target Population an Affordability
61
3.
Background to Housing and Settlements Policy
74
4.
Sector-Specic Context
78
4.1 Housing Sector Governance
78
4.2 Slums and Settlements
90
4.3 Urban Land Policy
100
4.4. Home Improvement and Incremental Expansion
109
4.5. Public Housing Policy
116
4.6. Mortgage Markets
129
5.
Overview of Recommended Policy Actions
142
6.
Relevant Case Studies
144
7.
Selected Reference Documents
157
8.
Glossary of Terms
159
List of Figures
Figure 1. Estimated Housing Affordability in Indonesia in Market Conditions*
Figure 2. Total Budget Allocation to Programs by Ministry of Housing,
2011-2014 (tr. IDR)
Figure 3. Number of Substandard Housing Units by Decile
Figure 4. Goals, Policy Solutions and Scenarios
9
10
12
19
List of Annexes Figures

Figure 1.
Figure 2.
Figure 3.
Figure 4.
Figure 5.
Figure 6.
Figure 7.
Figure 8.
Figure 9.
Figure 10.
Figure 11.
Figure 12.
Household Ownership Rate per Decile.

Number of Housing Units with Various Substandard Characteristics
Ten Year Growth Trends in Indonesia (2004 2013)
Average Monthly Household Expenditures, by Decile and by Geography
Estimated Level of Affordability of Units for Main Household Segments
Flow of Funding for MPWH Programs
Sources of Local Housing Program Funding
Example Structure of Local Government Accreditation System
Important Housing Sector Indicators
Proposed Slum Upgrading Implementation Framework
Government Budget Allocation to BSPS and FLPP Housing Programs
SDN yield curve November 12, 2014
62
63
65
67
70
82
83
84
87
98
111
131
List of Tables
Table 1. Percentage of Substandard Housing Units by Decile
Table 2. Various Housing Backlog Estimates for Indonesia
Table 3. Estimated Characteristics of Housing Need
8
13
14
vv
List of Annexes Tables

Table 1.
Table 2.
Table 3.
Table 4.
Percentage of Housing Units with Various Substandard Characteristics

64
Various Estimates of Overall Housing Decit
65
Characteristics of Indonesias Estimated Housing Need
66
Imputed Housing and Housing Related Expenditures as a Percentage of Total
Household Expenditure
67
Table 5. Monthly Household Income, Expenditure and Funds Available for Housing
68
Table 6. Assumptions for Housing Finance Products Available
69
Table 7. Affordability Analysis by Decile with Assumed Housing Finance Products
69
Table 8. Median Home Price to Income Calculation, using National Averages
70
Table 9. Estimates of Home Affordability with Effective Public Policy
71
Table 10. Estimated Budget Required to Reach Policy Targets
73
Table 11. Priorities and Sequencing
90
Table 12. Slum Areas and Distribution by Province
92
Table 13. Rusunami Program Quick Facts
118
Table 14. Rusunawa Program Quick Facts
120
Table 15. Example of Delivery Targets for a Core Starter Home Program
123
Table 16. Summary of the Redesign of the Public Rental Housing Program
125
Table 17. Cost of Subsidy Type, as a % of Mortgage Loans
135
List of Box
Box 1.
Box 2.
vi
International Example of Housing Decit In Latin America

62
FLPP Economic Cost and Comparison with the Down-Payment / Buy-Down
Subsidy Scheme (2005 2010).
137
viivii
viii
01
Key Messages of the
Roadmap
Indonesias Roadmap for Housing Policy Reform aims to shape the government
action plans and investment in the housing sector, with a focus on forming an
immediate government response to urgent housing needs, while building the
foundation for rolling out more fundamental structural changes in the sector through
the next National Medium Term Plan (2015 2019).
The Roadmap recommends the following:
Increase overall housing sector investment and reorient housing

policy to target the bottom 40% of the population through three
large national initiatives on: (i) comprehensive slum upgrading; (ii)
formal subsidized housing; (iii) incremental home improvement.
Implement a program to secure urban land for slum upgrading

and new affordable housing.
Build delivery systems that strengthen and transfer responsibilities from the central to local government and specialized actors
to share the responsibility and cost of implementing national
housing policy.
Expand and enable the market for affordable housing for the
middle class, without exhausting public funds, by introducing
mortgage-linked down-payment assistance and supporting development of the housing micronance and real estate sector.
01 | Key Messages of the Roadmap
02
Objectives of the
Roadmap
2.1 Roadmap Background and

Targets
The goals of Indonesia housing policy are
grounded in Law No 1/2011 on Housing and
Settlements that stipulates:
Every Indonesian citizen should live in a
decent and affordable settlement within
a healthy, safe, harmonious, organized,
integrated and sustainable environment.
Poverty, population growth and rapid
urbanization over the past decade in Indonesia
have overwhelmed the governments ability
to ensure citizens have access to safe and
affordable housing. Today, almost twenty
percent of all Indonesias 64.1 million
households live in poor housing conditions.
These settlement challenges will continue
into the foreseeable future, with almost all of
the new demand for housing concentrated
in urban areas. It is expected that the
urban population will increase by 3.4 million
people each year between 2015 and 20191.
Furthermore, urban poverty is increasing as a
1
Natural population growth (35-40 percent of the urban

population increase), rural to urban migration (25-30
percent of the urban population increase) and the
reclassification of rural areas into designated urban
areas (30-40 percent of the urban population increase)
each contribute to rapid urbanization.
proportion of total poverty. Building a strong

policy agenda and directing public resources
to housing and settlements in urban areas is
urgently needed to enable cities to improve
the living conditions of the lowest-income
Indonesians.
In recognition of this priority, this Roadmap
recommends that the Government of Indonesia
establish two core strategic objectives for the
housing sector to be achieved by 2019: (i)
ensure that no Indonesians live in slum areas
by comprehensively improving basic living
conditions for all slum residents; and (ii) ensure
access to affordable and safe housing solutions
for all Indonesians.
In order to meet these dual strategic objectives,
the government will need to achieve the
following targets:
Key Housing Sector Targets by

2019
Target 1 - Slum Alleviation: Comprehensively
improve the living conditions of 3.9 million
households estimated to be living in slums.
Target 2 Meeting Affordable Housing
Needs: Enable the delivery of around 14
million safe and affordable housing solutions to
overcome existing decits and meet demand
from new households.
02 | Objectives of the Roadmap
To achieve these targets, over the next 5 years,

the government will need to build an action plan
to achieve the following specic annual targets
of housing production.
2.2 Roadmap Goals

The Roadmap has the following specic goals:
780,000 slum households in improved

housing.
Inform the design of policy and programs

that will improve the conditions of existing
slums and squatter settlements, increase
the annual supply of formal low-cost housing
and enhance access to affordable housing
nance.
1.21 million units for the bottom 40% using

targeted public programs for core housing,
home improvement and public rental
solutions.
Build a strategy for the strengthening of

institutions and systems for government to
be able to continue to effectively implement
housing policy.
1.24 million affordable housing units for the

middle class (decile 5-8)enabled through the
market.
Outline a framework for more efcient

and equitable use of public resources to
achieve housing and settlement targets.
Estimated Annual Production

Required to Reach 2019 Targets
The primary purpose of the Housing Policy

Roadmap is to outline the strategy of the
Government of Indonesia a to operationalize
these objectives and work towards the
ambitious medium-term targets laid out in the
Medium Term Development Plan 2015-2019
(RPJMN).
The Roadmap outlines a mix of policies,
programs and initiatives that will enable the
government to signicantly improve living
standards in slum areas and increase the supply
of affordable housing solutions. The Roadmap
outlines specically how the government can
allocate public resources to maximize the equity,
efciency and effectiveness of government
spending.
Shape housing policy as a tool to

support broader development objectives,
including inclusive and sustainable spatial
development of cities, job creation,
economic development and improved social
outcomes.
The Roadmap is organized around six priority
policy directions and an action plan of activities
to carry out in the immediate (0-12 months),
short-term (1-2yrs) and medium-term (35yrs) to respond to immediate housing and
settlement needs of low-income Indonesians,
while setting the foundations for longer-term
structural reforms in the housing sector.
Target 1 - Slum Alleviation: Comprehensively improve the living conditions of 3.9 million
households estimated to be living in slums.
Target 2 Meeting Affordable Housing Needs: Enable the delivery of around 14 million
safe and affordable housing solutions to overcome existing decits and meet demand from
new households.
2.3 Roadmap
Recommendations
The six priority recommendations of the
Roadmap are to focus investment and
resources toward:
Action 1: Developing and implementing a
comprehensive slum upgrading program
to improve the living conditions of residents in
existing slums and informal settlements.
Action 2: Redesigning public housing policy
to improve the efciency and effectiveness of
spending on public rental, vertical and core/row
housing solutions.
Action 3: Strengthen the design of the home
improvement subsidies, to broaden the
number of beneciaries reached and enable the
crowding in of housing micronance.

Action 4: Enabling and expanding the
market for the affordable housing and
increase private sector participation in the
low-cost formal housing market, by taking on
a down-payment assistance approach and
lowering costs of mortgage provision and
housing supply targeted at lower-middle class.
Action 5: Building robust delivery
systems that enable central government to
transfer responsibilities and strengthen local
governments in execution of housing programs.
Action 6: Securing urban land for housing
through mobilization of under-utilized public
land assets and regularization of tenure of slum
and squatter settlements.
02 | Objectives of the Roadmap
03
Why Indonesia Needs
Housing Policy Reform
3.1 The Benets of

Implementing Good
Housing Policy
Housing can be understood as a critical part
of public infrastructure. Quality housing in wellserviced neighborhoods generates signicant
benets by building the capital asset base of a
household and contributing to stable economic
development and improved public welfare of a
community and country.
Affordable housing is in the public interest. By
investing in affordable housing government
creates positive externalities in the following
areas:
Health Outcomes. Safe and sanitary
living environments can have signicant
positive public health impacts by reducing
incidence of respiratory, cardiovascular and
communicable illnesses and diseases.
Educational Attainment. Decent and
affordable housing in safe neighborhoods has
been associated with improved educational
outcomes for children. A US study found
that the best education outcomes for
children occurred when households did not
spend too much or too little of their income
on housing.
Economic Development. Provision of
affordable housing at scale is an economic
development opportunity. Globally, the lowcost housing market is estimated at a value
of more than US$424 billion.
Job Creation. Housing construction has

proven to be one of the strongest job creators
per unit of public expenditure. Studies have
resulted in estimates that range from 2 to 5
permanent and temporary jobs created for
every unit of housing produced.
Sustainable Cities. Well-located housing
close to jobs and public transport can help
contain negative impacts of congestion on
individuals and the economy. For example,
housing close to jobs can reduce daily
travel distances for workers and reduce
congestion.
3.2 Overall Housing Context

Housing Demand
Indonesia currently has substantial unmet
housing needs. There are approximately 64.1
million housing units in Indonesia, around 20%
of which are in poor condition. Estimates of the
backlog vary widely. In the census of 2010, BPS
calculated the backlog to be around 11.9 million
units, based on home ownership information,
which is estimated to have increased to 13.5
million by 2014. The number of substandard
units, using a measure for overcrowding
(<7.2m2 per capita) is 7.5 million. Meanwhile,
45% of households or 28,900,000 units are
considered substandard by some measure,
either because they are over-crowded, built
of at least one poor quality material, or do not
have access to basic services..
Annual demand for additional housing
exceeds supply. An estimated 820,000 to
03 | Why Indonesia Needs Housing Policy Reform
920,000 new units are needed in urban areas each

year to respond to annual demand from population
growth.2 However, currently, the formal sector
only produces around 400,000 units per year, of
which 50,000 to 100,000 units are products of
the subsidized mortgage program. An additional
150,000 to 200,000 units are enabled each year,
through government subsidy programs, including
those for incremental home improvement, rental
housing and social housing. This leaves over
200,000, or around 30% of new households,
that must resort to informal solutions or additional
over-crowding.
Furthermore,
demographics
show that new household demand tends to be
disproportionately low-income, due to higher
population growth among lower income deciles.
taking into account household income estimates,

existing market values for standard housing units,
and the availability and terms of existing nancial
products for home acquisition or improvement.
The middle 40% (deciles 5 to 8) of households
cannot afford formal housing solutions without
subsidy enhancements. Whereas the bottom 40%
of Indonesians (deciles 1 to 4) live below or close to
the poverty line, leaving little room for savings and
housing, and cannot afford even a basic starter unit
valued at IDR 15-30m. A formal housing solution
is far beyond the reach of the poorest Indonesians
without deep and expensive subsidies.
The penetration of mortgage nance is limited
in Indonesia, making affordable housing less
accessible for lower income households.
Mortgage lending accounted for only 2.44% of GDP
in 2012, compared to 5% in India, 10% in Thailand
and 31% in Malaysia. The extent of mortgage
lending is constrained by a complex range of
factors. First, most Indonesians simply cannot
afford a mortgage without subsidy enhancements.
Current and recent GoI mortgage-linked subsidy
programs have suffered from both inadequate
Affordability remains a key constraint to

signicantly improving housing outcomes in
Indonesia. Only the top 20% of households (deciles
9 and 10) in terms of income in Indonesia are
capable of acquiring housing in the formal market,
2
Using average household size as 4.1, BPS and UNPF

Population Growth Data.
Table 1.
Percentage of Substandard Housing Units by Decile
Nationwide
Overcrowding
Lack of Basic Utilities
Substandard Construction Materials
Decile
<7.2m2
No Water
No
Sanitation
No
Water &
Sanitation
Roof
Wall
Floor
All Substadard
Overcrowded
or No Basic
Utilities or
Substandard
Material
Overcrowded
and No
Basic
Utilities
and Substandard
Material
27%
27%
61%
22%
12%
19%
22%
4%
69%
7%
19%
21%
51%
16%
9%
16%
16%
2%
60%
4%
15%
18%
46%
13%
9%
14%
13%
2%
55%
2%
13%
16%
43%
12%
8%
11%
10%
1%
51%
1%
12%
14%
38%
9%
9%
8%
9%
1%
48%
1%
8%
12%
32%
8%
9%
8%
7%
1%
42%
1%
8%
11%
29%
7%
10%
7%
6%
1%
40%
0%
7%
8%
22%
5%
10%
4%
4%
0%
35%
0%
5%
6%
16%
3%
10%
3%
2%
0%
29%
0%
10
3%
3%
9%
1%
10%
1%
1%
0%
21%
0%
Total
12%
14%
35%
10%
10%
9%
9%
1%
45%
2%
No. of
Units
7,543,340
8,758,632
22,316,246
6,266,012
6,125,329
5,852,233
5,804,551
785,497
28,915,894
1,112,974
Source: BPS Susenas Survey, 2013
Combination of
Substandard
Characteristics
funding and poor

design. Second,
over 60 percent
of Indonesians do
not form part of
the formal work
force and hence
lack access to the
nancial system.
Many of these households may be able to
afford a mortgage but lack credit histories.
The nancial sector has not yet sought out
to develop innovative underwriting and credit
risk management procedures to reach lower
income and non-salaried earners viewing
them as high credit risk. Third, the banking
sector lacks access to affordable, long-term
funding from the capital markets. Without the
evolution if this secondary market, Indonesian
banks will be limited in terms of their ability to
nance long-term mortgages from short-term
deposits.
Only 20 percent
of the highest
income households
in Indonesia, are
capable of acquiring
housing in the
formal market
of construction have made formal housing

development an expensive and risky activity.
This has kept annual production numbers low
overall, particularly for low margin affordable
units. Developers have little incentive to build
for the low-cost market, preferring to maximize
prots where still strong demand from higherincome families or investors exists.
Housing Supply
New affordable housing supply is often

poorly located, pushing the urban poor to
city peripheries. Lack of nance and the high
cost of land in inner city areas mean that lowincome households often resort to purchasing
housing at the periphery of cities. As a result,
these households end up paying premiums for
transportation costs, which creates a broader
negative impact in terms of congestion and
spatial development patterns that are neither
economically efcient nor sustainable. Taking
into account accessibility issues, and ensuring
there is space for the urban poor in cities, is an
important consideration for broader urban and
economic development objectives.
Supply constraints limit the private sector

from participating in low-cost housing
production. Bottlenecks in the availability
of land, including complex land acquisition,
permitting and servicing processes, constraints
on development nance and the rising cost
Government Measures
Indonesia has developed a broad set
of policies and institutions to support
housing provision, yet these have not been
effective at improving housing outcomes
Figure 1. Estimated Housing Affordability in Indonesia in Market Conditions*

Household Monthly HH
Decile
Income
(m, IDR)
13.9
10
Monthly Payment Estimated Affordable

Capacity^
Home Price w/ Loan
(m, IDR)
Alone (m, IDR)
463 million
5.6
Estimated Affordable
Home Price w/ Down
Payment (m, IDR)
661 million
9
8
7
6
5
4
7
5.2
4.2
3.6
3.1
2.6
2.6
1.8
1.4
1.1
0.9
0.7
216 million
99 million
74 million
44 million
38 million
18 million
309 million
110 million
82 million
49 million
43 million
19 million
3
2
2.1
1.8
0.5
0.4
13 million
6.7 million
14 million
6.7 million
1.2
0.1
2.3 million
2.3 million
Can Afford
Commercial
Units
Cannot afford
even basic
core unit
Source: Author Calculations

^ EMI - Equated Monthly Installments
* This calculation uses rough assumptions with a gradated housing finance product mix, from commercial loans at 12%
p.a. and 15 year tenor available to the highest deciles to housing microfinance products of 2 years duration and 25%
p.a. interest for lowest decile. Savings capacity is also assumed to be gradated from 30% for D10 households to 0%
for D1 households.
at the scale necessary. These include, but

are not limited to: (i) a series of neighborhood
community development programs; (ii) highly
to fully subsidized public rental programs;
(iii) up-front subsidy for incremental home
improvement (BSPS); and (iv) a subsidized
liquidity facility (FLPP) which aims to enhance
mortgage affordability for the middle-income
households by subsidizing interest rates for
xed rate mortgages. Furthermore, Indonesia
has established a series of state-owned
enterprises, including Perumnas, BTN, SMF,
Jamkrindo and Askrindo, that are entrusted to
play an active role in improving supply of and
access to affordable housing through direct
housing development and the extension of
mortgage insurance. Additionally, several local
governments have innovated with their own
programs that have achieved some localized
results, e.g. a housing micronance scheme
in Palembang and a rental housing program
administered by DKI Jakarta.
Nonetheless, government spending on
housing in Indonesia remains far too small
to make a signicant impact. In 2013, GoI
committed only 0.3% of the total central
government budget to the housing sector. This
accounted for only 0.05% of GDP, signicantly
less than housing budgets of international and
regional comparators, i.e. United Kingdom
(1.42% of GDP), Thailand (2.15% of GDP)
Figure 2. Total Budget Allocation to
Programs by Ministry of Housing,
2011-2014 (tr. IDR)
18
FLPP
14
10
Other Programs
BSPS
Rusunawa
2
Source: Ministry of Housing, Budget Division
10
and the Philippines

(0.31%
of
GDP).
Going
forward,
Indonesia
should
consider signicantly
increasing spending
in the housing sector
particularly targeted
towards the poorest
Indonesians as a
means to improve
housing outcomes.
In 2013, GOI
spent 0.05% of
GDP on housing,
significantly
less than the
housing budgets
of international
and regional
comparators
The quality of public spending in the

housing sector has considerable room for
improvement. The Ministry of Housing has
disbursed only 68.2% and 67.2% of allocated
budget in 2011 and 2012 respectively, improving
to 87.6% in 2013. Ministry of Housing programs
with the highest budget allocations struggle
to disburse. In 2012, the FLPP program only
reached 48.7% of the target number of units
and disbursed 54.9% of funds.
Government spending is not always
equitable, nor does it reach the neediest.
Current housing spending is regressive it
disproportionately benets higher income
groups in three important ways. First, the
overall budget allocation in the housing sector
disproportionately favors programs targeted
to or likely captured by middle or uppermiddle class households. From 2011 until
2014, 43.3% of Ministry of Housing budget
was allocated to the FLPP program (which
caters for households with base salary of up to
IDR 4 million per month, and likely much higher
household income), while the rest of the budget
was divided among other programs, including
the BSPS incremental home improvement
subsidy program (IDR6.3 trillion, 19.3% of
budget), the Rusunawa rental housing program
(IDR4.9 trillion, 15.3% of annual budget), and
neighborhood upgrading and titling programs,
all of which target lower income households.
Second, the absolute value of subsidy to
households across programs is signicantly
higher for programs that target relatively higher
income households. Relatively higher income
households accessing the FLPP program can
benet from a subsidy of around 58% of the
total mortgage value on a net present value

basis, which equates to around IDR 30 million
per unit, while in contrast, the BSPS incremental
housing improvement subsidy targeting lower
income beneciaries is only IDR 7.5m to IDR
15.0m. Lastly, within individual programs,
subsidies are not scaled progressively to
income, thus enabling households that qualify
for and can afford a higher value housing
solutions to capture a greater absolute value of
subsidy.
The design of specic programs often does
not reect broader policy objectives. Many
regulations do not follow policy objectives
or vice versa. For example, the responsibility
and tasks related to the provision of adequate
housing were transferred to local governments
by Regulation No. 38, 2007. Nonetheless,
central ministries still tend to allocate budget
to directly execute programs with only a limited
role for local governments. Meanwhile, many
local governments lack technical capacity,
resources and, in some cases, political interest,
to prioritize local housing provision. This
limits the sustainable impact of government
spending, as programs are often stand-alone,
and do not address structural difculties in local
government systems.
There is a lack of feedback loops,
accountability or reporting on program
implementation. Good accounting and auditing
procedures as well as market monitoring
helps to inform budget allocation and decision
making. This relates to resource allocation,
spatial planning, land management and
permitting systems and primary infrastructure
planning to support more strategic investments
to respond to local population growth and
rural-to-urban migrants.
These failures in the low income housing
markets and the limited effectiveness of
policy interventions have contributed to the
proliferation of slums. An estimated 12.2% of
urban residents currently live in slums, which
cover approximately 37,400 hectares. If no
action is taken, it is expected that the area
in cities attributable to slums will continue to
increase, along with the number of households.
Many of these slum and squatter areas are not

legally recognized and hence, not accounted
for in city planning for basic service provision
becoming zones of exclusion, poverty and
substandard living conditions.
Decisive action and a clear strategy are
needed to address these housing and
settlement challenges. A key orientation for
government policy going forward would be
to channel nancial support and empower
local governments to assume leadership and
responsibility for implementing local housing
programs that include mix of interventions
based on locally specic challenges and
priorities. .
3.3 Characterizing Indonesias

Housing Need
Housing Decit: The housing decit is a
number that should reect both quantitative
decit and qualitative decit.
In Indonesia, the number of households is
estimated to exceed the number of housing
units by approximately 1.2 million, which
could be considered part of the quantitative
decit. In 2010, BPS calculated the qualitative
housing decit to be 11.9 million units based
on census information. It is estimated that this
decit has since increased to 13.5 million units
or approximately 20% of Indonesias estimated
64.1 million units. These gures are nonetheless
misleading as the measure of the quantitative
decit is dened as those households that do not
own a home. The decision of many Indonesian
families to rent a home may be a function not
of an underlying decit but rather a legitimate
preference. The choice of other households to
cohabitate in multi-family settings may again be
voluntary, reecting neither an underlying decit
nor overcrowding conditions.
Meanwhile, BPS Susenas information currently
indicates that that 45% of existing homes, or
28.9 million units, are substandard in one of
the following factors: have one inadequate
housing material, do not have access to water
and sanitation or are overcrowded. This ranges
from the 7.5 million units that are overcrowded,
11
Figure 3. Number of Substandard Housing Units by Decile

5,000,000
Overcrowded
No basic services
All poor quality materials
4,500,000
Overcrowded and no basic

services
4,000,000
No. of Units
3,500,000

services and poor quality
materials
3,000,000

services and no poor quality
materials
2,500,000
2,000,000
No basic services or poor

materials
1,500,000
1,000,000
Overcrowded or no basic
services or poor quality
500,000
12
34
56
78
91
Decile
22.3 million units without access to improved

sanitation, 8.8 million units without access
to safe water, or the approximate 6 million
units with an inadequate roof, wall or oor.
Table 1 shows the distribution of inadequate
housing across different characteristics and
by household consumption decile, which is
also reected in Figure 3. While the bottom
40% of Indonesians suffer most acutely, middle
income households also experience signicant
qualitative decit characteristics.
As these estimates vary widely, this
Roadmap recommends concrete actions to
improve the measurement of the housing
decit as a rst order priority. Central
agencies, such as MPWH and BPS, are
recommended to work collaboratively together
to dene more precise decit numbers, both in
terms of certain qualitative factors, household
preferences, as well as geographically-specic
needs and regularly update these on an annual
basis to monitor changes and progress on
policy implementation. One starting point may
12
be to dene a criteria using existing census and

Susenas data, e.g. (a) overcrowding effect (i.e.
less than 7.2m2 of living space per occupant);
(b) lack of standard utilities water, sanitation,
electricity; and (c) poor construction materials
for oors, walls and roofs. This will allow the
government to ne-tune and disaggregate
its understanding of the qualitative decit to
more accurately target and design public
interventions.
Targets for the Housing Policy Roadmap.
Current production of formal units is estimated
to be in the order of 400,000 units per year.
However, to overcome the backlog by 2019,
total production of new units and home
improvements will need to increase to as high
as 3.6 million housing solutions per year. This is
made up of the following two components (see
Annex 2 for further detail):
1. Demographic growth projections forecast
the need for 820,000 to 920,000 new units
Table 2.
Various Housing Backlog Estimates for Indonesia
Backlog Estimates
Classication
Total Units
Low Estimate
Only slum households
3.9 million
Middle Estimate
Only overcrowded units
High Estimate
Non-home ownership, reported by

BPS and MPWH
Annual Need to Reduce

Backlog by 2020
780,000
7.5 million
1,500,000
13.5 million
2,700,000
Source: BPS and MPWH, 2013
every year in order to accommodate new

household formation; and
2. Removing the current housing backlog
by 2019 creates an additional need for up
to 2.7 million units per year, depending on
estimates of the decit (see Table 2).
Approximately 390,000 of the target of 3.6 million
units per year will be needed by the wealthiest
20 percent of Indonesian households that are
capable of purchasing in the private formal
market. The remaining 3.2 million households in
need of housing solutions each year will require
active and coordinated government support
through the mix policy reforms, subsidies and
public programs outlined in this Roadmap.
There is no single approach to enable the
provision of affordable and adequate housing
in Indonesia. Housing needs and demand
are diverse across the country. Households in
urban, peripheral and rural locations across
Indonesias island groups use different materials,
construction techniques, have different levels
of access to the nancial system and face
different affordability hurdles. A large number
of currently substandard housing units can be
enhanced through assisted incremental home
improvement or expansion. Other households,
an estimated 12.2% of urban residents or as
estimated 3.9 million households, live in slums
requiring upgrading, in-situ redevelopment
or relocation. Additionally, a large number of
poor households with extreme affordability
constraints will require highly subsidized new
housing solutions in the form of public rental
or core starter units. Indonesias large and
growing middle class will continue to require an
efciently and progressively designed subsidy

policy to complement savings and mortgages
to make formal home acquisition possible.
Table 3 illustrates the characteristics of
the housing need according to household
expenditures decile and estimates of annual
needs by major segment of demand based
on three scenarios achieving full access to
affordable housing by 2019, 2024 and 2029,
respectively. This simulation demonstrates the
maximum housing needs, assuming the total
housing backlog is 13.5 million units and that
annual new demand through population growth
and internal migration is 920,000 units per year.
The Roadmap for Housing Policy Reform
recognizes the need for a diverse set of policy
and program responses to the heterogeneity
of housing needs in Indonesia. Section
4 below outlines four Budget and Target
Scenarios, based on the achievement of the
dual objectives of this Roadmap of ensuring
that no Indonesians live in slum areas and
securing access to affordable and safe housing
solutions for all Indonesians by 2019, 2024
and 2029, respectively. Section 5 outlines the
Strategic Framework for Indonesias Housing
Policy, presenting the six key policy actions
that will be critical to making a transformative
impact on housing outcomes for lower-income
Indonesians. Section 6, Policy Directions,
provides a detailed summary of the rationale
and content of each of the six proposed
policy directions. Lastly, Section 7 outlines
the approach to Roadmap Implementation by
organizing key actions for each policy direction
into an immediate, short-term and mediumterm action plan.
13
Table 3.
Estimated Characteristics of Housing Need

Annual Need
to Address
Housing Decit by 2019
Annual Need
to Address
Housing Decit by 2024
Annual Need
to Address
Housing
Decit by
2029
Slum Units
780,000 units
390,000 units
260,000 units
0% Slums
Slum upgrading and home

improvement
subsidies.
Decile 1-4
(Non-Slum
Households)
1.20 m units
780,000 units
650,000 units
Prevent formation of new

slums, increase
supply of affordable formal
housing solutions.
New subsidized
public rental and
core starter units.
Decile 5-8
1.25 m units
810,000 units
660,000 units
Increase supply
of low-cost
housing to
reduce backlog
and meet new
demand.
Introduce
more effective
mortgage-linked
subsidy scheme
to enhance affordability.
Decile 9-10
390,000 units
290,000 units
250,000 units
Enable formal
housing market
to work.
Support secondary mortgage

market development.
Total
3.6 million/yr
2.3 million/yr
1.8 million/yr
Source: Author Calculations
14
Objectives
Example of
Policy Solution
15
16
04
Strategic Framework for
Housing Policy Reform
The Roadmap for Housing Policy Reform provides a framework for the design and
investment in national policy, programs and systems that aim to achieve housing and
settlements sector goals. The following diagram presents the strategic framework
for housing policy reform in Indonesia, which is organized in three sections: (i) what
should be done; (ii) how it should be done; and (iii) pre-requisites for success.
What programs are to be developed:

Action 1. Develop a Comprehensive Slum Upgrading Program to improve existing
slum and squatter settlements, through structuring a program for city-led slum mapping
and management strategies, with investment channeled to in-situ upgrading, redevelopment and resettlement, where necessary.
Action 2. Reformulate the Approach to Formal Subsidized Housing including different typologies (core starter units, row houses, vertical housing) and tenure options,
(rental, shared-equity, owner-occupied) to respond to different stages in the housing
career.
Action 3. Redesign Support to Home Improvement to expand focus to low-income

urban areas and incorporate construction assistance, titling and crowding-in of housing
micronance.
Action 4. Enable the Affordable Formal Housing Market and Increase Private Sector Participation to make formal housing more readily available to a greater number
of lower-middle-class households, by stimulating low-cost housing supply and a mortgage-linked down payment assistance approach on the demand side, while supporting
and enabling non-subsidized and market sources of liquidity to banks and nancial
institutions providing mortgages for low-cost housing.
04 | Strategic Framework for Housing Policy Reform
17
How can these programs be implemented:

Action 5. Build Robust Delivery Systems where capacity building, funding and responsibilities for implementing housing programs are transferred from central government to local governments with enhanced assignments for Perumnas, SMF and
mortgage insurance providers as specialized supporting actors in the implementation
of housing policy.
Pre-requisite for success:

Action 6. Secure Urban Land for Housing and Settlements by bringing underutilized public land assets to market for the implementation of housing programs and
creating a legal framework to be able to direct public investment to improve living
conditions in informal settlements in the short-term, while building local capacity into
the medium-term to use alternative tools and instruments for increasing the availability
of affordable land for low income housing. .
Implementing this ambitious set of six integrated policy actions will enable the Government of
Indonesia to make a transformative impact on reducing the number of Indonesians living in slum
areas and increasing the availability of affordable housing solutions for all Indonesians.
18
Figure 4. Goals, Policy Solutions and Scenarios
Goals
Increase
0%
housing stock and

reduce the 14 million
unit deficit
slums by 2019
Policy Solutions
Slum alleviation
and upgrading
Home improvement
and core housing
Formal
Subsidized Housing
Support market
for formal housing
Scenarios
to address deficit by
2019
3.6 MM units per year
2024
= 100,000 Houses
= Slum Households
= Deciles 5-8
= Deciles 9-10
2029

= Deciles 1-4 (non slum)
19
20
05
Targets and Budgets
The following scenarios provides some rough estimates of the total annual central
budget allocation and balance between programs, based on three scenarios
achieving full access to affordable housing by 2019, 2024 and 2029, respectively.
The simulation has focused on the maximum

housing needs, using an estimated backlog of
13.5 million units and annual new demand of
920,000 units. New housing demand is spread
evenly across deciles, whereas the housing
decit is concentrated in lower-income deciles
(60% of backlog in D1-D4, 33% of backlog in
D5-D8, and 7% in D9-D10). Policy solutions
have been approximated as follows:
Additional housing decit in D1-D4 is

reached by home improvement subsidies,
and new demand is addressed 80% by core
or row house units, and 20% by public rental
units.
Slum households are addressed 80% by

slum upgrading, while 20% may need to be
resettled into public rental units.
The costs of these policy solutions are also

roughly estimated to simplify calculations, with
an estimated 25% of overall budget being
used for management and administration of
programs.
All housing backlog and decit in D5-D8

is addressed by mortgage assistance and
market-making measures.
05 | Targets and Budgets
21
SCENARIO 1: Reduce deficits and meet new housing demand by 2019

Slum
Home
Core
Upgrading Improvement Units
Public Rental DownManagement

Housing
Payment
and
Assistance Administration
Number of
Units
(thousands)
620
830
290
230
1,300
25% of costs
Budget
Required
(IDR tr)
9.4
12.5
4.4
3.4
18.8
16.2
Totals
3,200,000
65 IDR tr
Requires 6.5x current housing-related budget or approximately 3.5% of

total GoI annual budget

Slum
Home
Core

Housing
Payment
and
Number of
Units
(thousands)
312
416
294
152
811
25% of costs
Budget
Required
(IDR tr)
4.7
6.2
4.4
2.3
12.2
9.9
Totals
1,985,000
units
40 IDR tr

22

Slum
Home
Core

Housing
Payment
and
Number of
Units
(thousands)
208
277
294
126
663
25% of costs
Budget
Required
(IDR tr)
3.1
4.2
4.4
1.9
9.9
7.8
Totals
1,570,000
units
31 IDR tr

SCENARIO 4: Maintaining Current Budget Allocation

Slum
Home
Core

Housing
Payment
and
Totals
Number of
Units
(thousands)
96
129
27
11
145
25% of costs
408,000
units
Budget
Required
(IDR tr)
1.4
1.9
0.7
0.5
2.9
2.5
10 IDR tr
Maintaining estimated current housing-related budget or approximately

0.5% total GoI annual budget
23
Description of Policy
Actions
The six priority actions described in Section 4 will enable government to structure
a exible housing policy that responds to the needs and preferences of households
from different income levels in diverse urban settlements throughout Indonesia.
The rst three policy actions are focused on

the lowest 40% of households, or Decile 1-4.
These include Action 1 for comprehensive
slum-upgrading, Action 2 for supply of publiclysubsidized, multi family, owner-occupied, rental
and incrementally-expandable core and/or row
housing, and Action 3 for home expansion or
improvement of substandard units.
Action 4 concentrates on enabling and
expanding the affordable housing market for
lower-middle class households - the so-called

missing middle - in Deciles 5-8 that struggle
to access long-term housing nance and lack
low-cost affordable units that meet their needs.
Finally, Action 5 to build robust delivery
systems, and Action 6 to mobilize urban land for
housing, are the basic pre-requisites to enable
government to deliver these programs and to
respond to needs across all target groups.
Decile
9-10
Decile
5-8
Enabling the Market
Decile
1-4
Home
Improvement
Slum
Upgrading
New
Subsidized Housing
06 | Description of Policy Actions
25
1. Develop a Comprehensive
Slum Upgrading Program
Recommendation
Make a high-level government commitment to build and implement a comprehensive
national program on slum upgrading to ensure that no Indonesians live in slum areas
by 2019. This policy will include: (i) the design of a national program, which builds
the technical, institutional and nancing framework for city-led slum mapping and
action plans for slum upgrading, redevelopment and resettlement; (ii) kick-starting
of the program with a select set of interested and committed large cities; and (iii)
scaling of the program to a broader set of cities and areas.
Rationale
Public investment in slum upgrading is a
strategic and efcient approach to target
poverty as it allows the government to exploit
the positive characteristics of slum settlements
and to mitigate the negative externalities of
urban slums. Slums are spatially contiguous
and concentrated clusters of shelter
deciencies and of mainly poor and very poor
households, which allows the government
to target and reach a population that may be
difcult to identify otherwise. In-situ upgrading
allows slum dwellers to strengthen their existing
social networks, and to continue to pursue
their economic activities (the two main reasons
they choose to live where they live), without
increasing their transport time and costs, while
improving their
living conditions
A national slum
and giving greater
upgrading program
opportunities
could improve the
for
schooling
living conditions
and
health.
Furthermore,
of 3.9 million
slum upgrading
households living in
p r o g r a m s
37,400 ha of slums.
p r o d u c e
26
economies of scale to improve efciency of

public spending and create positive spill-overs
toward broader urban development objectives3.
Current government policy is to upgrade slums
that are legal settlements, while largely ignoring
illegal and/or informal squatters. This is not a
long-term solution, given the extent of squatter
settlements particularly in the larger cities. A
revamped slum upgrading policy will need to
address housing and settlement deprivations
in all areas regardless of tenure status.4 The
alternative, of moving squatters out to low-cost
housing in peripheral areas of cities, is usually
not sustainable as the economic and social
costs for slum dwellers are high and in many
3
For example, a high prevalence of water and

mosquito-borne diseases in squatter settlements
may inadvertently affect adjacent neighborhoods,
even though the latter are services with proper
infrastructure, utilities and services. Focusing on slums
can have improved outcomes for broader objectives,
such as public health, productivity and availability of a
low-cost workforce.
One important rationale for action are larger public

health concerns that legitimate at least the public
provision of basic infrastructure and services even
on disputed land, if not interventions in the individual
housing units.
cases, they end up returning to the city center

to form new squatter settlements. Experiences
across Indonesia (and worldwide) show that
government needs to work towards a more
comprehensive approach, covering all manner
of slum and squatter settlements, that takes
into account livelihoods and social services,
and considers slums in the context of citywide development with the necessary primary
and secondary infrastructure investments to
support tertiary-level improvements.
Approach
1.1 Design the Framework for a National
In preparing the national slum upgrading
program, central government will need to
develop a set of tools and frameworks to
support local governments in the design
and implementation of city-specic slum
management strategies.
Design will include, an eligibility framework for
participating cities, resource kits for cities with
methods to map and assess slum and squatter
settlements, Standard Operating Procedures for
planning and preparation of in-situ upgrading,
slum redevelopment, and resettlement, steps
to develop city slum management action
plans and investment strategies, institutional
development, legal channels to recognize or
regularize squatter settlements, as well as
structuring of nationally-administered capital
grants, a technical appraisal framework for
eligible investments under the program, and
systems for monitoring and maintaining a
settlements information database.
1.2 Launch Phase 1 of the City-Led

and proling of slums; (ii) participatory action

planning and program formulation; and (iii)
program implementation and reporting.
(i) Identifying and proling slums. City
governments will establish a local unit that
will have the mandate and resources for
implementing the city-wide slum upgrading
program. This unit, supported by MPWH
training, toolkits and on-call technical
support, will then systematically identify
slum areas through city-wide enumeration
(with the participation of local communities)
and GIS-based mapping. Slums will be
proled and categorized based on status
of tenure and pro-poor indicators that are
easily collected at the cluster level and
are part of monitoring local government
performance such as access to basic
infrastructure, utilities and services such as
health and education.
(ii) Participatory action planning and
program formulation. Local governments
formulate and adopt a city-wide action plan
and medium-term investment program on
slum and squatter upgrading. To formulate
this strategy, city governments will apply
the national framework that may cover the
following steps: a) engage and establish
community representation at settlementlevel; b) appraise the proled slums to
identify needs, using a community planning
approach, for in-situ upgrading, slum
redevelopment5 and/or resettlement (for
squatter settlements on hazardous areas
or slums on land that cannot be released
due to extenuating circumstances6); c)
compile community action plans and
identify complementary primary/secondary
infrastructure needs; d) estimate costs,
prioritize activities and sequencing for the
city-specic slum management action
The national slum upgrading program will be

kicked off with a rst phase that would cover
10 to 15 large cities over the next 2-3 years.
The main components of the national slum

upgrading framework may include: (i) identifying
In-situ upgrading or redevelopment may require service

delivery, tenure regularization, home improvement,
additional community facilities in addition to
community institution-building and management.
For example, government land required in the short

term for strategic purposes.
27
plan; e) prepare a medium-term investment

plan7 and nancing strategy that mixes
local government budget allocation and
central government subsidies, using
the established guidelines; f) identify
opportunities for crowding-in of private
sector, including contractors, housing
micronance and links with complementary
programs for home improvement, new
public housing development, or social
assistance.
(iii) Program
implementation.
Local
government will prepare legislation, where
necessary, to regularize tenure of slum
and squatter settlements8, and assemble
nancing through the submission of funding
28
Including local budget allocation, private sector

investment and funding gap for consideration of
central government subsidies.
<elaborate in land policy> Slum settlements on state

land can be regularized through long-term lease
contracts or user-rights either to individual households
or to community cooperatives. This can be done for
free, for a nominal fee or on a full cost-recovery basis.
proposals to central government as well as

from the local budget, to implement the
program. Specic projects will be selected
based on nationally-set criteria and
priorities, and based on reporting of the
results and the performance of participating
local governments.
1.3 Scale National Slum Upgrading

Programs to all Cities and Slum Areas
The national program will be initially focused
on improving and regularizing tenure of slums
on state-owned land, where current data
indicates most slums are located, and a more
uniform approach to tenure regularization can
be applied. Upon successful completion of
Phase 1 of the program, the national program
would expand to include other interested
local governments and improvement of slums
located on other land types that require
more sophisticated instruments for tenure
regularization (e.g. based on land sharing,
readjustment/consolidation arrangements etc.).
2. Reformulate the Approach to

Formal Subsidized Housing
Recommendation
Reformulate the approach to formal subsidized housing by expanding the series of
publicly subsidized formal housing products to reect different housing career paths.
Diversify, reform and expand the physical typologies of publicly subsidized formal
housing to include programs for core starter units, row houses and vertical housing
developed to respond to a diversity of needs and regional markets. Similarly, enable
a diversity of tenure options including public rental, leasehold, owner-occupied, and
shared tenure.
Rationale
The bottom 40 percent of Indonesian
households cannot afford formal market-rate
housing solutions. The only housing alternatives
available to these households are to either
produce incrementally on a self-help basis or rely
on highly subsidized public housing provision.
Self-built housing constitutes the majority of
new housing construction in Indonesia. While
support for low-income households to build
incrementally is a critical part of the proposed
policy mix in this Roadmap, the government will
also need to reformulate public housing policy
and expand public housing production in order
to effectively address the housing decit. A
robust and diversied system of public housing
production will be necessary to respond to
different characteristics of household and
regional demand.
An enhanced program of public housing
production would need to carefully consider
accommodating a range of tenure options,
including rental, lease-to-own, leasehold and
full ownership, based on the underlying needs
of target populations. Public rental can be a

critical tool to support newly formed lowerincome households and industrial workers that
value exibility and mobility. Other households
that lack access to nancial markets may
value lease-to-own alternatives where lease
payments build equity in a housing solution.
Lastly, the government may also consider
targeting the provision of leasehold or freehold
basic public housing units to the extreme poor
and households that require relocation or
resettlement.
A government public housing strategy would
also consider enabling a wide typology of
public housing solutions to meet the diversity
of household demand and varying regional
characteristics. High and mid-rise public
housing units might be most appropriate for
consolidated larger urban areas where land
supply is constrained and higher-density
development should be encouraged, whereas
row houses or core starter units might be more
appropriate in cases of resettlement, relocation
or in smaller cities where land supply is less of
a constraint.
29
Effectively
implementing
and
managing
public
housing
p r o g r a m s
is
inherently
challenging. The
government
approach
to
public
housing
would consider
concentrating
land and public
housing development with specialized public
actors. Enabling both Perumnas and the private
sector to assume more proactive roles will be
critical to jump-start large scale public housing
production. Lastly, public housing programs
must be closely matched to local demand and
public housing assets maintained at the local
level. A key component of the government
public housing strategy would be to facilitate
the transfer of knowledge and responsibilities
for designing and implementing public housing
program to local governments.
Perumnas has
reduced its
production capacity
to only around 4% or
16,000 units
in 2013, yet expects
it could scale up
to 50,000 units per
year given the right
support.
Approach
2.1 Revitalize Perumnas Role as Master
Developer in Public Housing Production
A core recommendation of the Roadmap is to
revitalize and renew the mandate of Perumnas
to act as the Government of Indonesias master
developer for public housing production. GoI
would provide Perumnas with the mandate

to lead bulk housing development on newly
released land. As outlined in Policy Action 6,
GoI will develop a land inventory and utilization
program to identify and mobilize under-utilized
or vacant public land assets. Land to be
released or assembled under this program is
currently under the oversight of SOEs, LGs,
BPN (abandoned land), waqaf, and various
line ministries. At a strategic level, Perumnas
experience in land acquisition, aggregation,
development and management should
be leveraged by the land assembly entity
responsible for executing the program.
In conjunction, Perumnas would be revitalized
to act as a publicly-owned private institution
that serves as the lead developer, developer
joint-venture partner, or lessee of land under
the strategically released land portfolio, to
facilitate new production or redevelopment and
the implementation of housing policy.
In this role, Perumnas will be able to support
local governments with the delivery of housing
for sale, long-term leasehold options, as well
as for rental (whereby local governments act
as landlord), with features similar to Turkeys
TOKI or Moroccos Al Omrane initiatives (see
Annex on case studies). High performing local
governments could utilize Perumnas as codevelopers, whereas, Perumnas can take a
lead on development partnerships with lower
capacity local governments, which in turn, gain
knowledge through project experience.
International Benchmark: TOKI

Turkey Public Housing Developer
TOKI was established in 1984 to deliver well-planned affordable housing at scale. Regulatory
amendments in 2003 and 2004 has allowed TOKI to become directly active in developing mass
affordable housing for sale or rent to low and medium income households, reporting directly to the
Prime Minister. TOKI identies land areas for priority housing projects, prepares site master-plans,
assembles nancing for development, partners with municipal housing companies and private real
estate developers and sells units to end users. TOKI engages private sector developers through a
public tender process and revenue-sharing model and also has the power to expropriate and rezone
land.
30
Specic activities of Perumnas may include

taking a lead on site master-plans for projects,
incorporating principles of mixed-use and
mixed-income zoning for sustainable settlement
planning, structuring development plans and
nancing strategies, facilitating release of
land to private sector developers (structuring
the RFQ and RFP processes and taking on
non-commercial risk), as well as low-income
households or communities for affordable
housing development, coordinating potential
development guarantees, trunk infrastructure
delivery, arranging sales agreements or off-plan
escrows and acting as landlords for lease-toown housing.
For this strategy to be successful, a business
plan will need to be developed for revitalizing
the role of Perumnas, clearly dening the needs
for institutional strengthening, structuring of the
legal and nancial relationships with central and
local government entities, and the framework
for engagement of private sector.
2.2 Introduce Starter Core Units as a

Housing Solution
Develop and introduce a program for subsidized
basic core starter units or row houses that are
incrementally expandable, targeting lowerincome and vulnerable households. These
programs could be implemented in the context
of both the relocation of households in slum
upgrading and redevelopment programs as
well as for greeneld developments to prevent
new slum formation.
Incrementally expandable starter cores are
considered a strategic housing solution for
Indonesia for several reasons:
(i) Affordability. Poor, vulnerable and lowincome households cannot afford to
purchase completed units. Public provision
is essential if these households are to
obtain safe housing solutions.
(ii) Cost Effectiveness. Housing is a capitalintensive good and public funding is nite.
Expandable core starter units and row

houses are far more affordable than formal
housing units and can serve as a strategic
tool for producing large numbers of housing
solutions at a moderate cost.
(iii) Adjusting to the Housing Career. An
incrementally expandable starter core
allows expansion and improvement of the
initial unit according to changing household
needs and preferences over time.
(iv) Leveraging Swadaya - CommunityDriven Approaches. A structured program
around incrementally expandable starter
cores can leverage citizen participation and
community driven development through
in-kind as well as in-cash resources
contributed by community members or
social organizations.
In the immediate-term, the new program for
subsidized basic core starter units and row
houses will need to be designed. Aspects
of this program will include the types of
eligible projects and housing products,
delivery systems that support and enable
local government-led initiative and integrate
community-based models for implementation
(e.g. kampung deret), as well as guidelines for
project planning, nancing and implementation,
subsidy allocation, eligibility and targeting
of beneciaries, post-construction asset
management practices, as well as the plan
for broader program roll-out over the medium
term.
In the shortCapable local
term,
the
governments can
program would
take a lead role as
be
launched
codeveloper or JV
with the delivery
of basic core
partner in affordable
starter and row housing developments.
house
units
in multiple high priority projects across 10-15
medium-sized or secondary cities, both linked
to slum upgrading and in greeneld initiatives.
This phase would include careful supervision,
monitoring and evaluation of program results.
31
In this period, a larger variety of starter and row

house options can be considered, differentiated
by size and quality of nishings, the level of
infrastructure provided and type of land tenure.
These options could be analyzed and piloted
in the short-term and successful approaches
would be mainstreamed in the medium-term.
In the medium-term, the program would
expand nationally, while diversifying starter and
row house options, based on the demand of
local governments. Local governments will take
a lead in identifying local needs for core or row
housing in their jurisdictions and be supported
and transferred increasing responsibilities
in project preparation and implementation,
including identication of beneciaries, sites,
subsidy allocation and procurement and
oversight of contractors.
A key challenge of the program will be to
improve the delivery system of core starter
units to better coordinate over time with
broader urban development plans. This may
include consideration of investment in public
transport and other infrastructure, proximity
to employment opportunities, as well as
key socio-economic factors of beneciaries
(e.g. maximizing ground oor access where
beneciaries have street-based businesses).
Such coordination will enable local governments
to promote shorter commuter times, local
economic development and sustainable urban
growth. Over time, the program could also
explore settlement projects that mix uses and
households of different incomes.
2.3 Reformulate Public Sector Support

to Rental Housing
The Rusunawa program for public rental
housing can be reengineered to increase
production levels and to improve the quality
and sustainability of the real estate while serving
low-income populations. The new Rusunawa
program (Rusunawa 2.0) should be developed
to increase the level of local government control
to align with decentralization goals. Some key
attributes of Rusunawa 2.0 would include:
32
(i) Rusunawa
2.0
beneciaries
and
affordability. Rusunawa 2.0 projects should
give rst priority to households displaced by
redevelopment activity or necessary slum
relocation. Maximum allowable beneciary
income should be set annually. The
program could use local minimum wages to
correspond to the lesser of local minimum
wage or to households that rank in the
lower 4 deciles nationally and adjust rent
levels based on income.
(ii) Roles and capacity building under
Rusunawa 2.0. Authorities, responsibilities
and resources will be pushed to the local
level of government where there is existing
capacity, allowing the central government
to focus on policy and strategy. Where
local capacity is limited, nancial and
training resources will be made available to
increase the ability of local governments to
participate in the provision of rental housing.
Interim delivery methods will be established
in the short and mid-term, calling upon the
capacity of Perumnas to ll in the gaps.
Roles under Rusunawa 2.0 include:
1. Central Government, can be charged
with sizing production goals and
budget, allocation planning, monitoring
and evaluation.
2. Provincial Government takes on the
role of advisory and consultation on
policy and program development and
evaluation.
3. Local
Government,
depending
on capacity, will propose projects,
accept funding from MPWH and act
as developer and owner or may joint
venture with Perumnas or a private
developer. Local governments who are
deemed to have insufcient capacity
can also nominate projects for funding
by MPWH for development and
ownership in joint venture by Perumnas.
They will also be the recipients of
capacity-building funds from MPWH.
4. Perumnas. The State Owned Enterprise

(SOE) Perumnas will act as designated
lead developer for Rusunawa projects
which are located in low capacity local
government jurisdictions.
(iii) Allocation and types of funding under
Rusunawa 2.0. Allocation of funds should
initially occur on a rst-come, rst-served,
basis to spur the highest levels of initial
production at program launch and will later
be replaced by a competitive allocation
system. The types of funding available will
be more comprehensive than the current
program and will include:
1. Administration. Funds to support
central
and
local
government
administration of the program.
2. Capacity
Building.
Funds
to
build competencies of central and
local government where they are
lacking, particularly in support of
decentralization goals.
3. Capital. Funds for the construction
of the housing units and necessary
infrastructure.
4. Operating. Funds to off-set the
difference between tenant rent payment
capacity and the costs of operating
maintenance and replacement.
2.4 Require and Support Good Asset

and Property Management Practices
Policy measures can be taken to ensure that
all properties that are developed with public
support and resources are well managed so
that the physical structures are maintained
and serve the longest possible useful life.
This is in the interest of protecting the public
investment and also to ensure that the rental
housing provided is of a decent quality for the
beneciaries.
Government should develop requirements and
SOPs that relate to construction standards
(materials, design and spatial planning), as
well as operating standards (management
protocols, tenant selection, annual budgeting
and multi-year projections, etc.) and capital
needs standards (multi-year projections and
reserve sizing).
The property management standards and
procedures that are developed will need to
be socialized with local governments during
project initiation and then monitored and
reported systematically in order to allow local
governments to qualify for additional project
funding where performance is high, or additional
support, where the performance is lagging.
Indonesias Unied Database for Targeting: TNP2K

Established by Presidential Decree No. 15/2010 on the Acceleration of Poverty Reduction.
The Unied Database (BDT) for social protection programmes is an electronic data system that contains
social, economic and demographic information on 40 percent of people in the lowest welfare bracket in
Indonesia, around 24.5 million households or 96 million individuals. Operated by the National Team for
Poverty Alleviation Acceleration (TNP2K), the Unied Database can be used for programme planning,
targeting, and identifying the names and addresses of prospective social assistance recipients, whether
they target households, families or individuals.
33
3. Redesign Support to
Home Improvement
Recommendation
Redesign the government support to home improvement and incremental housing,
by: (i) strengthening the design and delivery systems of the existing BSPS subsidy
program; (ii) link home improvement subsidy with other public housing programs,
including slum upgrading and expandable core houses; (iii) promote incremental
middle-class home expansions; (iv) support development of local and regional
building industries; (v) support the development of and crowding in of housing
micronance.
Rationale
The current government subsidy program
to support home improvement (BSPS) is
successfully being implemented and is fullling
its goal of helping lower income households to
effectively improve and expand their homes.
However, the program is limited in terms of
reach and effectiveness. Key constraining
characteristics of the program include: (i)
the BSPS program primarily reaches rural
households, and may have more impact if
coupled with an explicit focus on growing
demand for home improvement support in
urban areas; (i) central government plans and
manages all the functions to support beneciary
households, which makes implementation of
the program costly and difcult to scale for
the public sector; (iii) grant funding delivered
to beneciaries could be better leveraged
by private sector participation to improve its
effectiveness.
The BSPS program has substantial potential
to broaden its reach by improving program
efciency and leveraging housing micronance.
Most importantly, increasing overall funding
and inecting the program towards urban areas
could improve housing conditions in urban
34
slums, help mitigate

new slum formation
and
alleviate
o v e r- c ro w d i n g
pressures for urban
low-income
and
lower-middle class
households.
An estimated
threequarters
of all units
in Indonesia are
built by households
incrementally.
A series of measures can be introduced to

enhance the efciency and leveraging of the
home improvement subsidy. This Roadmap
outlines measures to: (i) shift the role of central
government from directly implementing the
home improvement subsidy to an enabler and
facilitator; (ii) reduce costs associated with
materials, engineering support and labor linked
to the program; and into the medium-term, (iii)
support the growth of the housing micronance
as a complement to the program.
Approach
3.1 Strengthen the Design and Delivery
of the Existing Home Improvement
Subsidy
The current subsidy program could
strengthened in the following ways:
be
(i) Identication and Eligibility. Complement

the existing beneciary identication system
with the utilization of the Unied Database
(BDT) for social protection programs
operated by the National Team for Poverty
Alleviation Acceleration (TNP2K), which
can act as an effective tool for controlling
selection of nal beneciaries.
(ii) Budget Allocation and Subsidy. The
Roadmap recommends to signicantly
increase budget allocated to the program
and expand access to the lowest income
households, adjusted by geography (i.e.
by province and by rural/peri-urban/urban/
metro) and consider moving to a less
regressive, possibly at or even progressive
subsidy system across income segments
and housing options9.
(iii) Delivery System. Improve the design of the
subsidy and signicantly reduce overhead
expenses through: (a) shifting toward a local
government-led implementation model; (b)
standardize the system for the provision of
engineering advice so that it is scalable;
(c) facilitate the crowding-in of housing
micronance; (d) address bottlenecks,
where possible, to ensure that there is title
regularization of all homes participating in
the program.
(iv) Improved Targeting. Complement the
rened rural program with new programs
with strategic targeting characteristics,
such as (a) densely populated urban
clusters of slum/squatter/starter core
households in order to enjoy economies of
agglomeration and scale; (b) lower-middleincome households willing to expand their
9
i.e. the poorest of the poor should get the relatively

and/or absolutely largest subsidy; the same applies
to smaller units that should receive a relatively and/
or absolutely larger subsidy. Under such a flat or
progressive subsidy system it is important to ensure
that, at any income level, household s with slightly
higher income get access to a slightly better unit (e.g.
larger size, better finishgins, better infrastructure)
while paying more for it. Otherwise, high co-payments
for lower housing standards is expected to create
disputes, so a small gap should still remain.
homes in order to create additional units at

a low cost.
3.2 Link Home Improvement Subsidy to

Other Public Housing Programs
For urban areas, it is strategic to focus on
spatial clusters of highly concentrated substandard housing. Slum and squatter areas
that have recently been upgraded and new
housing projects with starter-core units are
ideal targeting scenarios, not only because
of the high concentration of low-income
households, but also because the provision
of basic infrastructure and tenure security can
help to create a stimulating environment for
additional investment in home expansions and
the home improvement subsidy can help to
maximize economic spillover effects.
Therefore, the cluster approach in upgraded
areas and starter core developments combines
improved targeting characteristics with high
expected willingness to invest in housing.
This combination is expected to be the ideal
ground for identifying and innovating efcient
delivery systems for the crowding-in of
housing micronance, support of local building
industries and provision of technical assistance
to support sound home expansion.
3.3 Enable Home Expansion for the

Urban Middle Class
Design a home expansion program to support
improvements and expansion of lower-middleincome homes to (i) tackle overcrowding and
(ii) create additional (e.g. rental) units, reducing
overall urbanization pressure and alleviating the
burden on government.
Program parameters that could be considered
include: (i) linkages to the housing mortgage or
micronance program, depending on borrower
and collateral characteristics; (ii) a subsidy, if
any, that should not exceed the amount of the
low-income incremental home improvement
subsidy and the mortgage assistance,
depending on the credit source; (iii) technical
construction support, similar to the assistance
35
which is used in other home improvement

programs. This construction support could be
provided via professional networks with trainings
and practitioner guidelines for home expansion
and then linking middle-class households with
those architectural and engineering consultants
that are deemed qualied.
3.4 Support Development of Local

Building Industries
Explore measures to support development
of local building industries, with the following
objectives: (i) to increase production of and
availability to more affordable good-quality
construction materials; (ii) to stimulate local
business development and job creation for
artisans and builders in the construction
sector; (iii) improve environmental sustainability
and maintain cultural preferences through use
of local building materials and construction
techniques.
Strategies to be explored include: (i) laborintensive construction technologies for core
houses; (ii) training of microenterprises and
artisans in construction techniques for quality
home improvements and expansions; (iii)
industrialization10 and standardization of local/
regional building material manufacturing; (iv)
reduction of trade barrier and costs to improve
availability of affordable and quality construction
materials; (v) technical assistance to homeowners to reduce cost and ensure compliance
with construction standards for adequacy and
safety; (vi) adaptation of regulations and policy
to concentrate on realistic and exible minimum
standards.
3.5 Support Development of and

Crowding-in of Housing Microfinance
Sector
The Roadmap recommends support in the
medium-term toward the development of
the housing micronance sector to provide
10 Industrialization is not to be confused with large-scale
prefabrication, as the approach should be laborintensive.
36
improved options for households who want

to make higher-cost expansions or improve
units in future. These housing micronance
(HMF) loans could be used by households in
combination with a subsidy or independently.
Currently HMF lending is not very developed in
Indonesia, though there is anecdotal evidence
that a substantial portion of microloans are used
for home improvement purposes. Development
of the HMF industry may require nance and
technical assistance to be channeled to
nancial institutions to support them to develop
HMF products. HMF are unique as they require
a combination of nancial lending services
and non-nancial services, in order to address
the specic risks of home construction. This
requires training of loan ofcers or partnerships
with building materials providers to assess
home improvement projects, prepare cost
estimates for materials, as well as to monitor
quality of construction.
This Roadmap recommends the government
consider supporting incubation of HMF
product development with several pilot nancial
institutions in different regions of the country.
This support could be provided via an NGO
contracted by government, regional banks,
or via a state-owned enterprise, like SMF.
Technical support should include systems for
consumer education and eligibility, training of
loan ofcers, HMF product design, IT systems
etc. Based on the results, the capacity building
program can be ne-tuned and scaled all over
the country, provided for a fee, as demanded
by nancial institutions.
In the medium term, the government might
consider initiating a special state-enabled
revolving fund that would provide liquidity to FIs
for HMF at rates equal to the costs of funds
to the government. This revolving fund may
be linked to the long-term liquidity provided
through the reformed FLPP program, enabling
a certain level of integration across housing
nance and housing micronance and better
level of nancial integration for low-income
households.
4. Enable the Affordable

Formal Housing Market
Recommendation
The Roadmap makes a broad series of recommendations to reformulate the
GoI approach to enabling the market for formal housing for lower-middle income
Indonesians. First, Indonesia should transition to a demand-side down payment
subsidy mechanism to broaden the access to and the affordability of housing nance
for low and middle income groups. Second, replace the existing highly subsidized
and expensive liquidity support under FLPP with market rate liquidity to ensure
access to long-term funding for banks and xed rate mortgages for consumers.
Third, explore potential measures to extend the mortgage market for affordable
formal housing to self-employed, informal and non-salaried workers that have the
ability to pay but lack access to mortgage nance. Fourth, strengthen the GoI
system of mortgage guarantees. Fifth, strengthen the role of SMF to operate more
actively as a secondary mortgage market actor by reforming governing regulations
to ensure that the entities strong asset quality and corporate strengths are reected
in its risk rating and pricing. Sixth, institute a series of additional measures to
deepen mortgage markets including proactively supporting the diversication of
lenders active in the low- and middle-income market segments. Seventh, incentivize
private developers to produce affordable housing by reorienting support to private
developers, exploring approaches to improve access to developer nance, engaging
Perumnas to build structures to engage and share risks with the private developers
to develop under-utilized public land assets.
Rationale
Housing nance to help lower income
households purchase or build formal houses
requires specic conditions. Loan tenors
must be as long as possible to make nance
affordable, risks created by oating interest
rates must be mitigated if income levels are
not sufcient to cushion their uctuations, and
risk management tools and policies must be
available to help lenders manage the additional
credit risk inherent to the target.
The Indonesian government has developed

a series of measures to promote mortgage
lending in the affordable market segment,
including the state-owned entity, SMF, whose
mandate is to raise funds on the bond market
and provide medium and long term liquidity to
support housing loans up to the middle market;
a subsidy scheme, FLPP, that renances
housing loans at below market conditions;
and the provision of credit default guarantees
through state-owned insurance companies,
ASKRINDO and JAMKRINDO.
37
The cost of this support is signicant, but

mostly implicit. For example, SMF has been
endowed with a signicant amount of capital and
benets from an implicit government guarantee
since the State is its sole shareholder. FLPP
includes a high subsidy component which can
be estimated at 58% of 20 year loans, or close
to IDR 30 million by housing unit11.
The system is affected by inefciencies,
in particular in the case of FLPP. FLPP has
been supporting the same number of units
on average per year since 2010, i.e. 68,000,
as the previous subsidy scheme, despite a
much higher economic cost12. It fell short by
far of the initially planned objective of nancing
1,350,000 units in 5 years, or 270,000 annually,
on average. In contrast, the xed interest rates
that FLPP initiated on mortgages appear to have
had a positive impact on credit risk according to
the main user of the system, BTN. Yet, a major
coverage gap remains. Most Indonesians that
are informally employed, estimated at around
60% of the workforce, are unable to access
long-term affordable mortgage nance13.
SMF is a well-run institution that has helped to
jumpstart a previously non-existent mortgage
secondary market. Its intermediation margin
is reasonable and it enjoys an excellent rating
(AA /AA+). This being said, its market share
(without securitization transactions) is only
approximately 2% and the company can be
seen as overcapitalized with a low ratio of
loans to total equity of 2.2. Furthermore, the
mortgage insurance offered by Askrindo and
Jamkrindo are conducive to moral hazard, as
the low cost and 100% coverage of the credit
default risk may encourage lenders to relax
their own risk management procedures.
Overall, the fairly generous support granted

by the government in the form of attractive
funding and risk transfer has not triggered any
signicant interest among mortgage lenders.
Although FLPP has entered in agreement with
25 banks, BTN is responsible for over 90% of its
lending, far above its overall mortgage market
share of 25%. The lack of participation of other
commercial nancial institutions acts as a
bottleneck for the outreach of the governments
assistance14.
On the other hand, demand-side initiatives to
increase access to mortgage nance, will not be
successful if there is not an equivalent increase
in the supply of formal affordable housing.
Hence, in parallel to activities to improve
access to mortgage nance, measures need to
be taken to stimulate the supply of affordable
formal housing developed by the private real
estate sector.
Approach
A. Improve the Economic and Social
efficiency of Government Support to
Deepen the Mortgage Market.
4.1 Develop a Down-Payment Subsidy
linked to Mortgage Finance
The under-achievement of the FLPP scheme
is due to several factors: (i) housing price
ination; (ii) insufcient public allocations, which
have been not only under-calibrated15, but
also irregular, with a sharp decline in 2013 and
2014; and (iii), a very low leverage of private
resources (limited to the 25% of loans nanced
by the lenders).
The two latter factors can be addressed by a
change of mechanics: reduce the government
11 This is an economic cost, reflecting the difference

between the government cost of funds and FLPP
lending rate, and not a budgetary expenditure.
12 The amount of budgeted subsidies per unit in
the previous scheme was IDR 3 million.

13 BTN does lend to independent workers, provided
however that they their activity is recorded in formal
accounts
38
14 BTNs network represents only 1.5 % of the 19,000

commercial bank offices in the country. The partnership
increases however its potential outreach (over 3,000
outlets).
15 The initial appropriations implied an allocation of IDR
13 to 16 mln per unit, much below the amount needed
contribution and turn support into a demandside subsidy, which would directly benet
borrowers and combine with a much larger
amount of credit, which would multiply the
number of households that the system could
serve at the same level of affordability16. This
was the principle of the up-front and buy-down
subsidies schemes previously deployed prior to
2010.
The structuring of a new scheme would
require feasibility studies and cautious design,
in particular to draw the lessons from the
checkered success of the previous program
As an example, a possible scenario for
structuring of the down payment assistance
could be as following:
The core of the system could be a new
interest buy-down subsidy, coupled with
a buffer against interest rate surges.
An upfront subsidy payment would be
made to participating lenders, for instance,
at the level of a down-payment subsidy,
with the same affordability impact.
This up-front payment would be divided
in two parts: the provision to cover buydown interest charges for a certain number
of years 8 years for instance, requiring
an initial contribution of 13.5% and an
allocation to the interest uctuations buffer
for the balance (16.5% of the loan).
The buffer would be drawn down when
needed to maintain debt servicing-to
income ratios as constant as possible. At
the end of the coverage period possibly
longer than the subsidy period itself, any
balance left would be returned by the
lender to the government
16
Simulations show that the subsidy rate per loan is

in the range of 25% in the case of down-payment
subsidy (depending on income increase) and 10%
to15% for buy-down subsidies paid up-front, for20
year mortgages
Using such an approach, the BLU structure

within MPWH would still be useful. If well
designed and operationally set-up, this type of
subsidy should reach a much larger number
of beneciaries than the current FLPP (1.5 to
3 times) for the same economic cost to the
government.
4.2 Reform FLPP by shifting to a Limited

Liability Structure and Market-Rate
Pricing
In the short term, reform the mechanics of
the liquidity support provided under the FLPP
program to increase the number of nancial
sector participants and reduce the overall cost
to government, while maintaining long-term
funding for banks and xed rate mortgages for
consumers.
Specic reforms that are recommended
include reducing the interest rate subsidy to the
lenders by setting the cost of funds at the longterm government bond rate (currently around
8.5% p.a.). In addition, consider reducing the
bank co-pay requirement and altering the
process of funds disbursement to lenders by
conrming borrower and property eligibility and
transmitting the funds prior to loan closing, in
order to achieve the goal of widening lender
participation and lowering entry barriers,
particularly for smaller nancial institutions and
regional banks.
Shift the administration of the liquidity facility to a
regulated nancial entity under a limited liability
structure in order to signicantly strengthen
program administration and increase control
over loan underwriting and servicing practices.
SMF is recommended as a potential candidate
for this role. Finally, improve the reporting
requirements to put in place stronger controls
for borrower compliance.
Only after these corrective actions are adopted
to strengthen program efciency, sustainability
and targeting to low-income households,
should the government consider increasing
scal allocation.
39
4.3 Regulatory and Institutional

Strengthening of SMF
One clear factor for the slow development of
SMFs activity, despite very high loan-to-deposit
ratios that prevail in the banking system (over
90% now overall) is its lack of attractiveness
to lenders as a source of funding. In addition
to the cost differential between capital market
and deposits, SMF is handicapped by an
unfavorable spread of its bonds over SDNs, 200
to 250 basis points, higher than BTN bonds.
Furthermore, the maturity of SMFs transaction
has declined, to the point to be limited recently
to short term (1 year) renancing operations, in
opposition to its core mandate.17.
SMFs spread does not reect the high quality
of its assets (loans to banks collateralized
by mortgages) and its corporate strength
(large equity base, government backing). The
regulatory treatment of its debt in investor
portfolios needs to take into account these
features. Amendments to existing frameworks
should include: (i) relaxed risk concentration
limits in the case of institutional investors; (ii)
low risk weights for capital adequacy purposes
in the case of banks; (iii) eligibility to the repo
operations of Bank Indonesia and (iv) eligibility
to improved liquidity ratios18. The introduction
of the Basel III regime in Indonesia provides
an opportunity for such a change and may
imply that the company be placed under the
oversight of OJK.
4.4 Reform State Guarantees for

Housing Finance
FLPP supported loans must be guaranteed by
mortgage insurance, provided by Askrindo and
Jamkrindo. These companies therefore accept
all loans, without adding any soundness criteria
to their eligibility to its coverage. It seems
furthermore that there is little check of the
validity of claims, the vast majority of which are
accepted. This is a matter of concern, since

the credit risk is now entirely transferred to the
government. As such, the existing design of the
guarantee mechanism is conducive to moral
hazard and promotes lenders to relax risk
management practices instead of strengthening
them. If these risks were to materialize, it would
jeopardize for a long time the trend towards a
more inclusive mortgage market.
Government should review the design of
products and the operating procedures of
mortgage guarantors in order to ensure that
loans that they support are based on sound
principles and that adequate recovery actions
are taken by lenders before ling claims. This
would limit the governments contingent liability
and promote sound and hence sustainable
practices in the market. Lowering risk weights
of loans extended under these conditions
would be a signicant and economically justied
incentive for lenders to develop guaranteed
lending. Actuarial evaluation of the premiums
needed to cover expected losses should also
be undertaken, even if the resulting pricing is
partially supported by a subsidy.
4.5 Explore Ways to Provide Housing

Loans to Informal Sector Households
Excluding this population, which is largely low
income, is a substantial limitation on the actual
impact of housing subsidy programs. A strategy
to expand housing nance towards these
categories would include: (i) promoting the
capacity to assess undocumented incomes
for example, via regularly conducted surveys19;
(ii) supporting savings-for-housing contracts,
which allow banks to check the savings
ability of households prior to borrowing; and
(iii) developing a specic guarantee product.
Banks active in the micro-nance sector, which
already have a customer base in the informal
sector, should be particularly supported.
19 As part of the policy to strengthen financial

17 The steep slope of the yield curve between 1 and 5
years of course contributed to this maturity reduction.
18 Including the qualification of the ratio of liquid assets to
core deposits-
40
inclusion, Bank Indonesia plans to develop

the provision of financial data profiles of the
unbanked Financial Stability Review March
2014 p 100.
4.6 Introduce Complementary Measures

to Diversify the Mortgage Market
Support the diversication of lenders active in
the low income market segment through three
interrelated measures.
(i) First, provide technical assistance to
potential lenders in the affordable
mortgage market. Serving lower income
customers requires not only customized
risk management capacity, but also, new
processes to limit the origination and
servicing cost of smaller loans. Assistance
for making organizational adjustments, for
the denition of standards and the design of
procedure manuals for the origination and
servicing of mortgages would help lower
entry barriers for the participation of new
institutions in the mortgage sector. Setting
up staff training programs would be also
critical. SMF could be a driver of progress
by helping primary lenders set up all these
operational conditions.
(ii) Second, target incentives to help banks
and nancial institutions lower operational
costs and adjust lending procedures
targeting lower-income segments. Entry
in a new and challenging market segment
involves signicant investments by potential
lenders in particular to expand access to
banking services (creating new sale points
in underserved locations, developing lowcost payment technology, training staff,
developing customized procedures, as
well as information and advising policy).
Such a development does not t into
the general strategy of some institutions.
But in the case of others, the roadblock
resides in the cost of related investments.
The government could consider providing
assistance to trainings and development
of new products and systems to nancial
institutions that would invest in the low
income market segments. These advisory
services could be provided for a fee, which
could be foregone if veriable results can be
demonstrated. Tenders could be used to
stimulate interest of new participants in the
use of these advisory services to test new

market segments.
(iii) Third, facilitate the development of
new business models. New commercial
approaches can be explored to provide
small mortgages in an economically viable
manner. As an illustration, one approach
that has been successfully tested in some
countries (India, Senegal) relies on the design
and facilitation of standard development
nancing models to structure tripartite
arrangements between a group of homebuyers, a lender and a developer. Potential
demand is aggregated, creditworthiness
of the group members is assessed by the
lender, future borrowers are pre-qualied
and savings are collected. A wholesale
agreement is established with a developer
that develops units to match home-buyers
needs, in terms of characteristics, location
and prices. Costs are reduced thanks to
an industrialized or group approach, and
risks are limited both for the lender and
the developer. MPWH agents in charge of
distributing housing subsidies could play a
role as facilitators of such arrangements.
B. Stimulate Private Sector Supply of

Low-Cost Affordable Housing
4.7 Incentivize Private Developers to
Build to Affordable Housing
The GoI currently extends a series of tax
incentives under the Rusunami program
including transfer tax reductions from 5% to
1% to developers and VAT tax forgiveness
to buyers as a means to promote affordable
housing production and home ownership.
First, phase out Rusunami tax incentives,
which are not sufciently robust to drive
production, are not sized to actual household
need and are difcult to monitor. Under this
Roadmap, existing Rusunami transfer tax
and VAT incentives will be replaced with the
mortgage-linked, down-payment assistance
mechanisms discussed previously in this
section. These offer greater population and
41
geographic targeting potential and the ability

to size subsidy according to household need
rather than price point. They will also offer
greater simplicity and direct reporting which
will increase quality of management and realtime understanding of the production levels
supported.
Second, strengthen the enforcement of
inclusionary development requirements in
strong markets. Current law requires that new
ownership housing developments include some
units geared toward lower income target groups,
in the 3:2:1 model20. If enforced consistently,
these requirements have the potential to be
major driver of affordable housing production
as well as social and economic integration.
Specic methods or modes of enforcement
can be developed by the MPWH or Pokja and
shared with cities, such as additional nes
or penalties, cancellation or non-renewal of
construction permits, or additional incentives,
such as developer preferences as partners for
development of public land assets and in public
housing projects.
Third, enhance the mandate and support
the institutional strengthening of Perumnas
to act as lead developer for bulk housing
production across all typologies and tenures.
Land made available to Perumnas through
the underutilized public land mobilization
program can also be made available to private
developers for low-cost housing production
targeted at the lower-middle class (e.g. deciles 5
to 6), in addition to the supply of core and rental
housing targeted at lower-income groups. This
20 The 1:2:3 rule is a cross-subsidy scheme that
requires developers to allocate a percentage of

the number of units (or a certain portion of the
total land being developed) for middle and lowincome housing.
42
activity will help to support the nancial viability

of the program as well as to promote mixedincome communities and development of the
private real estate sector, as has been the case
with TOKI in Turkey and Al Omrane in Morocco.
4.8 Increase Housing Production by

Supporting Developers Access to Debt
Indonesian developers currently rely heavily
on their own equity and that of investors to
nance land acquisition and construction of
housing units for sale housing. This equity-rich
capital structure limits the ability of developers
to share risk, requires them to demand higher
returns and constrains their ability to produce
units. As a result, their products tend to migrate
up-market to serve higher income buyers and
renters.
In the interest of increasing production of
housing for those with low and moderate
incomes, the Government of Indonesia could
formulate a limited program to facilitate the
availability of construction nancing for housing
developments serving the affordable market
segment, and with a special focus on building
a commercial lending market for permanent
rental housing.
Working with BTN and other willing and
experienced
commercial
lenders,
the
government could carry out the design and
feasibility assessment of different approaches
to extend market-rate construction nance
considering the lessons from models
internationally. Support to improve developers
access to construction nance might include
mechanisms such as partial guarantees
of loans or tenant payment streams, loan
participations, interest rate buy-downs and
liquidity mechanisms (expanded in the Case
Studies).
5. Build Robust Delivery

Systems
Recommendation
This Roadmap recommends a reorientation of roles and responsibilities in the
implementation of housing policy including the shifting of central government
line ministry focus from an implementing to enabling role, enhanced mandates for
specialized public entities and an increased role for urban local governments in the
implementation of housing programs.
Central government will lead the development

of national housing policy and programs by
directing state housing budget for decentralized
execution,
systematically
building
the
planning and implementation capacity of local
governments, and maintaining up-to-date
targeting and sector information to develop the
foundations for long-term exible and effective
housing policy.
Also at the central government level, this
Roadmap recommends a renewed mandate
for specialized central agencies in the
implementation of housing programs and
associated policies. Specically, the Roadmap
outlines an enhanced role for Perumnas in
low-income land and housing development,
development facilitation and the implementation
of public housing programs. The Roadmap
also recommends a renewed and enhanced
mandate for SMF, Askrindo and Jamkrindo
to enable the development of the affordable
mortgage market.
The Roadmap recommends a shift towards
increased local implementation of housing
programs, particularly in medium and large
cities. This could be done through a progressive
transfer of knowledge, authority, autonomy
and resources to local governments through:
(i) a system of local government accreditation,

based on objective metrics that demonstrate
capacity and performance; (ii) provision of ondemand technical assistance;; and (iii) the use
of performance-based rewards.
Rationale
Central Government has an important role to
play in building the structures and systems
that allow government to be more effective
in the structuring and formulation of housing
policy, with a view to enable and leverage
broader stakeholder participation in policy
implementation. Key characteristics of central
government operating in an enabling role would
include:
1. Create effective tools for developing
and disseminating improved sector
information, by investing in the building
blocks of good housing sector
governance..
2. Enhance inter-ministerial and agency
coordination.
3. Transfer project-level responsibilities to
sub-national governments, specically
urban local governments.
43
4. Make greater use of non-government

actors, such as private real estate
developers,
nancial
institutions,
professional interest groups, or community
organizations.
Delivery of national housing programs should
use a common approach, with the focus on
supporting the strengthening and transfer of
operational responsibilities to local governments,
while ensuring for the availability of capital
subsidies and implementation support to local
governments. National housing programs
should establish a common framework for
targeting, project development and nancing.
However, as housing is fundamentally a placebased activity, national housing programs
should be designed to allow exibility to adjust
to local demand characteristics.
Moving towards a decentralized model for the
execution of housing programs is not without
risks and will need to be accompanied by
signicant attention to building local capabilities.
Local governments in Indonesia have widely
varying levels of capacity and performance in the
development and implementation of housing
programs, with many local governments
lacking technical, scal or institutional capacity
or experience to act effectively.
Striking the right balance between central and
local level responsibility in the execution of
national housing policy should be guided by the
following principles:
Encourage local government innovation
and autonomy while adhering to an overall
consistent central government strategy.
Be proactive and deliver concrete results
in the short-term while building institutions
for the long term.
Experiment, allowing for short-term
failures while creating a learning base
for long-term cost-effectiveness and
efciency.
44
Approach
Part A: Strengthening and Empowering
Local Governments
This Roadmap outlines a path towards
operationalizing the role of urban local
governments as the entities that plan for,
co-nance and deliver affordable housing
solutions, while beneting from capital
investment and technical assistance from the
central government.
5.1 Develop a System for Local

Government Accreditation
MPWH should develop a local government
accreditation program for the implementation
of housing and settlements programs, under
which the central government ranks urban
local governments into three tiers, based on
regularly reported criteria, including technical,
institutional, and scal capacity, needs, and
performance. The accreditation program would
focus primarily on city governments, where
housing backlog and new demand is highest.
This accreditation system will be used to
qualify local governments for capacitybuilding activities, increasing autonomy and
responsibility in program implementation,
and will also determine the funding balance
(between central and local budgets), and
inform the design of national programs. MPWH
will need a unit responsible for monitoring and
publishing the accreditation on a regular basis.
5.2 Build Capacity of Local

Governments
A major component of the accreditation program
is capacity-building of local governments.
MPWH should develop a program of technical
assistance for housing and settlements,
associated with concrete project delivery, that
comprises Standard Operating Procedures,
guidelines,
t r a i n i n g
m a t e r i a l s 21
and templates
for
local
gover nments,
dissemination
of information
and capacity-building services. The TAF will
also maintain on-demand support or advisory
services for activities such as project preparation
and implementation of local reforms acting as
a safety net where local governments are taking
on greater responsibilities in planning, nancing
and executing activities.
Capital grants and

technical assistance
are channeled to local
governments toward
city-led program
implementation
Participation in the capacity building program

would be entirely voluntary. Local governments
can decide on their participation based on
need and desire to perform. Low-capacity local
governments can be made eligible for additional
grant funding for technical assistance and highcapacity local governments may need to pay a
fee for these services.
Capacity building activities will meet local
government needs in preparing for executing
different national housing programs, including
slum upgrading, public housing and home
improvement.
Specic
activities
may
include awareness-raising and information
dissemination to local governments, regarding
21 Learning modules could be made available either by

in-person workshops or web-based trainings.
national programs, development of plans

and strategies (including spatial plans), local
programming and budgeting for housing and
settlements, project preparation, community
consultations, social and environmental
safeguards, structuring of nance, project
audits and impact assessments, and
monitoring of the local housing market. Longterm, where appropriate, the capacity building
program could also provide a pathway for local
governments to develop a local housing agency
(SKPD Perumahan) or Housing Resource
Center.
The proposed capacity building program could
also act as the curator and facilitator of housing
and settlements peer-to-peer learning and
sharing of experiences between different city
governments in Indonesia.
5.3 Design Programs and Allocate

Funding with Performance-Based
Rewards
The Roadmap recommends the design of
housing program delivery systems and funding
allocation to be linked to the accreditation
and capacity-building of local governments.
Under such an approach, higher-capacity
local governments will receive a larger share of
funding, and will have more exibility, autonomy
and local accountability in executing housing
programs. At the same time, low capacity
local governments will be supported and
incentivized through project funding to build
International Benchmark: Local Government Housing Toolkit

New South Wales
New South Wales (NSW) Department of Housing aims to help local governments to use their statutory
powers and resources to improve housing outcomes in their communities. One of the ways the
NSW Department of Housing enabling tools is to build a Local Government Housing Toolkit to help
local councils understand local housing needs and issues to formulate appropriate local responses.
The kit provides step-by-step guidelines for development of an affordable housing strategy. Refer to
Appendices for more details.
45
their capacity and performance incrementally,

and be rewarded for such buildup by being
provided greater autonomy and resources.
Criteria and conditions of central government
funding allocation for programs can be
determined based on two key factors:
housing needs at the local government level
(as collected and reported by the HREIC) and
local government capacity (as monitored by the
accreditation program).
MPWH should continue to maintain a basic
funding pool for all local governments alike,
regardless of capacity, yet can supplement
this with additional program funding that is
used to incentivize improved accreditation and
performance of local governments. This funding
can initially be allocated on a rst-come, rstserved, basis based upon readiness to engage
in immediate housing production. Later,
annual funding rounds22 may reduce emphasis
on readiness (as more local governments
qualify as capable) and increase emphasis on
performance, progress in the implementation of
reforms, impact, and other factors.
In this way, central government can work
towards standardizing and streamlining local
government activities - including planning,
programming of activities, as well as improving
the functioning of local market - by making
implementation of certain reforms23, SOPs, or
trainings a pre-condition for accessing program
funding.
22 Criteria and conditions of funding allocation
should be revised on an annual basis to

incorporate learnings from programs and shifting
national policy objectives.
23 For
example, streamlining and increasing

transparency of building permits, fast-track
approvals for affordable housing that comply
with government standards, introducing land
value taxation etc.
46
Part B: Developing the Building Blocks

of Effective Housing Policy
5.4 Establish Minimum Housing
Standards that are Flexible to Local
Conditions
This Roadmap recommends that the MPWH
establish a Task Force to dene clear and
exible construction standards for the minimum
housing conditions that will be considered
adequate,24 taking into account different
climate, verticality, and housing typology
features. Minimum standards will take into
account regional variations, and will consider the
budget constraints of low-income households,
as well as the public sector, to inform specic
government programs. This activity will need the
highest-level commitment so that the minimum
standards are applied across government
actors and housing producers.
During establishment, the Task Force would
need to agree on their role and functions
and create standard operating procedures,
with a vision to reconvene and recalibrate the
minimum housing standards on a regular likely
annual basis. Members of the Task Force
would be assigned from relevant Ministries, and
will include voluntary engagement with private
sector associations as well as representatives
from civil society, particularly those who work
with the urban poor.
5.5 Invest in Housing & Settlements

Management Information Systems
It is recommended to establish a Housing and
Real Estate Information Center (HREIC), that
could be housed within MPWH, to serve as
a depository of reliable, up-to-date, publiclyavailable housing and real estate-related data. Its
principal responsibility will be to design systems
necessary for cities to collect local information
including, for example, basic geo-referenced
data on the location and characteristics of
24 Minimum construction will include construction
standards, minimum floor plans, mandatory

building or apartment amenities and feature etc.
slums and squatter settlements, and also to

collect and aggregate all supply and demandrelated data on Indonesias residential housing
markets.
The HREIC can be a stand-alone entity, reporting
to MPWH, or it can be structured in partnership
with other stakeholders, for example, Bank
Indonesias Real Estate Sector Division (which
currently reports on and maintains a Home Price
Index), housing-related SOEs, including SMF,
BTN and Perumnas, or the private real estate
associations (REI and APERSI). The HREIC can
carry out its own surveys and also inform the
questions used by BPS in the Susenas survey
and national census.
Improved information systems will deepen
knowledge of the housing market and
household proles and needs, which in turn
will strengthen public housing program design
and revisions. Also, more transparent, reliable
and up-to-date data will help to remove market
failures and uncertainties. This can positively
impact the efciency of the private market for
real estate developers, banks, investors, NGOs
and interested stakeholders reducing room
for patronage and graft, reducing costs, and
removing barriers to new entrants or smaller
actors with limited ability to manage data
uncertainty.
5.6 Build an Effective Housing

Affordability and Targeting System
Getting the targeting right is an essential prerequisite for the success of any program and
an extremely important mechanism to ensure
that public spending reaches the poorest.
MPHW should conduct ongoing targeting and
affordability studies to guide housing sector
policies and programs. Under the HREIC, the
MPWH can establish or designate a research
and analysis unit that would be responsible for
ongoing affordability analysis and strategizing
for subsidy targeting, based on needs and
priorities, so that policies can be regularly
updated in line with changes in market
dynamics.
Development of an income or consumptionbased targeting system could improve efciency

of public spending, by creating transparent
eligibility and qualication of beneciaries across
programs. Flat or progressive demand-side
subsidies could be introduced for incremental
housing program or as down-payment
assistance in the redesigned FLPP program,
building off an enhanced targeting system.
Where possible, this system should further
expand local governments capacity in targeting
and beneciary selection, and utilize existing
central government infrastructure. For the
bottom 40%, the TNP2K, an integrated
database of Indonesian households used for
the targeting of social assistance programs
should be used. This will allow the government
to maximize synergies with other central
government assistance programs and not to
create replication or a parallel system.
5.7 Elevate the role of Pokja as Lead

Housing Reform Coordinating Body
The Inter-Ministerial Committee for Housing
and Settlements or Pokja PKP, has already
become an important platform for coordinating,
discussing and informing decisions on housing
policy and program development, across
central level ministries and agencies.
The role of the Pokja could be further
developed by elevating its mandate to become
the entity that is responsible for implementation
of the Roadmap, including the necessary
coordination, review and quality control of
activities, as well as putting in place a specic
work program that formally outlines a set of
technical tasks that are needed to prepare and
deliver the actions of the Roadmap.
These activities could include validation of the
policy reform agenda and consensus-building
amongst central-level agencies, review of the
regulatory environment to identify necessary
national-level reforms in coordination with the
design and development of new programs,
specialist activities, such as denition of exible
47
housing standards and legal mechanisms

available to recognize informal settlements,
as well as exploring means to strengthen
enforcement of regulations, among other
activities.
5.8 Support the Development of

Network of Real Estate Professionals
Develop a system for registration and
qualication of real estate professionals
through a Builders Council dedicated to the
industry of residential property development,
to help establish and enforce developer quality
standards.
This council could pre-qualify private sector
actors for government housing programs,
based on criteria developed with MPWH,
provide input into governments minimum
construction standards and design of programs
and delivery systems, and help to report on
housing-related statistics to complement those
48
being produced by government. The council

would formally recognize and work across
REI, APERSI and non-members, qualifying
developers based on performance and merits.
The council would also play an important role in
self-governance, holding members responsible
for meeting performance and ethical (anticorruption) standards and expelling any rm or
individual violating these standards.
This council would also facilitate peer-to-peer
professional learning and networking, conduct
certication of entities and professional
executives, prepare and carry out trainings to
develop technical capacities in Indonesias real
estate sector, support new market entrants
and small contractors, and create a network
of housing professionals. These trainings could
cover technical modules in land acquisition
and development, site design, construction
techniques, development nancing, sales
and marketing and procedures for long-term
property management.
6. Mobilize Urban Land

for Settlements
Recommendation
In the short term, build a strategy to support local governments to recognize and/or
regularize tenure of informal settlements for slum alleviation and provision of services.
Also, in the short term, support land assembly by creating a framework to identify
unused, or under-utilized, state-owned and waqaf land assets and make land
available for new low-income housing projects.
In the medium term, strengthen local governments to improve local land management
systems (including land-use zoning and spatial planning, permitting, valuation and
taxation, and cadastre and registration) and develop a range of methods to develop
private sector land, such as land-sharing, land readjustment and consolidation.
Rationale
The rapid growth of urban areas in Indonesia
has increased pressure on land in urban and
peri-urban areas. Private developers and
investors have acquired large land banks for
speculative purposes which, together with
a failure of formal sector supply to keep up
with demand, has forced up prices of welllocated and serviced land dramatically over the
last three years. As a result, land is no longer
affordable to the poor and even many middleincome groups in many urban agglomerations.
An estimated
15,000 to 60,000
hectares of urban
land is required
annually for
housing needs
Government
will
need to secure urban
and peri-urban land
to
implement
the
proposed
housing
and
settlement
programs,
including
slum
improvement,
incremental new housing and formal subsidized
housing programs. Securing or releasing such
land to market is challenging and will require a
range of strategies in the short and mediumterm. Acquiring or banking land can prove
extremely costly in Indonesias current urban
real estate market characterized by high and

rising speculative land prices. This Roadmap
emphasizes the use of alternative strategies.
Government slum upgrading, infrastructure and
housing programs currently operate under a defacto prohibition from investing in informal slum
areas. Certain informal slum areas are located in
areas reserved for public infrastructure, subject
to hazard risk or on private land in violation of
clear tenure rights. In these cases, government
will need to relocate communities to affordable
public housing. However, relocation is an
expensive and challenging solution for all slum
areas and a large number of informal slums are
located in areas where the case for relocation
is less compelling. In such cases, in order to
meet the objective of universal slum alleviation,
GoI will need to encourage regulatory reform
at the central and local levels to ensure that,
at minimum, basic services can be extended
to all informal slums and, in the best case, to
regularize longstanding slum areas.
This Roadmap outlines an ambitious agenda
for the expansion and provision of core starter
units, public rental housing and the release
of land for lower-income market rate housing
49
production. The government will need to deploy

a mix of proactive and enabling strategies to
overcome rigidities in urban land markets.
In the short-term, this Roadmap outlines a
program of government-enabled land provision
form existing public inventories including those
held by central government, SOEs, municipal
and in waqaf trusts. In the medium-term, the
local government will need to build capacity
and mobilize a range of strategies including
property taxation, inclusionary zoning and
enforcement, and land readjustment, amongst
others, to ensure the continued adequate
supply of affordable land for housing.
Approach
6.1 Develop a National Land for Housing
Program to Assist Low-Cost Housing
Delivery
Create a National Land for Housing Program,
for land provision to support the implementation
of national housing programs, supported by
appropriate regulation and managed by a
high-level supervisory board. Land provisioning
would aim to mobilize publicly-controlled land
assets for public and affordable housing, without
requiring complex and costly acquisition of
land by one central agency. A program design,
oversight and an implementing agent will need
to be established. Various points of entry are
feasible, including a BLU entity within MPWH,
a BLU within BPN, a new agency staffed from
different ministries with a time bound mandate,
or a Cross-Ministerial Special Unit. Irrespective
of where the entity is located, it will be important
to ensure a clear mandate for the entity through
either presidential or ministerial regulations.
The functions of such a program and the
scope of the mandate to be provided the
implementing entity could include:
Prepare Land Needs Assessments for
local governments at current density
norms and estimated needs to: (i)
relocate settlements not suitable for
in-situ upgrading; (ii) address existing
backlog; and (iii) accommodate projected
population increase.
Carry out an inventory and identication
of developable public land (including
50
land owned by local governments, line

ministries, SOEs, and other public/semipublic entities, waqaf land, etc.) and
prepare valuations.
Reach agreement under the framework
of enabling regulations with each entity
owning land holdings identied as
appropriate for housing, on the terms
and conditions for the release and
development of their land, including any
special conditions on which land-owners
offer land.
Negotiate and complete legal agreements
with current landowners.
Negotiate early release of land by owner
and duration of allocation.
Develop business plan for use of land,
rst for MPWH products such as public
rental housing, core starter units and
slum upgrading and later for more
complex arrangements including land
consolidation, redevelopment, transfer,
mixed-use public-private partnerships,
making clear the role for local governments.
Coordinate with local governments for
provision of required trunk infrastructure.
Prepare land for release and development.
Release land for slum upgrading (through
exible forms of tenure, e.g. lease or user
rights, to existing slum dwellers) or to
Perumnas for new housing development
(in the short term).
Ensure that low-income communities25
receive adequate lease or user rights.
Consideration could be given to encouraging,

or requiring, local governments and SOEs that
want to sell land to offer it as a rst option to a
housing authority before offering it to the private
sector. This may require the development of
clearer land release protocols or regulations to
ensure that the conditions of land release are
transparent and that land prices are fairly set
between the agencies involved in each case.
For SOEs that prefer to keep land as part of
their asset portfolio, this may require high-level
legal or regulatory backing.
25 Options may include medium term communal leases
or short-term (5-10 years) individual leases. These may
be renewable or upgradable, but may require changes
in current tenure regulations.
6.2 Regularize Tenure for Investment in

Informal Settlements
Overcoming the legal constraint that restricts
investment and basic service provision in the
full range of informal settlements, including
squatter areas, is a national priority. Developing
instruments that can be used to secure tenure
for slum dwellers is important to enable GoI
to address different types of urban slums and
informality.
Informal settlements located on state-owned
land may be able to use the Land for Housing
Program to regularize tenure and be provided
with communal or individual leases, especially
where parcels are not under dispute, in
conjunction with slum upgrading and home
improvement programs. The Land Law
provides for local governments to grant land
rights for those parcels peacefully occupied for
more than 20 years without contest, yet this
tool is not often used by local governments. For
others, different solutions, such as communal
leases, will need to be applied in granting
formal tenure for those slums on private land
and those on government land. In all cases,
active community participation is necessary in
formulating and implementing proposals.
A task force or
committee should
be
established
by the Pokja that
will identify the
existing
barriers
to
investment
in
informal
settlements
and
develop a strategy
to
help
local
governments to recognize and regularize
informal settlements to make them eligible for
the slum upgrading program. This committee
should also propose which high-level national
law or regulation changes need to occur to
facilitate this process.
Local governments
have a major role
to play in the use
of spatial planning
and tax instruments
to mobilize private
land for low-income
housing
6.3 Strengthen Local Government

Regulatory Systems for Land
Management
Many land-related regulations are controlled by
local governments. These tools can be used to
improve land supply and land management for

low-income housing, which can be developed
with central government support26.
(i) Spatial Plans, Zoning and Permitting.
Spatial plans can be better used to designate
land specically for low-income housing use,
and enforcing the plans to ensure that land
thus designated is only used for low-income
housing, and no permits are provided for this
land to be used for any other purpose. This
would require:
Detailed zoning plans (RDTR) to be
coordinated and aligned with broader
spatial plans (RP3KP) and low-income
housing zones (R8) to be clearly marked in
each of the appropriate plans. To achieve
this, the spatial planning committee at
the national level (BKPRN) would need to
give clear instruction to the local spatial
planning committees to review and align
existing plans (RP3KP, RTRW and RDTR)
and to require plans to include low-income
housing zones.
Amend Law 2/2012, regulation 17/2012 to
include the submission of business plans
with development permit applications
and require implementation of the plans
according to the timeline. If land owners/
developers do not comply within a xed
period of time (e.g. three years), their land
can be repossessed and developed for
low-income housing and other priority
uses. At the moment, the three year
clause is by decree of the Minister of BPN,
but is not backed by a law or a regulation.
Develop necessary regulations to enable
local governments to enforce the 1:2:3 rule
for residential developments27. Empower
or strengthen local governments so they
can enforce permit regulations and do
not renew permits unless substantial
development has taken place within the
26 A good land information system is a key precondition
in providing land for low income communities.
Undisclosed land information leaves room for land
to be appropriated by property speculators to the
detriment of the poor. Planning for urban housing
and infrastructure is difficult without transparent land
information and management systems,.
27 The 1:2:3 rule is a cross-subsidy scheme that requires
developers to allocate a percentage of the number
of units (or a certain portion of the total land being
developed) for middle and low-income housing.
51
stipulated period and unless the low- and

middle-income housing requirements are
met.
When converting land from rural to urban,
reserve areas for low-income housing.
(ii) Registration and Permitting Procedures.
Current processes to transfer land ownership
(BPN) and obtain building permits (local
government) are bureaucratic, increase costs
and impede good urban governance. One
Stop Shops which specify all procedures and
costs and are subject to external oversight
can improve registration rates; and they can
facilitate a shift to e-permitting/e-registration
systems. BPN can cooperate with local
governments to build this integrated system
of land administration and development
permit procedures, perhaps starting rst with
expedited systems for low-income housing
development.
(iii)Taxation.
Local
governments
are
responsible for several local taxes, including
the property tax (which is a combination of land
and building taxes) and transfer taxes that can
be used to get speculators to release more land
into the market and to make land transactions
more transparent. For example:
Shifting to land value taxation is an effective
means to bring land into productive use,
reduce the market price and increase
public revenues28.
Levying taxes on land left vacant is a scal
instrument that city governments can
use to discourage land speculation and
28 A land tax is simple to assess and collect. However,

a building tax discourages land improvements (i.e.
construction/property development), providing greater
incentives for speculators to hold onto banked land
without developing it. Transfer taxes incentivize underreporting Introducing land value taxation gradually
can allow markets to adjust to the new tax and create
more transparent and equitable land markets. It will be
essential to de-link locally generated revenues from the
DAU allocations from central government before this
can commence, as the current DAU allocations are
inversely related to locally generated revenues.
52
ensure a steady supply of developed land.

Reducing or eliminating transfer taxes is
a simple means to discourage current
under-reporting of market values and
improve registration and is currently under
consideration.
6.4 Explore Alternative Strategies to

Assemble Urban Land for Housing
Over the medium and long-term, GoI will
need to diversify its strategies to facilitate
land assembly for affordable housing delivery.
Otherwise, the current stock of public land
assets will eventually become depleted, given
the large need for developable land every year.
Strategies may include:
Land Sharing. Consider using a land
sharing approach with private sector
land-owners in order to share windfalls
of administrative actions and public
investment and to acquire land at zero
cost.
Consider land consolidation/readjustment
strategies29 combined with exactions for
public-purposes (i.e. land for amenities
and affordable housing).
Invest in transportation infrastructure as a
surrogate for expanding land supply.
29 Land pooling and land readjustment has been

exercised by the Ministry of Public Works in the
early 1990s through the Guided Land Development
(GLD) Program undertaken in the peri-urban areas of
Jabodetabek urban agglomeration (Jakarta-BogorDepok-Tangerang-Bekasi). Because of inadequate
coordination among relevant government agencies,
particularly BPN-MoPW-LG, it has not been fully
successful. Further workshops in Bandung and
Jakarta assessed the issue but did not lead to further
action. Therefore, it is recommended that incentives
and disincentives for collective action between different
government bodies and private stakeholders need to
be designed carefully.
53
54
07
Roadmap
Implementation
To move forward on each of these policy priorities, the following diagram lays out
the series of actions that the government will need to take, in the Immediate, Short
Term and Medium Term.
Priority
Slum Upgrading
Immediate Actions
6-12 month
Short Term Actions

1-2 years
Medium Term Actions

3-5 years
Design the frameworks for

Launch slum upgrading
a national program on com- program on an on-deprehensive slum upgrading. mand basis with cities.
Scale national program to all cities and

slum areas throughout Indonesia.
Subsidized Housing
Reformulate public housing

toward alternative tenures and typologies. This
includes detailed design of
programs for core/row and
public rental housing, with
an expanding LG role, a
detailed strategy to revitalize Perumnas, and utilize
public land assets.
Roll-out and increase

investment in subsidized
housing programs,
improve calibration of
subsidies and increase
private sector and LG
participation.
Introduce further
market reforms and
measures that increase private sector
incentives to develop
and manage public
housing.
Home Improvement
Strengthen delivery of
existing home improvement
subsidy program (BSPS)
and introduce a greater
urban-focus.
Build up systems and

capacity to execute and
integrate subsidy with
slum upgrading and new
green-eld incremental
development.
Fine-tune the programs and scale them

nation-wide. Facilitate
development of and
crowding in of housing micronance.
07 | Roadmap Implementation
55
Priority
56
Immediate Actions
6-12 month
Short Term Actions

1-2 years
Medium Term Actions

3-5 years
Enable Market
Reorient FLPP onto

market-based principles
and design a mortgagelinked demand /down payment assistance program.
Remove tax incentives
and review measures to
increase private sector supply of low-cost housing.
Fully transition to a
demand subsidy and
market-based liquidity support, including strengthening of
mortgage insurance and
SMF. Explore access
to developer nance to
stimulate low-cost housing supply.
Introduce a suite of
associated marketenabling reforms to
deepen mortgage
markets and support
real estate developers increase supply
of low-cost affordable
housing.
Delivery Systems
Design local government

accreditation and capacitybuilding program. Carry out
detailed affordability and
targeting assessment and
design plan to implement
a housing management
information systems.
Launch LG capacitybuilding in coordination with the roll-out of

housing programs and
monitor performance.
Invest in setting up the
Housing MIS and systems for monitoring and
evaluation of housing
policy.
Transfer funds and

responsibility for
execution of housing
policy to LGs based
on performance and
capacity. Recalibrate
and update MIS and
targeting on a regular
basis.
Urban Land
Design processes to (i)

secure under-utilized public
land assets for settlements
and (ii) recognize and/or
regularize tenure of households in slum areas.
Launch the national

Land for Housing
program, empowering
a national land provision entity as executing agent, and design
technical assistance to
develop LG land management systems.
Continue to build
LG capacity in land
management and
provision.
| Annexes
57
58
Annexes
1. Principles of Housing Policy

Reform
The following are some key principles that have guided the formulation of the policy recommendations
for the Housing Policy Reform Roadmap.
a. Housing is a basic human need and right. Every Indonesian shares the right to a decent
standard of living. Housing that provides a basic level of privacy, security and shelter, as well as
access to infrastructure, livelihood opportunities, and social services, is essential to achieving
this standard. The government plays an important role in realizing the right to adequate housing
for its citizens by supporting the provision of affordable housing.
b. Space for the poor needs to be provided in the city. The poor make a substantial
contribution to the economic and social development of cities. Land and housing for the urban
poor must provide access to livelihoods and social infrastructure that reects their needs in
terms of location, form and cost, so that they can continue to make a positive contribution to
a citys well-being and development.
c. Guarantee security of tenure of every citizen. Development should occur without
uncompensated eviction. Secure land tenure and protection from arbitrary eviction is a basic
requirement for creating a decent living environment and should be guaranteed to every
citizen. The poor need protection from eviction without acceptable alternative housing and
compensation.
d. Central government should act as enabler. The most effective role for government is to
regulate and facilitate land and housing markets to better serve the public interest, not act as a
general supplier of housing. The exception is when government allocates public land for social
uses and provides direct assistance to the lowest income households that are not served
by the market. In this role, government directs policies, regulatory instruments and public
investments towards ensuring that secure, well-located land is available for the urban poor,
that all citizens have access to basic services, and that housing is of decent quality.
| Annexes
59
e. Local governments to take an active role. Local governments are in an important position of
direct accountability and responsibility to local residents to develop and execute development
plans, monitor demographic and growth dynamics and respond to the public service needs
of their residents. As such, local governments should be actively involved in the design and
implementation of national housing policy and programs. In turn, these policies should be
exible enough so that they can be reshaped in response to local needs and regional variations.
f. Community participation. Community participation is key to the success and sustainability
of housing and settlement programs. Community participation should be part of the planning,
programming, design, implementation and supervision of activities. This will ensure that the
results of housing and settlement programs satisfy the needs of the community and that there
is sense of local ownership and responsibility toward maintaining healthy neighborhoods.
g. An integrated approach to settlement development. Adequate housing and settlements
require addressing a wide range of issues such as physical planning, quality of construction,
infrastructure provision, access to social services (e.g. healthcare, education and community
facilities), and access to jobs. Therefore, it is important to work towards enabling an integrated,
multi-sectoral approach to housing policy, whereby public transportation, provision of services,
spatial planning and project development are coordinated.
h. Housing and settlements should be integrated with broader city development. New
and existing settlement areas dene the development patterns and long term outcomes of
cities. Yet, slum areas are currently excluded from spatial planning considerations and housing
projects are often viewed as peripheral to city development. Investment in new housing and
slum alleviation should be included in urban spatial planning and management.
60
2. Target Population and

Affordability
Summary
Appropriate targeting is an essential pre-requisite to effective and equitable public
spending. It is important that the government maintains up-to-date and reliable information on
housing needs and affordability, and builds a clear system for dening and reaching the target
population with housing policy and programs.
Beyond national characteristics, there are diverse regional variations in housing markets. For
example, there are different building materials and techniques that are considered adequate and
the cost of construction varies based on location. The cost of a bag of cement is approximately
US$150 in Papua or 25 times the cost of a bag of cement in Java. Also, household incomes and
tenure preferences vary widely, requiring different solutions. For example, there is high demand for
vertical rental housing amongst middle-income households in larger cities and industrial centers,
while households in smaller urban centers and rural settlements prefer low-rise solutions.
The Roadmap recommends that the MPWH clearly dene the criteria to determine the housing
decit, as well as develop systems for affordability and targeting of government support in the
housing sector. This system should utilize existing information and data, which is regularly collected
by BPS, as well as take into account geographic variations and local market particularities. This
housing market information should be reported broadly (readily accessible to both the public
and private sectors) on an annual basis and be used to inform program development, budget
allocation, and targeting of subsidies.
Housing Stock and Housing Decit

Total housing stock is estimated at 64.1 million units. The home ownership rate is high in Indonesia,
at around 82% of households. The housing decit is a ratio that should reect both quantitative
decit and qualitative decit. The decit gures that are frequently reported relate to the number
of households that do not own a home, which was measured at 11.9 million households in 2010,
and is estimated to have increased to 13.5 million by 2014, or around 20% of the 64.1 million
units.
| Annexes
61
Figure 1. Household Ownership Rate per Decile.

90%
70%
50%
30%
12
34
National
56
78
Urban
Source: BPS Susenas, 2013.
91
Jakarta
However, this number is misleading

as is shown by Figure 1, where
home ownership is shown to be
lower for higher decile households.
Thus, the reported decit lies with
the high-income households rather
than low-income. The gure also
fails to take into account renters or
lessees who may not wish to own
due to lifestyle preferences as well
as families in overcrowded units who
would like to own but cannot. This
denition needs to be ne-tuned to
address the following additional
characteristics:
1. Families living in a single household who may wish to own but cannot due to affordability
reasons.
2. Non-Owners (renters, lessees etc.) who may not wish to own due to lifestyle preferences.
3. Units that are dened as substandard housing.
It is recommended that the BPS include a few additional survey questions in future Susenas and
the next census to further calibrate the quantitative decit ratio so that it better aligns with home
ownership desire and need.
Box 1. International Example of Housing Decit In Latin America
In Latin America, as in most places, the housing decit has two critical aspects: First, there
is a shortage of housing for those households who want to own housing units this is the
quantitative housing decit. Second, many households live in poor conditions this is the
qualitative decit. The existence of a qualitative housing decit means that many people
share overcrowded accommodation or live in shelter lacking satisfactory basic services such
as water, sanitation and electricity. In the poorest countries, the combined housing decit,
quantitative and qualitative, is actually greater than the total existing housing stock. An
example of housing decit in Colombia is as follows:
Quantitative
Qualitative
Total Decit
1985
14%
33%
49%
2005
12%
24%
36%
Source: Ten Myths Underpinning Latin American Housing Policies by Alan Gilbert
The calculation of qualitative housing decit is challenging as there is no global denition to be

used. The Roadmap strongly recommends establishing a clear denition of substandard housing.
To do so, MPWH can use a combination of the following existing indicators being captured by
BPS Susenas:
62
(a) Overcrowding effect (currently dened as < 7.2m2 per capita).

(b) Lack of standard utilities water, sanitation, and/or electricity.
(c) Substandard construction materials for oor, walls and roof (e.g. for roof, substandard materials
have been dened as asbestos and ber/palm; substandard walls can be dened as wood and
bamboo; and an earthen oor is considered substandard).
Current measures indicate that 45% of existing homes or 28.9 million units are substandard in
one of these factors, e.g., are constructed of one substandard housing material, do not have
access to water or sanitation, or are overcrowded. This ranges from 63% for Decile 1 households
to 19% of Decile 10 households. Using a combination of these factors can radically shift the
estimate of decits. Table 1 and Figure 2 shows the primary factors that contribute to the housing
quantitative decit, which has been extrapolated from the BPS 2013 Susenas survey and divided
into household expenditure deciles.
Figure 2. Number of Housing Units with Various Substandard Characteristics
5,000,000
Overcrowded
No basic services
All poor quality materials
4,500,000

services
4,000,000
No. of Units
3,500,000

services and poor quality
materials
3,000,000

services and no poor quality
materials
2,500,000
2,000,000
No basic services or poor

materials
1,500,000
1,000,000
Overcrowded or no basic
services or poor quality
500,000
12
34
56
78
91
Decile
| Annexes
63
64
7%
5%
8,758,632
14%
8%
11%
12%
14%
16%
18%
21%
22,316,246
35%
9%
16%
22%
29%
32%
38%
43%
46%
51%
61%
No
Sanitation
6,266,012
10%
1%
3%
5%
7%
8%
9%
12%
13%
16%
22%
No Water &
Sanitation
6,125,329
10%
10%
10%
10%
10%
9%
9%
8%
9%
9%
12%
Roof
5,804,551
9%
1%
2%
4%
6%
7%
9%
10%
13%
16%
22%
Floor
785,497
1%
0%
0%
0%
1%
1%
1%
1%
2%
2%
4%
All Sub standard
28,915,894
45%
21%
29%
35%
40%
42%
48%
51%
55%
60%
69%
Overcrowded or
No Basic Utilities or
Substandard Material
1,112,974
2%
0%
0%
0%
0%
1%
1%
1%
2%
4%
7%
Overcrowded and
No Basic Utilities and
Substandard Material
Combination of Substandard Characteristics
In Indonesia, almost all population growth is occurring in urban areas, while growth in rural areas is stagnating. Over 34 million residents moved
to cities in the past 10 years resulting in a total increase of 8.2 million urban households. Meanwhile the rural population has decreased by 2.1
million or around 510,000 households in the past 10 years (see Figure 3).
National housing needs are difcult to determine with accuracy. This responsibility best lies with regional and local governments, who can be
responsible for undertaking specic housing need assessments and setting regional and local housing development targets. Using population
growth, migration and decit estimates, national government can provide minimum and maximum estimates for the housing needs to inform
national program design and national budget allocation.
5,852,233
9%
1%
3%
4%
7%
8%
8%
11%
14%
16%
19%
Wall
Substandard Construction Materials
Characteristics of Indonesias Housing Needs
7,543,340
8%
No. of
Units
3%
8%
3%
12%
12%
13%
10
15%
Total
6%
19%
27%
27%
No Water
<7.2m2
Decile
Lack of Basic Utilities
Percentage of Housing Units with Various Substandard Characteristics
Nationwide Overcrowding
Table 1.
Figure 3. Ten Year Growth Trends in Indonesia (2004 2013)

Avg. Annual Rural Growth (%)
-0.17%
Change in Rural Population (residents)
-2,100,000
Total Change in No. Rural Households
-510,000
Avg. Annual Urban Growth (%)
3%
34,000,000
Change in Urban Population (residents)

Total Change in No. Urban Households
8,200,000
Source: World Bank Databank, 2014.
The housing needs are diverse units in rural areas suffer disproportionately from qualitative decit
(substandard materials and/or no access to basic services), while housing needs in urban areas
are mainly part of the quantitative decit and suffer particularly from over-crowding, indicating the
need for new production.
Current production of formal units is estimated to be in the order of 400,000 units per year. To
overcome the decit, total production of new units and home improvement solutions will need to
increase to an estimated 1.8 to 3.6 million units per year. This estimate is based on the following
components:
1. Growth in urban population ranges from 2.6% to 2.9% per year, requiring an estimated 820,000
to 920,000 new urban housing units every year in order to accommodate new household
formation.
2. Home improvement or new production to overcome the decit of inadequate units in both rural
and urban areas. This requires additional production of between 900,000 and 2.7 million units
or home improvement solutions per year, depending on estimates for the current decit (see
Table 2) and time span to entirely eliminate the decit (by 2019, 2024 or 2029).
Table 2.
Various Estimates of Overall Housing Decit
Decit Estimates
Classication
Total Units
Annual Need to Reduce

Backlog by 2019
Low Estimate
Only slum households
3.9 million
780,000
Middle Estimate
Only overcrowded units
7.5 million
1,500,000
High Estimate
Non-home ownership, reported

by BPS and MPWH
13.5 million
2,700,000
Of the total need, the top 20 percent of households are capable of purchasing in the formal
market (see affordability section). This leaves 1.6 to 3.2 million households per year that need
housing support through an enabling nancial environment or specic public programs. Some
units can be made adequate through home improvement or incremental home expansion. An
estimated 12.2% of urban residents or 3.9 million households live in slums requiring upgrading,
in-situ redevelopment, or relocation. In addition, there are non-slum households that require new
housing due to internal migration or population growth. This will require the production of low-cost
formal housing, as well as affordable housing nance. Table 3 illustrates certain characteristics of
the estimated housing needs according to income decile.
| Annexes
65
Table 3.
Characteristics of Indonesias Estimated Housing Need
Target
Groups
Slum Units
Decile 1-4
(Non-Slum
Households)
Decile 5-8
Annual Need
to Address
Housing
Decit by
2019
780,000 units
1.20 m units
1.25 m units
Annual Need
to Address
Housing Decit
by 2024
390,000 units
780,000 units
810,000 units
Annual Need
to Address
Housing Decit
by 2029
Objectives
Example of
Policy Solution
260,000 units
0% Slums
Slum upgrading
and home
improvement
subsidies.
650,000 units
Prevent
formation of
new slums,
increase supply
of affordable
formal housing
solutions.
New subsidized
public rental
and core starter
units.
660,000 units
Increase supply
of low-cost
housing to
reduce backlog
and meet new
demand.
Introduce
more effective
mortgage-linked
subsidy scheme
to enhance
affordability.
Enable formal
housing market
to work.
Support
secondary
mortgage market
development.
Decile 9-10
390,000 units
290,000 units
250,000 units
Total
3.6 million/yr
2.3 million/yr
1.8 million/yr
Source: Authors Calculations.
Actual gures may be signicantly different from these estimates, depending on the assumptions
and statistical measures used. Variations may be caused by the following factors:
1. The model assumes that demand for new units are equally distributed among deciles. However,
new household formation tends to be biased towards the middle and lower income deciles.
Demographic analysis show that low-income households tend to have larger families and
rural-to-urban migrants tend to be lower income.
2. The spread of the housing decit across deciles is based on average spread of the basic
substandard characteristics30. However, certain characteristics may be more heavily
concentrated in lower decile households or vice versa, which would require more complex
segmentation techniques.
3. Lastly, even though income in slums is heterogeneous, the assumption is that the majority of
the current slum population is expected to be poor or ultra poor (Decile 1 4).
The goal of the Roadmap is not to dene the precise numbers. Instead, given the undisputed
magnitude of the need, its priority is identifying areas for action and improving the efciency and
equity of the policy framework.
30
66
On average, Decile 1-4 households make up 60% of substandard units, hence qualitative backlog, Decile 5-8
households make up 33% of the qualitative backlog; and Decile 9-10 make up 7% of the qualitative backlog.
Housing Incomes and Housing Affordability

Household consumption expenditures are measured by BPS in the Susenas Living
Standards Survey, which is conducted quarterly. Using this information, households can be
divided into expenditure deciles to provide an indication of well-being and affordability of services.
On average, Indonesian consumers spend IDR 2.9 million per month on all types of expenditures
(including household, food and non-food related expenditures). There are substantial regional
variations with respect to urban household expenditures and income. The median monthly
household expenditures for Jakarta is more than twice the national average, given the higher cost
of living, as shown by Figure 4.
Figure 4. Average Monthly Household Expenditures, by Decile and by Geography
Monthly HH Expenditures by Decile
(IDR, million)
Decile
Monthly HH Expenditures By Geography

(IDR, million)
Mo. HH Expenditures
1.17
1.42
1.59
1.83
2.06
2.35
2.66
3.21
4.26
10
8.20
Avg
Jakarta
IDR 5.99 MM
1.5
Urban
2.6
IDR 3.64 MM
Nasional
IDR 2.88 MM
6.2
2.88
The Susenas Survey also records existing spending on housing. The Imputed Housing
and Housing Related expenditures31 as a percentage of total household expenditures gives an
indication of the share of their total expenditures that households from different deciles are willing to
allocate toward housing. Lower decile households tend to have less income available for housing,
as they must spend a larger proportion on essential goods like water, food and transport. In the
case of Indonesia, nationally households allocate 19% of their total expenditures, on average,
to housing. This ranges from 32% for Decile 10 households to 15% for Decile 1-4 households,
reecting international studies that show that poorer households have a much lower share of
income available for spending on housing. While the imputed housing cost reects more the
affordability of rentals rather than that of home ownership, this housing indicator is an important
ratio to track.
Table 4.
Imputed Housing and Housing Related Expenditures as a Percentage of Total

Household Expenditure
As a % of Household Expenditures
National
Urban
Jakarta
Imputed Housing & Housing Related Cost:
19%
21%
25%
Imputed Housing Cost:
11%
12%
15%
Maintenance & Utilities Cost:
8%
9%
10%

31 Imputed Housing Expenditures = Actual rental/lease cost for renters/lessees OR imputed rental cost for homeowners
or those who receive free rental. Housing Related Expenditures = Maintenance, electricity and water cost.
| Annexes
67
Analysis of household income32 gives an indication of household savings and funds available for
investment in housing purchase, improvement, or extension as a starting point for the affordability
analysis. As can be seen in Table 5, household savings (income less expenditures) increases quite
dramatically as one moves from lower to higher income deciles. Analysis of various subsets shows
that there is a lot of variation in the median monthly household expenditure in different geographic
regions.
Table 5.
Monthly Household Income, Expenditure and Funds Available for Housing
HH Decile
Monthly HH
Income
(IDR mm)
Monthly HH
Expenditures
(IDR mm)
Percentage HH
Savings
(IDR mm)
Funds for Housing

Investment
(IDR mm)
Decile 1
1.2
1.2
7%
0.2
Decile 2
1.8
1.4
21%
0.5
Decile 3
2.1
1.6
24%
0.6
Decile 4
2.6
1.8
30%
1.0
Decile 5
3.1
2.1
34%
1.2
Decile 6
3.6
2.3
34%
1.5
Decile 7
4.2
2.7
36%
1.8
Decile 8
5.2
3.2
39%
2.4
Decile 9
7.0
4.3
39%
3.2
Decile 10
13.9
8.2
41%
6.6
Average
4.5
2.9
30%
1.9
Housing Affordability under Existing Conditions

Under existing conditions, formal housing nance is likely to be difcult to access for the bottom
80% population. Only the high-income segment (Deciles 9-10) are able to obtain market rate
mortgage nance (variable interest rate of 11-14%, 15 year tenure and 20% minimum down
payment), enabling them to purchase a market rate unit of above IDR 270 million. Low-income
households (Decile 1-4) will likely rely on nancing from micronance institutions, at high rates
(e.g 30-40% per annum) and short tenure (e.g. 3-5 years), resulting in a struggle to nance even
a basic solution of IDR 20 million. Meanwhile, apart from the heavily subsidized FLPP mortgage,
there are no interim housing nance products to service the middle-income segment, particularly
those with informal incomes. Using the subsidized FLPP loan (of xed interest rate of 7.25% per
annum, 20 year tenor and down-payment of 10%), middle-income households with a formal
income can comfortably afford a unit of above IDR 100 million, yet around 55% of the total loan is
supported by an implicit subsidy, resulting in a high economic cost to the government (see Annex
4.6).
32 Household income formula for Decile 5 has been calculated from the Median of Greater of Minimum Wage and
Minimum Decent Living (Ministry of Labor) for 24 provinces multiplied by the Number of Working Adults. Household
income for other deciles has been extrapolated from the median point, Decile 5, using the household expenditure
curve provided by BPS Susenas data.
68
| Annexes
69
10%
7.25%
20
5-8
Subsidized FLPP
Loan
20%
12%
15
8-10
Commercial Loan
1
1,248,841
1,166,502
101,339
1,065,163
183,677
15%
10%
124,884
2,453,720
3,067,150
HH Decile
HH Income
HH Expenditures
Housing Cost (Imputed)
HH Spends less Hsg Cost
Available for Housing
Available for Housing (%)
DTI %
Max EMI
Max Loan
Max Home Price
2
3
1,793,549
2,096,882
1,418,486
1,590,485
101,780
124,020
1,316,706
1,466,465
476,843
630,417
27%
30%
20%
25%
358,710
524,221
MFI Loan
7,047,924 10,299,878
8,809,905 12,874,847
5
3,116,215
2,064,460
196,689
1,867,771
1,248,444
40%
30%
934,865
6
7
8
9
10
3,576,109
4,154,031
5,234,344
7,006,839 13,882,924
2,349,395
2,664,861
3,205,574
4,258,883
8,201,534
240,641
278,102
349,744
475,604
934,338
2,108,753
2,386,759
2,855,829
3,783,279
7,267,196
1,467,355
1,767,272
2,378,515
3,223,560
6,615,728
41%
43%
45%
46%
48%
30%
33%
35%
37%
40%
1,072,833
1,370,830
1,832,021
2,592,530
5,553,170
FLPP Loan
Commercial Loan
14,421,198 118,280,989 135,736,991 114,219,844 152,647,000 216,013,940 462,699,327
18,026,498 131,423,321 150,818,879 142,774,805 190,808,750 270,017,426 578,374,159
4
2,621,352
1,832,597
163,545
1,669,052
952,299
36%
28%
733,978
Affordability Analysis by Decile with Assumed Housing Finance Products
20%
Table 7.
20%
Down Payment
Loan Term (Years)
Rate
1-4
MFI Loan
Assumptions for Housing Finance Products Available
Deciles
Table 6.
Figure 5. Estimated Level of Affordability of Units for Main Household Segments

Home Price Households Can Afford
IDR
10.2 MM
Deciles 5-8
IDR 4.0 MM
Deciles 1-4
IDR 1.9 MM
Decile 9-10
IDR > 270 MM
IDR +/-145 MM
IDR <20
MM
Median Monthly HH Income

Housing Affordability. For Deciles 5-8, while the Median Home Price to Household Income
ratios are within acceptable range from a theoretical framework (home price is 3.9 times annual
income), in Home Price Households Can Afford, it is difcult to nd supply of housing for less than
IDR 145 million, particularly in large cities. If we were to apply the median FLPP ceiling price for
vertical units as set by the MPWH at around IDR 300 million, then the ratio of Median Home Price
to Median Household Income ratio reaches 6.5 times. This reects an affordability stretch for this
segment which is expected to grow worse over time.
Table 8.
Median Home Price to Income Calculation, using National Averages
Home Price / Income Calculation
D1-4
D 5-8
D9-10
Median HH income
1,945,215
3,865,070
10,444,881
Median HH Expenditures
1,391,585
2,247,756
5,525,238
553,630
1,617,313
4,919,644
Funds Available for Housing

Debt To Income
25%
33%
40%
Rate / Term Assumptions
40% / 3 yrs
7.25% / 20 yrs
12% / 15 yrs
Max Mortgage Installment
486,304
1,275,473
4,177,953
Max Loan Amount
10,108,134
161,375,470
348,113,956
Max Home Price
12,635,168
179,306,078
435,142,445
0.5
3.9
3.5
Market Vertical Unit In Metros
N/A
300,000,000
1,000,000,000
Market Median Home Price/Income Ratio
N/A
6.5
8.0
Theoretical Median Home Price/Income Ratio
70
Moving Toward Effective and Efcient Public Policy

Improving the accessibility and affordability of housing nance products will expand the reach and
reduce the cost to the government of making housing affordable to all income segments.
In this scenario, commercial mortgage rates are maintained for higher decile households. Deciles
4-8 are still supported by public subsidy. However, this subsidy is no longer a subsidized interest
rate channeled through nancial institutions, which has a high cost to government. Instead it
becomes a demand-side subsidy, which can be adjusted progressively to household incomes,
and costs only a fraction of the FLPP subsidy per household (half to less than a quarter), to reach
the same levels of affordability for Decile 4-8 households33. This down-payment assistance could
be provided as an upfront subsidy or a more efcient buy-down subsidy and may need to be
adjusted to enable affordability in different geographic areas.
Support to develop the housing micronance sector and reduce the costs and lengthen the terms
of micronance loans for housing purposes (e.g. 5 year tenor, 20% per annum) will make it easier
for lower-income deciles to access nance. This can be used for incremental home improvement
or co-nancing of basic core units that are estimated to cost around 25 million.
Table 9.
Decile
Estimates of Home Affordability with Effective Public Policy

Example Housing
Solution
Approx. Subsidy
Approx.
Affordable Loan
Max. Home Price (w. Savings

& Subsidy Support)
4.7 million
20.9 million
13.5 million
31.9 million
19.8 million
39.7 million
27.7 million
49.6 million
78.9 million
97.4 million
89.4 million
112 million
114 million
143 million
153 million
191 million
216 million
463 million
270 million
578 million
2
3
6
7
Core Unit or Home

Improvement +
HMF Loan
Down-Payment
Subsidy and LongTerm Finance
8
9
10
e.g. 15 million
for home
improvement
Progressive
demand-side
subsidy, linked to
income
Commercial Loan
No subsidy.
Targeting and Budgets

The following scenarios provides some rough estimates of the total annual budget allocation and
balance between programs required to reach housing delivery targets, based on three scenarios
achieving full access to affordable housing by 2019, 2024 and 2029, respectively.
The simulation has focused on the maximum housing needs, using an estimated decit of 13.5
million units and annual new demand of 920,000 units. New housing demand is spread evenly
across deciles, whereas the housing decit is concentrated in lower-income deciles (60% of
backlog in D1-D4, 33% of backlog in D5-D8, and 7% in D9-D10).
33 In the FLPP, the implicit subsidy is around 55% of the loans value. This compares to a demand-side subsidy,that
requires an upfront subsidy of 25% for the same level of affordability, and 11% of the loan amount for a buy-down
subsidy.
| Annexes
71
Policy solutions have been approximated as follows:

Slum households are addressed 80% by slum upgrading, while 20% may need to be resettled
into public rental units.
Additional housing decit in D1-D4 is reached by home improvement subsidies, and new
demand is addressed 80% by core or row house units, and 20% by public rental units.
All housing backlog and decit in D5-D8 is addressed by mortgage assistance and marketmaking measures.
The costs of these policy solutions are also roughly estimated to simplify calculations, with an
estimated 25% of overall budget being used for management and administration of programs.
Current budget allocation, accounting for the Ministry of Housing 2014 program budget, the
budget allocation to FLPP and slum-related activities of the Ministry of Public Works is estimated
to be in the order of IDR 10 trillion.
The following scenarios are carried out (details shown in Table 10):
Scenario 1: Reduce decits and meet new housing demand by 2019. Requires an
estimated 6.5x current housing-related budget or approximately 3.5% of total GoI annual
budget.
budget.
budget.
Scenario 4: Maintaining current budget allocation. Maintaining estimated current housingrelated budget or approximately 0.5% total GoI annual budget.
72
Table 10. Estimated Budget Required to Reach Policy Targets
Scenario 1: Reaching Targets by

2019
Target
Decile
Estimated
Cost of
Subsidy
(IDR m)
No. of
Units
Budget
Reqd
(IDR Tr)
D1-D4
15
624,000
9.4
19%
D1-D4
15
831,900
12.5
D1-D4
25
294,400
D1-D4
50
D5-D8
All
No. of
Units
Budget
Reqd
(IDR Tr)
14%
312,000
4.7
16%
12%
26%
19%
415,950
6.2
21%
16%
4.4
9%
7%
294,400
4.4
15%
11%
229,600
3.4
7%
5%
151,600
2.3
8%
6%
20
1,253,600
18.8
39%
29%
810,800
12.2
41%
31%
25%
16.2
25%
9.9
25%
3,233,500
65
1,984,750
40
No. of Times Approx. Current

Budget
6.5
4.0
% of Total Budget for 2014
3.5%
2.2%
Program
Type
Slum
Upgrading
Home
Improvement
Core Units
Public Rental
Housing
DownPayment
Assistance
Management
& Admin
Totals
Program
Type
Slum
Upgrading
Home
Improvement
Core Units
Public Rental
Housing
DownPayment
Assistance
Management
& Admin
Share Share
of
of
Units Budget

2024

2029
Target
Decile
Estimated
Cost of
Subsidy
(IDR m)
No. of
Units
Budget
Reqd
(IDR Tr)
D1-D4
15
208,000
3.1
13%
D1-D4
15
277,300
4.2
D1-D4
25
294,400
D1-D4
50
D5-D8
All
Share Share
of
of
Units Budget
Share Share
of
of
Units Budget
Scenario 4: Maintaining Current

Budget Allocation
Share Share
of
of
Units Budget
No. of
Units
Budget
Reqd
(IDR Tr)
10%
96,490
1.4
24%
12%
18%
13%
128,638
1.9
31%
16%
4.4
19%
14%
27,314
0.7
7%
11%
125,600
1.9
8%
6%
10,651
0.5
3%
6%
20
663,200
9.9
42%
32%
145,384
2.9
36%
31%
25%
7.8
25%
2.5
25%
1,568,500
31
408,477
10
3.1
1.0
1.7%
0.5%
Totals
No. of Times Approx. Current
Budget
% of Total Budget for 2014
| Annexes
73
3. Background to Housing and

Settlements Policy
History of Housing and Settlements Policy in Indonesia34
Before Independence
Urban Indonesia, during the Dutch colonial period, was divided into two types of settlements: the
ofcial city built along a main road, mainly for civil servants, under the jurisdiction of a Mayor and
informal settlements (kampung) located beyond the ofcial city under the jurisdiction of the Regent
(Bupati). Although the dual city system was ofcially rescinded after independence, its legacy can
still be seen today. The emergence of informal settlements was not a signicant challenge at that
time due to the availability of vacant land.
1950-1997: Independence and the New Order

Efforts to ensure decent housing began in 1950 with the Congress of Healthy Peoples Housing
and the establishment of a Housing Research Institute (LPMB/Lembaga Penyelidikan Masalah
Bangunan), a Finance Institute (YKP/Yayasan Kas Pembangunan) and enactment of housing laws
and regulations to provide a legal basis for the provision of low-cost housing for state employees.
In the late 1950s, the inux of rural immigrants led to more informal settlements in the cities.
A Long Term Development Plan or Twenty-Five Year Plan was introduced in 1969, sub-divided
into a series of Five Year Development Plans known as Repelita. The three development objectives
(Trilogi Pembangunan) were political stability, economic growth and social equity.
The rst Five Year Plan or Repelita I (1969-1974) focused on political and economic stabilization
after the turbulence of the mid 1960s. Housing was viewed as an instrument for stability and
was included in the Plan. A pilot housing project known as P1000 was implemented in Jakarta,
Karawang, Bandung, Semarang, Yogyakarta, Surabaya and Jember. Building Information Centers
or BICs were established. The Kampung Improvement Project or KIP, the worlds rst slum
improvement project, was launched in Jakarta and Surabaya. A National Workshop on Housing
and Human Settlement in 1972 recommended a mass housing program, a reinvigorated Housing
Research Institute, a National Housing Policy Board consisting of 10 Ministries, known as BKPN,
a National Urban Development Corporation, that became Perumnas, and a National Saving Bank,
known as BTN, to provide housing nance. The architecture of Indonesias housing sector policy
was now in place.
The second Five Year Plan or Repelita II (1974-1979) emphasized economic growth. Housing was
viewed as an engine of economic growth. Private developers and Perumnas invested in the formal
housing sector. However, home-owner driven housing construction in low-income settlements
did not receive sufcient resources or emphasis and the challenge of informality was also not
addressed. A dual housing sector emerged i.e. formal property development in parallel to homeowner incrementally-built housing.
34 This section is based on the Draft Summary Report for SAPOLA, October 2014.
74
The third Five Year Plan or Repelita III (1979-1984) emphasized social equity. Housing was viewed
as a basic need and social good. It was therefore provided at a subsidized rate to the poor. The
government acted as service provider, while KIP was scaled up to cover 200 cities. A pilot to
integrate KIP with broader urban development goals was undertaken such that basic services
provided by KIP (water, drainage, solid waste management, health posts etc.) were now linked
to the urban network. Supported by booming petroleum revenue, the Indonesian government
implemented a massive top down housing and infrastructure development program. The formal
housing sector was well-supported by a wide range of supply side instruments.
The fourth Five Year Plan or Repelita IV (1984-1989) retained this emphasis. After a successful pilot, the
integrated urban development approach was scaled up as the Integrated Urban Infrastructure
Development Program or IUIDP in several cities, retaining KIP as one component. In the mid
1980s, IUIDP was ofcially launched by the Ministry of Public Works in 400 cities alongside KIP
and the Market Infrastructure Improvement Program or MIIP in 100 cities. However, the
upgrading or improvement of informal/illegal settlements was not included and largely addressed
through eviction and the construction of low-rise apartments.
Repelita V (1989-1994) continued the emphasis on social equity. IUIDP was implemented in more
provinces and cities. Slum upgrading not only covered infrastructure but included urban renewal
on state land. The emphasis on low-rise apartments remained. Law No. 4/1992 on Housing
and Settlement now recognized the role of the community in housing development. However,
the top-down and supply-driven approach continued to receive more attention than incipient
community-based initiatives.
The Second Long Term Development Plan (PJP II) commenced in 1994 from Repelita VI
(1994-1999). But the sixth Repelita was not completed due to the fall of the New Order Regime
in 1998. Mainstream housing development continued, yet much of the subsidized provision of
housing for low-income groups was captured by the not so poor.
Reform Era (1998 to date)

The Reform era began with the democratic transition in 1998, which was triggered by the East
Asian Financial Crisis and ensuing political unrest. The immediate policy emphasis was to reduce
the sharp increase in poverty levels. Two poverty programs were initiated i.e. the Rural Poverty
Program and the Urban Poverty Program with World Bank support. There was no immediate
attention to housing policy until October 1999 when the legislature issued GBHN or the General
Guideline for National Development. The Government of Indonesia operationalized this and had
the legislature approve Propenas 2000-2004 or the National Development Program.
The need to address slums was recognized because of increased urban poverty caused by the
East Asian Financial crisis of 1997. The Reform Era also triggered an administrative decentralization
to elected regional governments in 1999. Housing became the responsibility of local governments.
The World Bank worked with GoI to evaluate the housing market in Indonesia and develop
recommendations. This assistance was known as HOMI, or the Housing Market Indonesia
program, which reiterated that a well-functioning housing market still excludes under-served
segments of the urban poor. This category needs outright housing assistance.
The HOMI recommendations were adopted by the Ministry of Human Settlements and Regional
Infrastructure and incorporated under Ministerial Decree No 217 of 2002 i.e. KSNPP or the National
| Annexes
75
Policy and Strategy for Housing and Human Settlements. However, the central government
failed to transfer resources to local governments for its implementation, and local governments
were not ready to assume additional responsibilities, given funding and capacity constraints. In the
case of the Rusunawa, which was the Program for Public Rental Apartments, the municipal role
was limited to identifying the location and available land. The design, procurement of contractors,
actual construction and civil works supervision continued to be a central line ministry responsibility.
The local governments did not own the program, did not see it as a priority and were reluctant to
allocate municipal land for what was viewed as a central government program.
In the case of the Perumahan Swadaya or the Self-Help Housing Program, the central
government provided funds to eligible households to repair their homes. The central government
has struggled to identify data on who was eligible to receive nancial assistance. The central line
agency insisted on undertaking the survey and preparing the budget. The lack of preparation,
capacity-strengthening, transfer of resources, and coordination between central agencies and
local governments after decentralization has resulted in limitations to the implementation of
housing programs.
With the success of engaging communities directly in urban poverty alleviation activities, the
national PNPM Urban program initiated a community driven neighborhood (infrastructure)
development program, through block grants provided to communities. The trend was to integrate
community driven slum improvement efforts with poverty reduction.
The Government of Indonesia reiterated its commitment, however, to the right to adequate housing
in the Long-Term Development Plan 20052025 (RPJPN), the Medium-Term Development
Plans: RPJMN (2004-2009) and the RPJMN (20102014). Law No 1 of 2011 on Housing and
Settlement Area was enacted to replace the previous Housing Law No 4 of 1992.
Laws and Regulations Related to Housing and Settlements

The following laws and regulations form the legal basis for policy formulation:
a. The Amendment to the 1945 Constitution of the Republic of Indonesia, where Article
28H Clause (1) states that everyone has the right to a prosperous life, a settlement and a
healthy environment.
b. Law No. 39/1999 on Human Rights, Article 40. The right to shelter and a decent living as
an advancement of human rights.
c. Law No. 1/2011 on Housing and Settlement Area. The State is held accountable to
ensure decent and affordable housing and settlements for Indoneisan people
d. Millennium Development Goals (MDGs). Providing decent and affordable housing is a
global commitment as stated in the Habitat Agenda and the MDGs.
There are some strengths and short-comings to this legal structure. Unlike the previous Housing
Law, Law No 1/2011 on Housing and Settlement Areas incorporates operational guidance35 on
35 Detailed arrangements include: i) the division of roles and responsibility among different levels of government, ii)
detail steps in planning, construction, implementation and controling of housing development and settlement
area development, iii) approach on slum prevention and slum improvement, iv) land provision, v) nancing
system, vi) incentive and disincentive.
76
housing, settlement development, slum alleviation and provision of land for housing. However,
there is a lack of enabling regulations to support implementation. The four mandated government
regulations36 have not been issued. Further, Law 1/2011 fails to address the role of the community
or to adequately dene a slum.
Conclusion
Housing policy moved from social housing to the construction of housing units below the market
price for low-income people, who have been largely public sector employees (e.g. in the case of
Yayasan Kas Pembangunan). There was a massive production of low-cost housing by the private
and public sector that failed to address the needs of the urban poor.
Area development schemes, like the KIP, linked basic services within the settlement or kampung
to broader urban development. However, individual housing development and area development
have remained supply-driven.
Some pilots emphasizing a demand-side approach were launched. This included the Community
Based Housing Development or CBHD, CoBuild, and NUSSP. These were peripheral to the
national housing police and, as a result, the poor have suffered from the high and inating price
of housing and land.
As of today, most local governments do not drive low-income urban housing programs. The
municipal budget apportioned for low-income housing is limited. There is a lack of systematic data
related to slums and informal settlements. The National Housing Board has ceased to function.
The community-driven programs of housing improvement were pushed through by the central
government and not by the municipalities concerned. In 2013, an Inter-Ministerial Working Group
on Housing and Settlements chaired by Bappenas was established to review performance.
Indonesia continues to have a substantial housing decit. Subsidized loans and a provision of
infrastructure and tax exemptions were introduced for low-cost housing, yet these steps meet
just 20% of the housing needs and have not addressed the underlying reasons for the decit.
Most households still meet their requirements through incremental owner-driven construction that
remains in the informal sector. The needs of the poorest, who often live in illegal and squatter
settlements, have not yet been addressed through policy.
36 Government Regulations are now in the formulation process which are: i) Supervision of Housing and Settlement
Areas, ii) The Development of Housing and Settlement Area, iii) Housing Finance Mobilisation and iv) State Housing,
| Annexes
77
4. Sector-Specific Context
Annex 4.1 Housing Sector Governance
Summary of Sector Findings
There are four long-standing structural issues that have limited the effectiveness of housing sector
governance in Indonesia:
1. Central government implements most housing policy and programs with a limited role
for local government. Many local governments have been unable to take on an effective
role in supporting housing provision because of a lack of adequate funding, political interest
or technical capacity. It will be difcult for central government to meet Indonesias housing
needs alone. Increasing the participation of local governments is important because of the
scale and diversity of the countrys housing challenges. Indonesia has over 500 subnational
governments, each of whom have a unique, geographically-specic set of housing and
settlement challenges. National programs could be redesigned with more exibility and a
clearer transfer of responsibilities and support to local governments. This approach would help
programs reach scale while maintaining quality and responsiveness.
2. There are limited coordination mechanisms across central government agencies. Good
housing policy requires the commitment and coordination of a wide number of stakeholders
across central government ministries. No clear framework for the coordination and integration of
housing policy between government agencies exists, resulting in both overlap and disconnect.
Key central level ministries and agencies with a role in housing policy and programs include
Bappenas, MPWH, Ministry of Finance, Ministry of Home Affairs, Ministry of Agrarian Affairs
and Spatial Planning, the Coordinating Ministries for Peoples Welfare and Economic Affairs,
Ministry of Social Affairs, Ministry of Fisheries, BPN, among others. The Inter-Ministerial Working
Group for Housing and Settlements (Pokja PKP) is emerging as an important institution that
creates space for discussion and decision-making on policy development across government
agencies. However, its mandate and responsibilities will need to be elevated if the Pokja is to
establish coordination and integration mechanisms.
3. There is a lack of well-structured support to local governments and private sector developers
to increase their participation and contribution to national housing targets. While local
governments have the mandate to provide housing and services for low-income residents,
many need support for building capacity for policy and regulation development, program design
and implementation, as well as monitoring and information systems, and other aspects. There
are also limited incentives for private real estate developers to increase their participation in
the supply of housing for low-income households. Government can focus on fostering private
sector interest by lowering their costs. This would help channel private investment towards the
delivery of affordable housing.
4. Key building blocks for improving housing sector governance are lacking. These include
(a) establishment of a common and clear policy direction in the housing sector, (b) classication
of market segments and approach to determining affordability and targeting of programs, (c)
78
development of housing management information systems for monitoring the housing market,
informing policy, and evaluating the performance of specic programs, (e) effective means
of enforcement of regulations, (f) improved technical capacity of government agencies to
implement policies.
Central Government Context

Central government has a range of actors with various priorities and functions in the housing
sector. In principle, central government (and to a lesser extent provincial government) has the
following responsibilities: (a) formulating housing regulations, policies, and programs; (b) allocating
and managing central government budget to ensure optimal affordable housing delivery; (c)
facilitating housing supply for low income communities; (d) facilitating research and development
and technologies for effective affordable housing construction; (e) providing certication,
qualication and classication of organizations and/or individuals in housing and real estate; (f)
providing training and support to local governments. However, government performance in most
of these activities can be improved.
With regard to designing and implementing national housing policy, Bappenas and Ministry of
Finance prepare long-term development plans and the national budget and must balance and
align the priorities in the housing sector with other national development objectives. MPWH is the
main executing agent of housing and settlements policy, taking a lead in preparing and executing
housing programs. However, there are many overlapping areas in which other Ministries roll out
their own housing programs, for example, the parallel rental housing programs that were previously
executed by Ministry of Public Works and Ministry of Housing. Coordination of government entities
is essential for implementing housing policy effectively and using public funds efciently.
In terms of collecting and sharing market information, Bank Indonesia currently reports data from
the mortgage markets with a Credit Bureau and Home Price Index, while the BPS national socioeconomic surveys provide consumer prole information. However, much more can be done to
facilitate the availability and sharing of up-to-date and accurate housing sector information.
Government also plays an important role in enabling the private sector. The ability and cost for real
estate developers to develop housing depends heavily on how government actors perform in their
respective responsibilities. For example, BPN is responsible for national land regulation, registration,
certication, management and consolidation, while LG is responsible for spatial planning, zoning,
and issuing all land-use and development permits within their legislative boundaries. Streamlining
and improving the transparency of these processes can reduce costs for the private sector and
enable the market to more easily produce low-cost housing.
Local Government Context

Government Regulation No. 38 of 2007 and Law No. 1 of 2011 laid out the roles and division of
responsibilities of central government, provincial government, and local government with regards
to the provision of affordable housing. These regulations make local government responsible
for responding to local housing needs. However, the mechanisms that would enable local
governments to fulll those responsibilities are not in place. Few local governments have dedicated
housing agencies. Jakarta and Medan do but they are the exception rather than the norm. Local
governments often do not appear to prioritize low income housing, resulting in inadequate budget
allocated for supporting affordable housing provision.
| Annexes
79
As per Regulation 38, 2007, local government is specically mandated to provide housing to citizens
residing in its territories and to dedicate specic areas in the municipality for affordable housing
development. Law No. 32/2004 further underlines these decentralization and deconcentration
principles. It devolves and delegates authority from central government to local government
(Articles 1.7 and 1.8), and gives local governments the right, authority, and duty to regulate their
own affairs autonomously in the interest of local communities. It also holds them responsible for
improving public welfare and services (Articles 1.5 and 2.3).
The law articulates that the scal balance between central and local government must be fair,
proportionate, democratic, transparent, and accountable, taking into account the context,
potential, and funding requirements for the implementation of decentralization (Article 1.13). Within
the housing sector, funds are usually directly channeled from central government to projects with
limited use of local government funds.
Real Estate Development Context

Perumnas is a State Owned Enterprise (SOE), established in 1974 to act as Indonesias ofcial
public housing developer for the realization of government policies and programs, as stipulated
by Regulation 29/1974. From 1974 until the 1997 crisis, Perumnas received substantial support
from the government to implement its programs. Such support included: (a) nancial assistance
for land purchase, (b) permanent no-cost equity, and (c) hard assets, such as land. At the peak of
its operations (1992-1998), Perumnas construction contributed up to 50% of national affordable
housing development. Since 1997, withdrawal of preferential treatment and a new mandate to
improve on annual returns (required as an SOE) resulted in Perumnas shifting its business strategy
and model towards more protable market segments and products.
Today, Perumnas operates more like a commercial developer, with no ongoing government subsidy
and no legal commitment to low-income housing delivery. Perumnas key resources capabilities
in structuring real estate transactions, land development, housing development, urban renewal,
and property management, as well as 1000 hectares of developable land could be better utilized
to support implementation of the national housing policy.
Two associations of private real estate developers exist, APERSI (the Association of Low-Cost
Housing Developers) and REI (Real Estate Indonesia). The majority of formal housing is delivered
by these developers, together with a minority share by Perumnas.
APERSI. APERSI consists of 2,500 members, most of whom focus on the development of
affordable landed homes that qualify for FLPP. APERSI members account for approximately 60%
of the total landed houses that are produced each year in Indonesia. The typical prot margin
for landed housing is approximately 10%, depending on the land price. The ease of sales and
government support in providing trunk infrastructure makes FLPP landed homes an attractive
market option.
APERSIs geographical breadth, number of members, and members active participation in
affordable housing production make it a valuable asset that could be utilized in stimulating the
supply of affordable housing.
REI. Established 42 years ago, Real Estate Indonesia (REI) has 2,800 member developers that are
spread across 34 local chapters in 33 provinces. 70% of its members engage in the development
80
of affordable housing. In 2013, of the 250,000 general housing units produced by REI members,
120,000 units were affordable, which REI denes as units below the sales price of IDR 200 million.
Given that both APERSI and REI have sizeable and active memberships that participate in the
development of market-rate and affordable housing, these organizations could serve as an
important resource for government in the gathering of information to understand market trends
and needs and to increase private developer participation in housing policy formulation and
execution.
Key Delivery Blockages. The key challenges limiting private sector participation and the supply
of affordable housing in Indonesia include:
Land. Private developers of affordable housing have difculty accessing land at the right
price, condition, and location.
Taxation. In some cities, the land tax has increased well ahead of ination norms, and
many taxes create incentives for evasion, including the transfer tax and VAT. Both taxes
increase the end cost of units to both developers and consumers, thereby encouraging
under-reporting of the sale price.
Finance. Access to affordable construction nance remains a challenge to developers,
particularly small ones. Most developers rely on their own equity for construction. Larger
developers may borrow from commercial banks or issue bonds at rates around 13% per
annum for a 12 to 24 month period.
Permitting and zoning. Currently, there are wide disparities between local governments with
regards to the time and costs of permitting. This creates a lot of uncertainty. Construction
cannot begin until permits are issued. These delays in permitting may raise the costs of
development by as much as 20% in a 12 month period, due to the high cost of capital.
Infrastructure. Some local governments provide support to developers of FLPP-qualied
landed housing in terms of trunk and site infrastructure, yet this support is not consistent and
there is not usually infrastructure support for vertical developments of FLPP projects.
Policy does not take into account to market difculties. The Ministry has announced that
from March 2015, FLPP loans will only be available for vertical units. While Perumnas and some
APERSI and REI developers have the technical capacity to develop vertical housing projects,
developers are often deterred from building vertical projects due to technical challenges,
difculties in accessing longer-term development nance, and lack of governmental support
in areas such as infrastructure provision, tax breaks, and permitting.
Funding of Housing Programs

Funding of central-level programs. The majority of housing programs are structured, regulated,
and implemented by central government. MoF originates all funding for MPWH housing programs
through the APBN. The funding ows to two key buckets of programs: (i) the Deconcentration
Grant that funds the provision of technical assistance to LGs, and (ii) project-specic funding
via the Rusunawa (public rental housing) and BSPS (self-help housing) programs. Through this
process, funds ow directly from central government to projects and are never transferred to local
governments. In such cases, the ministry-level agency undertakes the procurement and project
execution. In parallel, the Ministry also administers and channels MoF-disbursed investment
funds through a BLU (public service agency) to banks who deliver the FLPP subsidized mortgage
program.
| Annexes
81
Figure 6. Flow of Funding for MPWH Programs

MoF
MoH
Private sector
20%
contribution to
affordable
housing
APBN
(MoH program budget)
Deconcentration
Grant: for LG Capacity
Building
Project Fundings: BPS,

Rusunawa
Provincial Government
(oversight)
Local Government
(needs identification)
TA funding
for LG
Direct Project
Funding
Funding of local-level housing budget: A small number of housing programs are shaped by
local governments and funded directly out of local budgets. Such local government housing
budgets consist of three main sources of funding: (a) local government revenue from taxes, charity
contributions, and Public Service Obligation (PSO) contributions from both local government and
central government general budget for housing rebated costs; (b) DAU, i.e., general purpose
grants received by every local government; and (c) DAK, i.e., special-purpose grants allocated for
a specic use, which may include housing-related infrastructure or services. This local housing
budget typically makes up approximately 3% of local governments total budget, however there
is signicant variation across them: active and well-resourced cities (such as DKI Jakarta) are
estimated to allocate between 5% and 10%, while less-resourced local governments spend
between 1% and 3% on housing.37
As there is no mechanism to transfer capital grants from central ministries to local governments, it
can be difcult for cities to tailor and direct their own programs to t local needs and build capacity
through experience. Also, it is challenging for ministries to carry out monitoring and oversight at
the local-level.
37 Source: Deputy for Area Planning, Ministry of Housing
82
Figure 7. Sources of Local Housing Program Funding

Tax
revenue
MoF
Charity
Contributions
PSO
Local government
revenue
DAK
Special Funding
DAU
Basic Funding
15-30%
70-85%
<< 5%
Contribution to LG
housing budget
Contribution to LG
housing budget
Contribution to LG
housing budget
Local Government Housing Budget

(for direct spending by LG)
Housing programs/projects
created and executed by LG
Housing Sector Governance Systems

Many of the basic building blocks of housing policy are missing. These include a lack of formal
denition of housing decit gures, affordability and targeting measures, as well as minimum
housing standards and regular reporting and management information systems that allow the
government to monitor activities in the housing sector and better inform housing policy.
There is also a lack of clear reporting and accountability mechanisms to monitor the performance
of specic programs so that they can be adjusted and improved over time. Informed budget
decision-making would benet from an economic evaluation of all types of government support,
including implicit subsidies and scal subsidies. This approach would be done in parallel
with traditional budget accounting, and be used to assess the cost/benet balance of public
interventions. A new evaluation system would include: (i) more precise information on the prole of
the beneciaries of public assistance; (ii) all hidden cost assumed by the government aside from
budgeted expenditure, for example, the implicit subsidy embedded in the guarantee schemes.
| Annexes
83
Sector Recommendations
1. Develop a System for Local Government Accreditation
The Roadmap recommends MPWH to develop a local government accreditation program for the
implementation of housing and settlements programs. Under this program, central government
would assess local governments and rank them into different tiers, based on technical criteria that
cover institutional and scal capacity, local housing needs and performance. The accreditation
program would focus primarily on city governments, where housing backlog and new demand is
highest.
This accreditation system may be used over time to qualify local governments for capacity-building
activities, increase autonomy and responsibility in program implementation, determine the funding
balance (between central and local budgets), and inform the design of national programs. There
will need to be a unit, likely best positioned within MPWH, responsible for preparing and publishing
the accreditation on a regular basis.
Figure 8. Example Structure of Local Government Accreditation System
Large Cities
Medium Cities
Small Cities/Rural
ACCREDITATION STANDARS:
Resources,
Capacity,
Readiness
Performance
Track Record
Accessible Local
Support
MPWH Project Facilitation

Support and TA
ACCREDITATION LEVELS:
Funding
Autonomy
Peer-to Peer Learning
TIER 1
High
High
Live case contributor
TIER 2
Medium
Basic
Medium
Observer and learner
Basic
Observer and learner
TIER 3
As part of this accreditation system, central government may require that local governments report
their performance and progress on program delivery on a regular basis, as well as to implement
local-level reforms or training activities, and apply Standard Operating Procedures (SOPs) in
coordination with program delivery. Over time, high-performing local governments with successful
housing programs may be able to share their experience with less-developed local governments
through peer-to-peer learning platforms.
As the accreditation process matures, central government funding for housing and settlements
programs can be distributed on a competitive basis to provide additional incentives for improving
performance and targets.
84
2. Build Capacity of Local Governments

The development of a Technical Assistance Facility will provide a means for central government
to channel support directly to local governments to plan, prepare and execute housing and
settlements initiatives. A major component of the accreditation program is capacity-building of
local governments. The Technical Assistance Facility can be housed within MPWH or set up as a
subsidiary, which then creates Standard Operating Procedures, guidelines, training materials and
templates for local governments, disseminates information and offers capacity-building services.
The TAF will also maintain on-demand support or advisory services for activities such as project
preparation and implementation of local reforms acting as a safety net where local governments
are taking on greater responsibilities in planning, nancing and executing activities.
Participation in the capacity building program would be entirely voluntary. Local governments
can decide on their participation based on need and desire to perform. Low-capacity local
governments could be made eligible for additional grant funding for the capacity building and
high-capacity local governments may need to pay a fee for these services.
Capacity building activities will meet local government needs in carrying out programs in
incremental housing, slum upgrading and public housing. They may also include enhancing
awareness of local governments regarding national programs, development of plans and
strategies (including spatial plans), local programming and budgeting for housing and settlements,
project preparation, community consultations, social and environmental safeguards, structuring
of nance implementation, project audits and impact assessments, and monitoring and oversight
of the market. Long-term, where appropriate, the capacity building program could also provide a
pathway for local governments to develop a local housing agency (SKPD Perumahan) or Housing
Resource Center.
The proposed capacity building program could also act as the curator and facilitator of peer-topeer learning and sharing of experiences in implementing housing and settlement initiatives.
3. Design Programs and Allocate Funding with Performance-Based Rewards

The Roadmap recommends the design of housing program delivery systems and funding
allocation to be linked to the accreditation and capacity-building of local governments. Under
such an approach, higher-capacity local governments will be able to access more capital grant
subsidies for projects, and will have greater exibility, autonomy and local accountability in
executing housing programs. At the same time, low capacity local governments will be supported
through project funding to build their capacity and performance incrementally, and rewarded for
such buildup by being provided with greater autonomy and resources.
Criteria and conditions of central government funding allocation for programs can be determined
based on two key factors: housing needs at the local government level (as collected and reported
by the HREIC) and local government capacity (as monitored by the accreditation program).
The Roadmap recommends designing program delivery systems and funding allocation that are
predicated on the accreditation and capacity-building of LGs. Utilizing the LGAP system, the
MPWH, in conjunction with MoF, could establish additional funding on top of the current basic
housing funds, through a High Capacity Fund accessible only to high performing LGs. The High
Capacity Fund also serves to allow MPWH to connect funding with monitoring oversight that has
previously been lacking in the system.
| Annexes
85
MPWH should continue to maintain a basic funding pool for all local governments regardless of
capacity, but it can supplement this with additional program funding that is used to incentivize
improved accreditation and performance of local governments. This funding can initially be
allocated on a rst-come, rst-served basis based on readiness to engage in immediate housing
production. Later annual funding rounds38 may reduce emphasis on readiness (as more local
governments become ready) and increase emphasis on performance, capacity growth, impact,
and other factors.
In this way, central government can work towards standardizing and streamlining local government
activities - including planning, programming of activities, as well as improving the functioning of
local market - by making implementation of certain reforms39, SOPs, or trainings a pre-condition
for accessing program funding.
4. Establish Minimum Housing Standards that are Flexible to Local Conditions

This Roadmap recommends that the MPWH establish a Task Force to dene clear and exible
construction standards for the minimum housing conditions that will be considered adequate,40
taking into account different climate, verticality, and housing typology features. Minimum standards
will take into account regional variations, and will consider the budget constraints of low-income
households, as well as the public sector, to inform specic government programs. This activity
will involve the highest-level commitment so that the minimum standards are applied across
government actors and housing producers.
During establishment, the Task Force would need to agree on their role and functions and create
standard operating procedures, with a vision to reconvene and recalibrate the minimum housing
standards on a regular likely annual basis.
A similar Task Force has been established previously and should be renewed to reect the current
market characteristics. Members of the Task Force would be assigned from relevant Ministries,
and will include voluntary engagement of private sector associations as well as representatives
from civil society, particularly those who work with the urban poor41.
The Task Force could consider taking on other responsibilities, including convening working
groups to explore new approaches and technologies or designs to improve cost and quality of
housing that could be presented to public sector entities for consideration.
5. Invest in Housing & Settlements Management Information Systems

Within the MPWH, a Housing and Real Estate Information Center (HREIC) can be developed to
serve as a repository of reliable, up-to-date, and publicly available housing and real estate-related
data. The HREICs main responsibilities would be to work with local government, line ministries
(Ministry of Agrarian Affairs and Spatial Services / BPN, DG Tax, Peoples Welfare, Home Affairs,
38 Criteria and conditions of funding allocation should be revised on an annual basis to incorporate learnings from
programs and shifting national policy objectives.
39 For example, streamlining and increasing transparency of building permits, fast-track approvals for affordable housing
that comply with government standards, introducing land value taxation etc.
40 Minimum construction will include construction standards, minimum floor plans, mandatory building or apartment
amenities and feature etc.
41 Non-government and private sector interest groups can be immensely helpful, both technically and politically.
Technically, private sector and community groups bring real-world insight into how systems are working. Politically,
giving these actors the opportunity to shape construction standards defuses suspicion, builds confidence and
commitment to implementation and self-governance of these standards.
86
etc.), public sector entities (BI Real Statistics Division, SMF, Askrindo, BTN, Perumnas, etc.), and
private sector entities (APERSI, REI, research agencies, etc.) to collect all housing and real estate
related data.
With the collected data, the HREIC can build capacity to analyze and report out at regular intervals,
some key housing indicators as outlined in Figure 9. These key indicators are not only critical in
planning, investment and public program development but also in affordability analyses.
Figure 9. Important Housing Sector Indicators
New Housing Starts
(Permits, Under
Construction)
Finished stocks
(Ready for Sale)
Rental Stocks
Median Home Price

Rental Rate
Home Price Index
Construction
Cost Index
Housing Sale
Volume
Household
Income
Supply
Pricing
Demand
Financing
Housing loan
products
Mortgage rate
Loan Outstanding &
Origination
NPLs
Foreclosure
Green: Published indicators; Grey: Not available indicators

In addition to the housing indicators stated, the HREIC should also monitor all public housing
related programs to analyze effectiveness of government spending, impact on end consumers
and key learnings. Additional surveys can also be done by the HREIC alone or in conjunction with
public entities such as BI and BPS to extend knowledge of the housing market and consumers
needs and behaviors that are not otherwise available through the data collected.
Once the HREIC is well established, an annual housing sector status report can be published that
provides robust analyses of trends of Indonesias housing and real estate sector, including aspects
on housing supply, demand, home prices and public housing program performance.
6. Build an Effective Housing Affordability and Targeting System

Getting the targeting right is an essential pre-requisite for the success of any program and an
extremely important mechanism to ensure that public spending reaches the poorest. MPWH
should conduct ongoing targeting and affordability studies to guide housing sector policies and
programs. Under the HREIC, the MPWH can establish or designate a research and analysis unit
that would be responsible for ongoing affordability analysis and strategizing for subsidy targeting,
based on needs and priorities, so that policies can be regularly updated in line with changes in
market dynamics.
Development of an income or consumption-based targeting system could improve efciency
of public spending, by creating transparent eligibility and qualication of beneciaries across
programs. Flat or progressive demand-side subsidies could be introduced for the incremental
housing program or as down-payment assistance in the redesigned FLPP program, building off
an enhanced targeting system.
| Annexes
87
Where possible, this system should further expand local governments capacity in targeting and
beneciary selection, and utilize existing central government infrastructure. For the bottom 40%,
the TNP2K, an integrated database of Indonesian households for the targeting of social assistance
programs can be used to identify eligible households. This will allow government to maximize
integration with other central government assistance programs and not create replication or a
parallel system.
The Research Unit within HREIC could be responsible for the following activities, consistent with
an overall strategy for establishing targeting and affordability levels for the sector:
A. Development of Housing Indicators:
1. Home Ownership Rate needs to be further ne-tuned from the current BPS denition of nonownership, as those households with greater than one family may have home ownership
needs that are currently not being accounted for.
2. Housing Decit needs to capture both quantitative and qualitative needs. The quantitative
decit could be achieved through additional BPS questions to ne-tune the census
statistics, while the qualitative decit needs to address the combination of factors that reect
substandard housing (e.g. crowding effect with 7.2 m2 as the basic area per person; lack of
standard utilities such as water and sanitation; and poor quality materials for oor, roof and
wall).
3. Imputed Housing and Housing Related Cost / Household Expenditures. The ratio is available
in the BPS Susenas and can be used more actively to assess affordability levels, taking into
account that lower deciles can spare a smaller percentage of income on housing.
4. Median Home Price / Median Household Income. This ratio can easily be tracked to act as
an important indicator for affordability, which allows easy comparisons with regional and
international peers.
B. Segmentation Analysis:
The Research Unit can also be responsible for carrying out market segmentation analysis to
understand behaviors and needs of low-income household more deeply. Important data for
analysis include breakdowns of housing characteristics and needs by province and major districts,
household expenditures; head of household age, employment and education; home ownership
status; and home types (landed houses, vertical units, row houses, etc.).
C. Affordability Analysis:
An affordability analysis can start with developing a view of household income by population
deciles, as the difference between household income and household expenditures that is recorded
by BPS via the Susenas survey yields household savings or funds available for investment in
housing purchase, improvement or extension.
In this Roadmap, the household income has been derived by using Median Monthly Minimum
Wage by provinces (as dened by Ministry of Labor) multiplied by the number of working adults
per household. This household income indicator could use further investigation and checks
and balances to ne-tune over time. Using examples of existing housing loan products that
are available (from the micronance sector, subsidized loans and commercial loan), maximum
home prices can be calculated for different income segments in different geographies. In order to
ascertain affordability, these maximum home prices can be compared to the costs of construction
of a minimum standard unit, in different geographies and even within cities (peri-urban vs. central
city locations.
88
The Research and Analysis unit in MPWH should carry out this analysis and can also develop
online tools and trainings for local governments to carry out this analysis in order to determine
the targeting and need for subsidies toward making decent housing affordable for low-income
households.
7. Elevate the role of Pokja as Lead Housing Reform Coordinating Body

The Inter-Ministerial Committee for Housing and Settlements or Pokja PKP, has already become
an important platform for coordinating, discussing and informing decisions on housing policy and
program development, across central level ministries and agencies.
The role of the Pokja could be further developed by elevating its mandate to become the entity
that is responsible for implementation of the Roadmap, including the necessary coordination,
review and quality control activities, as well as putting in place a specic work program that
formally outlines a set of technical tasks that are needed to prepare and deliver the actions of the
Roadmap.
These activities could include validation of the policy reform agenda and consensus-building
amongst central-level agencies, review of the regulatory environment to propose necessary
national-level reforms in coordination with program design and development, specialist activities,
such as denition of exible housing standards and legal mechanisms available to recognize
informal settlements, as well as means of strengthening enforcement of regulations.
8. Support the Development of a Network of Reputed Professionals

Develop a system for registration and qualication of real estate professionals through a Builders
Council dedicated to the industry of residential property development, to help establish and
enforce developer quality standards.
This council could pre-qualify private sector actors for government housing programs, based on
criteria developed with MPWH, provide input into governments minimum construction standards
and design of programs and delivery systems, and help to report on housing-related statistics
to complement those being produced by government. The council would formally recognize
and work across REI, APERSI and non-members, qualifying developers based on performance
and merits. The council would also play an important role in self-governance, holding members
responsible for meeting performance and ethical (anti-corruption) standards and expelling any rm
or individual violating these standards.
This council would also facilitate peer-to-peer learning and networking, conduct certication
of entities and professional executives, prepare and carry out trainings to develop technical
capacities in Indonesias real estate sector, support new market entrants and small contractors,
and create a network of housing professionals. These trainings could cover technical modules in
land acquisition and development, site design, construction techniques, development nancing,
sales and marketing and procedures for long-term property management.
Implementation Plan
Not all recommendations should or can be executed at once. The following table proposes
an implementation sequence, which requires making an immediate political commitment to a
series of actions, then designing the rst order activities (including, establishment of a housing
management information systems (MIS) and carrying out the detailed affordability and targeting
assessment), before implementing the rest of the action plan in sequence.
| Annexes
89
Table 11. Priorities and Sequencing

Immediate
(0-12 month)
Short-Term
(1-2 years)
Long-term
(3-5 years)
Design
Establish
Ongoing
--
Establish
Ongoing
Design
Establish
Ongoing
Establish
Ongoing
Ongoing
Design
Establish
Ongoing
Action 5.6: Build an Effective Housing Affordability and

Targeting System
Establish
Ongoing
Ongoing
Action 5.7: Build a Work-Plan for the Pokja to

coordinate Roadmap Implementation
Establish
Ongoing
Ongoing
--
Establish
Ongoing
Action 5.1: Build a System for Local Government

Accreditation
Action 5.2: Create a Technical Assistance Facility for
Housing and Settlements
Action 5.3: Design Program Delivery Systems
Action 5.4: Establish Minimum Housing Standards and
Costs
Action 5.5: Invest in Housing Information Systems
Action 5.8: Support the Development of Network of

Real Estate Professionals
Annex 4.2 Slums and Settlements42

The key challenges to improve slums and informal settlements in Indonesia, which have been
identied through the studies related to SAPOLA, are the following:
1) There is no clear ofcial denition of slums.
2) Illegal/squatter settlements are not addressed in any laws or existing programs.
3) Local governments generally do not prioritize or nance slum upgrading.
4) Central government driven and implemented programs have not been sustained.
5) Regularization of tenure security is usually not addressed, and there is limited land available
to resettle settlements that cannot be upgraded.
6) Housing is seen as a private good.
Denition of Slums
The denition of a slum in Indonesias Law No. 1/2011 on Housing and Settlement Area is
premised on both housing (perumahan kumuh) and neighborhood areas (permukiman kumuh).
The rst refers to housing with inadequate living space. The second subsumes underserved slum
neighborhoods, insufcient infrastructure services and low construction quality.
The National Socio-Economic Survey (Susenas) published by the Central Statistical Board (BPS)
enumerates slums using the number of households that live in non-livable houses (RTLH) and
42 This section is drawn from the SAPOLA Summary Report, November 2014.
90
the total number of slum households (Rumah Tangga Kumuh). These two criteria are used
ofcially to enumerate slum households in Indonesia, for example, in the Indonesian reports on
the Millennium Development Goals (MDG) and in reports of the Ministry of Housing. However,
because this metric does not capture neighborhood information, it is difcult to use the BPS data
to implement spatial programs and policies. The Ministry of Public Works (Directorate General of
Human Settlements), on the other hand, emphasizes the physical extent of a slum and its location
based on the neighborhood area. MPWH uses data from various sources at the city/district level43,
the basis for which differ from city to city. These two methodologies for enumeration have resulted
in signicantly different estimates in terms of the extent of slums in Indonesia.
According to the MDG Report (based on BPS data), in 2011, around 12.2% of the urban population
or approximately 3.9 million households resided in units that lacked safe water and adequate
sanitation.44 This was a quarter of the total urban population. At the same time, the latest data on
slum areas as measured by the Ministry of Public Works45 reveals that the extent of slum areas
is currently 37,407 Ha, spread over 3,286 slum locations in 2,870 villages in Indonesia. In order
to target and monitor a national program for slum alleviation, it will be necessary to agree on a
common denition and methodology for enumerating slums, whether by households, locations
or a combination of both.
43 Such as: i) Slum data updating in 127 cities/district in 2013, ii) Data from SPPIP documents for 222 cities/districts,
and iii) Slum Decree stipulated by 28 cities/districts government.
44 Susenas and MDGs Report, BPS.
45 The Directorate General of Human Settlements carried out a Quick Count in 2014, measuring settlements in 33
provinces (excluding DKI Jakarta Province) using a rapid assessment method.
| Annexes
91
Table 12. Slum Areas and Distribution by Province

Susenas
(2013)***
No
Province
1
2
3
4
5
6
7
8
NAD (Aceh)
North Sumatera
West Sumatera
Riau
Jambi
South Sumatera
Bengkulu
Lampung
Bangka Belitung
Islands
Riau Islands
DKI Jakarta*
West Java
Central Java
DI Yogyakarta
East Java
Banten
Bali
West Nusa Tenggara
East Nusa Tenggara
West Kalimantan
Central Kalimantan
South Kalimantan
East Kalimantan**
North Kalimantan
North Sulawesi
Central Sulawesi
South Sulawesi
South East Sulawesi
Gorontalo
West Sulawesi
Maluku
North Maluku
West Papua
Papua
Indonesia
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
Directorate of Settlement Development,

Min. of PW (2014)
# of
Proportion Number
# of
# of
# of
Slum
Slum
of Urban
of Urban
City/
Slum
Slum
Area
SubSlum HH Slum HH District
Village Location
(ha)
District
9.56%
30,774
23
139
401
403
6,974.97
11.44%
177,879
33
37
74
71
849.83
14.93%
69,710
19
24
54
38
560.81
7.33%
41,255
12
44
90
87
1,095.68
10.09%
25,458
11
65
88
81
1,388.79
15.09%
103,129
17
14
47
48
519.77
10.85%
15,258
10
26
46
46
425.36
11.74%
61,360
15
51
113
146
1,724.20
5.40%
8,967
22
33
35
530.99
11.68%
25.99%
14.03%
5.05%
3.50%
7.75%
14.60%
13.23%
17.45%
20.36%
4.30%
12.80%
10.77%
7.89%
14.88%
12.55%
8.65%
16.34%
18.32%
21.18%
19.56%
13.38%
18.40%
20.48%
12.10%
47,381
681,933
1,129,177
207,312
25,342
392,904
273,250
85,021
95,193
42,323
14,019
26,223
47,234
47,067
40,695
20,231
61,575
24,394
15,907
13,306
24,617
8,423
10,129
37,555
3,905,003
7
6
27
35
5
38
8
9
10
22
14
14
13
10
5
15
13
24
14
6
6
11
10
13
29
505
18
94
117
19
62
22
18
38
28
20
15
21
28
7
110
20
50
60
11
14
10
22
14
16
1,256
29
217
379
41
124
40
50
80
79
34
32
50
42
14
169
52
126
153
33
39
36
46
21
38
2,870
29
223
275
438
82
146
51
67
120
117
35
35
63
46
16
169
53
166
153
36
65
48
46
30
45
3,286
1,002.55
1,024.52
2,289.76
4,235.84
178.83
2,957.20
489.22
415.38
1,644.51
855.56
732.27
647.92
965.21
996.23
298.35
645.62
152.53
1,085.17
1,128.27
258.88
353.44
251.14
507.25
544.71
701.02
37,407.26
*) Directorate of Settlement Development Data excludes DKI Jakarta slum data. Data on DKI Jakarta is based on
Evaluation of DKI Jakarta Slum RWs 2012.
**) Susenas Data on East Kalimantan includes North Kalimantan.
***) Susenas Data uses number of urban household based on Population Projection 2010-2035.
Sources: Susenas-MDGs, BPS (2013); Slide Presentation, Directorate of Settlement Development - Ministry of Public
Works (2014); Evaluation of DKI Jakarta Slum RWs (2013)
92
Illegal/Squatter Settlements are Systematically Ignored

The inux of rural migrants into cities contributed to the emergence of illegal settlements along
riverbanks, rail-lines, underpasses and other vacant lands. The term squatter settlement is used
to describe those areas where people put up their homes on land that does not belong to them
and for which they lack legal authorization, leases or building permits. Such neighborhoods arise
contravening the construction and planning regulations.
Squatter settlements account for a large proportion of urban slums. However, municipal authorities
do not recognize squatter settlements, which are systematically left out of any spatial or housing
plans, while government data and programs exclude such settlements. In some cities, residents
who live in squatter settlements do not get an ID card and therefore lack access to health,
education, sanitation and other services. The cost of this lack of recognition is therefore unknown
and unappreciated by municipal authorities.
Local Governments Generally do not Prioritize or Finance Slum Upgrading

In 2007, government regulation decentralized housing and settlement matters to local governments.
However this was not accompanied by appropriate guidelines, capacity building, organizational
restructuring, or nancing to achieve minimum service standards. In most local governments,
there is a tendency to view slums and squatters as a burden (and to try and push them out to the
periphery whenever possible). Many local governments have not developed a good understanding
of the contribution that slum dwellers make to the economic and social well-being of the city or the
negative externalities (related to health, productivity, etc) associated with slum conditions.
Issues related to slums and low-income housing straddle different line agency jurisdictions. As
such, without a strong commitment from the Mayor or Bupati, these issues fall through the cracks
because of a lack of responsibility and coordination. Few local governments have established a
dedicated housing agency (exceptions are Jakarta and Medan), and local governments do not
tend to prioritize slum upgrading and low-income housing.
At the same time, local governments that have acted on urban poverty and slums have
demonstrated an ability to move forward with remarkably successful city-level programs such
as the Pekalongan City Without Slums by 2010 Program, the Solo Resettlement Program, the
Surabaya Rental Housing Program and the Palembang Urban Renewal Project. The impacts of
these programs have been limited mainly by lack of resources and land availability.
Central Government Programs have not been Sustained

It should be recognized that in the past, Indonesia spearheaded some of the most expansive
and comprehensive slum upgrading programs in the world. Through the 1970s and 1980s,
the Kampung Improvement Program (KIP) and its subsequent iterations promoted the concept
of Tribina (physical, social and economic improvement in slums) and had signicant success.
However, as a centrally driven and implemented program, it scaled back once central government
interest and support started to wane.
In 2003, the central government started a new initiative, the Neighborhood Upgrading and
Shelter Sector Project (NUSSP) funded by the ADB. The NUSSP supported shelter planning,
access to nance, neighborhood upgrading/site development and strengthened sector institutions.
However, as yet another centrally implemented program, it has had limited reach.
| Annexes
93
More recently, the National Program on Community Empowerment or PNPM Urban was
modied to include a component on Neighborhood Development (ND), which is intended to
improve living conditions for the poor by empowering and nancing communities to develop locallevel spatial plans and undertake their own investments in infrastructure improvements. Although
this program has already established community groups across more than 60 cities and has
shown some success, activities are limited by the fact that communities are unable to plan and link
tertiary-level investments with larger city infrastructure networks (like water supply and drainage).
Other programs have been piloted such as the Community-Based Housing Development
Project/CBHD/P2BPK (1990) to support community-driven housing and the UNDP nanced CoBILD Project (2000) to test the viability of a housing nance mechanism based on market rates
of interest. In spite of their successes, none of these programs have been scaled up because of
their lack of integration with national policy priorities.
Previous Programs have Generally not Dealt with Land and Security of
Tenure
The price of land has increased radically over the past few years because of the lack of instruments
to regulate land markets and limit speculation. Vacant urban land is in short supply in Indonesia
and land in suitable locations is too expensive for government to purchase and make available at
affordable prices for low-income housing. Thus, the urban poor have often resorted to their own
means of nding land to settle on.
Many slum settlements are legal in that slum dwellers have some form of right to the land, but
have not registered the land/building in their names either because there has been little incentive
to do so, or because their houses do not conform to regulations. Many settlements are on land
that belongs to the government (local government, line ministries, SOEs), which has been lying
unused, but because residents do not have a formal right to the land, they are unable to get
services. Others are illegally encroaching on privately-owned land.
Past government upgrading programs have focused on settlements that are legal, and have
failed to tackle the more difcult problem of enabling slum dwellers to stay on the land they have
been living on for decades and providing them with some form of tenure security. There have been
some programs for land registration of slum dwellers but these have usually been implemented
separately from upgrading programs and have had limited success.
The principle of tenure security has been largely interpreted by local governments in terms of the
letter of the law and fails to factor in customary law, the residential history of the slum dweller, or
exible forms of tenure that might allow improvements without outright provision of freehold title.
This is not to say that all settlements need to be legalized, as settlements on hazardous land,
reserved land (e.g. watershed), and land required in the short term for strategic purposes, cannot
be upgraded and will need to be resettled. However, given the acute shortage of urban land,
any national program on slum upgrading will need to examine the extent to which land already
occupied by slum dwellers can be provided to them legally.
Lessons Learned from Previous Slum Alleviation Initiatives

Given Indonesias extensive experience with slum upgrading, both through central and locallyimplemented programs, many lessons have been learned that should be incorporated to ensure
94
the success of a comprehensive national slum upgrading policy and implementation framework.
The key lessons are as follows:
Community empowerment and participation at every stage of planning and implementation is
key to ensure sustainability. Experienced facilitators or social mobilizers are needed to assist
communities to plan and execute slum alleviation efforts and build decent homes (Mojosongo,
Gunungsari Ilir Balikpapan, Palembang, KIPs, etc).
The commitment and political will of the Mayor/Head of Regency (Bupati) is critical to the
success of slum alleviation. Committed Mayors in Pekalongan, Solo, Yogyakarta, Surabaya,
and Palembang have increased the budget for housing and settlements and have improved
slums irrespective of land tenure status (which is often cited as a roadblock to providing
infrastructure and services in slums).
It is possible to make the land that slum dwellers are currently living on legally available to them
through well designed programs of land regularization, land sharing and land readjustment
(Mojosongo, Gunungsari Ilir Balikpapan, 12 Ulu, Palembang, post-disaster areas).
Granting some form of security of tenure can strengthen the nancial capacity of the community
as their land can be used as collateral for housing improvement loans (Mojosongo, Balikpapan
and Palembang). However, affordable housing nance needs to be linked to upgrading
programs and mechanisms need to be developed to enable slum dwellers with informal and
irregular incomes to access loans.
Slum upgrading programs that focus on improving tertiary infrastructure at the neighborhood
level, without considering the impact on the broader network have often not worked optimally
or have resulted in worsening conditions in other neighborhoods. (For example, proper tertiary
drains in one area have caused increased ooding in an adjacent neighborhood because
they are not adequately connected to a secondary network that drains wastewater etc.). The
improvement of infrastructure in urban slum areas therefore needs to be integrated with citywide infrastructure networks.
Certain aspects of infrastructure maintenance can be managed by communities; for example,
road and footpath maintenance, local solid waste collection, and the upkeep of drains. Other
aspects, such as the illegal dumping of solid waste, the integration of kampung infrastructure
with city-wide networks, and the effects of pollution are beyond the control of communities and
need to be managed by local governments.
In formulating a national slum upgrading strategy and action plan, the Roadmap calls for the
adoption by central and local government of the following key principles:
1. Housing is a basic human right, and residents, legal or illegal, should be protected from arbitrary
eviction.
2. Local governments should take the lead in designing, implementing and monitoring the
program. Central government should provide national resources, technical support and create
an enabling environment to allow them to do so.
3. Community participation is key to the success and sustainability of the program and should be
mandated its design, implementation and supervision.
| Annexes
95
4. To be successful, slum upgrading programs need to take a comprehensive approach,

encompassing tenure security, physical improvements, access to social infrastructure,
employment, and safe housing. This will require coordination across line agencies and
integrated planning with other programs.
5. Slum upgrading and investment in slums should be seen as an integral part of broader city
development and be included in the citys spatial and investment plans.
Based on these principles, the Roadmap proposes an action plan to address urban informality
and to identify and alleviate slums. This action plan includes: (i) the design of a national program,
which builds the technical, institutional and nancing framework for city-led slum mapping and
action plans for slum upgrading, redevelopment and resettlement; (ii) launching of the program
with a select set of interested and committed large cities, and (iii) scaling of the program to a
broader set of cities and areas. Specically, the following strategic objectives are proposed:
1. Find ways to allocate land for the urban poor:
a. Recognize and/or regularize existing informal settlements where possible.
b. Identify land ownership of existing illegal/squatter settlements and attempt to obtain land
from owners and/or introduce mechanisms for land sharing/land readjustment where land
cannot be regularized.
c. Develop and enforce regulations to make more land available for low-income housing (ensure
implementation by private developers of the 1:2:3 rule; allocate existing local government
owned land for low-income housing; negotiate with government entities to reserve some
of their land for low-income housing; appropriate abandoned land and reserve it for lowincome housing).
d. Improve land management information systems to improve transparency and limit property
speculations.
2. Build local government awareness and commitment for slum upgrading:
a. Strengthen the role of central government in charging and supervising local government
with the implementation of slum upgrading activities.
b. Enhance awareness of local governments on the need for slum upgrading and low-income
housing.
c. Design a robust monitoring and evaluation system with specic targets and performance
indicators (based on an agreed denition of slums), and provide resources for slum
upgrading and housing so that local governments are facilitated to prioritize this need.
d. Develop enabling legislation to facilitate local governments actions (e.g. for provision of
services to illegal settlements; for including slums and low-income housing in planning, etc.)
3. Create an enabling institutional framework and build capacity at the city level for
planning and implementing integrated slum upgrading programs:
a. Establish a specialized agency at the local level to address local slum and affordable
housing challenges.
b. Establish local working groups on housing and settlements, including members from
NGOs, CBOs, academics and others.
c. Strengthen local government capacity for mapping slums and planning programs through
96
the development of methodologies and operating procedures, provision of training, and

creation of technical assistance facilities.
d. Strengthen local government capacity for formulation of annual investment programs on
slum upgrading as part of city-wide annual infrastructure/capital investment programming
through preparation of guidelines and training.
e. Strengthen local government capacity for technical and institutional coordination of a
comprehensive program, and for management and monitoring through preparation of
guidelines and training.
4. Create funding instruments to support slum upgrading programs:
a. Increase national budget to support slum upgrading and housing and create a funding
instrument to transfer resources to local governments (this can be competitive and/or
based on demonstrated capacity and commitment of the local government).
b. Design and operationalize a system to incentivize allocation of municipal revenues for slum
upgrading and housing.
c. Identify and mobilize alternative sources of funding (Corporate Social Responsibility, Public
Service Obligations, PPPs, etc.).
d. Monitor use of funds and calibrate subsequent funding based on achievement of targets
and performance indicators.
5. Create a enabling framework for affordable housing delivery, including self-help and
community-based housing:
a. Support the establishment of a housing resource center at the local-level to support selfhelp and community-based housing, including universities, CBOs, NGOs, and others.
b. Develop a subsidy mechanism for housing for the poorest, including for self-help and
community-based housing (refer to Action 2 and Action 3).
c. Explore instruments to improve access to affordable housing nance, particularly for slum
dwellers who are informally employed (refer to Action 6).
Roadmap Implementation
The national slum upgrading program is proposed to be rolled out in three phases: preparation in
the immediate-term (0-12 months); planning in the short-term (1-2 years), and implementation in
the medium-term (3-5 years).
| Annexes
97
Figure 10. Proposed Slum Upgrading Implementation Framework

PREPARATORY
PHASE
(2014)
PLANNING & DESIGN

PHASE
(2015)
NATIONAL
Consensus on
National Policy
Dening
Implementation
Scheme
Advocacy to Local
Governments
IMPLEMENTATION PHASE
(2016-2019)
Program Design
Recruit and Train

Faciliators and Consultants
Training on Slum
Mapping and Management
Framework (Bukuh Putih)
Planning and Budgeting

Coordination and
Synchronization (Regional
Consultation Meeting/
Rakonreg, Pre National
Development Plan
Meeting/ Pramusrenbangnas)
Training on City Strategy and

Action Plan for Slum
Alleviation
LOCAL
Submission
of Interest
Establishment of Working
Group
Allocation of Matching Fund
Formulation of Buku Putih
Program Implementation
Approval of City Strategy and

Action Plan
Formulation of Program and
Activity on Slum Alleviation
Immediate Actions: Preparatory Phase (0-12 months)

Consensus on National Policy & Implementation Scheme
This step is intended to elicit consensus amongst members of the Inter-Ministerial Working Group
on Housing and Settlements (Pokja PKP). The results and recommendations of the SAPOLA
studies have been adopted by the Working Group through the Launch of the National Slum
Upgrading Program at the end of 2014. Agreement is also needed to ensure coordination and
synchronization with on-going/pipeline programs in different ministries.
Advocacy to Local Governments

This is intended to communicate national priorities on slum improvement and prevention to all
stakeholders at the city/district level. The national Working Group will engage Provincial Working
Groups and Local Working Groups. Advocacy will be targeted at both locally-elected leaders
(Mayors/Heads of Districts) and local legislatures to adopt the national policy. Local governments
will be expected to establish a city-level inter-departmental working group on housing and slums,
98
allocate local budget for slums and adopt a city-wide slum strategy. It might be useful to commission
city-specic studies that explore the externalities of slums and the costs of not addressing slums
in that municipality. This advocacy will initially be carried out by SAPOLA in several proactive cities
i.e. Malang, Medan, Palembang, Jakarta, Surabaya, Banjarmasin and Makassar. Afterwards, the
Ministry of Public Works and Public Housing, as the key agency responsible for the national
program, will organize advocacy and dissemination to the remaining cities.
Submission of Interest
The cities/districts that fulll the eligibility criteria which is developed, can submit their interest for
supplementary central government funds to the National Working Group.
Short-Term Actions: Planning and Design Phase (1-2 years)

The planning and design phase will take place through 2015. As a baseline, the targeted cities/
districts will use the slum mapping/quick-count data compiled by the Directorate General of Human
Settlements at the Ministry of Public Works and Public Housing. Cities/districts will be prioritized
according to: a) location in National Strategic Areas (KSN/PKN); b) availability of a Detailed Spatial
Plan and Zoning Regulations (RDTR/PZ); c) establishment of local Working Group on Housing and
Settlements; iv) allocation of funds under the local budget; and iv) innovative proposals.
At the national level, this phase will include:

Program design, including development of targets and performance indicators, institutional
arrangements for implementation, monitoring and evaluation, and mechanisms for channeling
funds.
Recruitment of consultants for the preparation of guidelines on social mobilization, slum
mapping and city strategy formulation and training of trainers.
Recruitment and training of facilitators.
Training of government ofcials and stakeholders on the Slum Mapping and Management
Framework (Buku Putih) and the formulation of City Strategies and Action Plans.
At the city level, this phase will include:

Establishment of a Working Group on Housing and Settlements (legally established through
Decree of the Mayor/Head of District).
Mapping of slums and dening a management framework (Buku Putih), including the
identication of legal/illegal slums, growth trends, physical, social and economic characteristics;
cadastral maps, spatial maps, aerial photographs and community consultations to be used to
prepare maps and digitized them.
Dene a city-specic strategy on slum improvement and investment, through (i) classication of
slums into those suitable for on-site upgrading, and those which are vulnerable to disaster risk
and need relocation, (ii) categorizing slums based on the status of land tenure and ownership
of land, type of residence, and density; (iii) undertaking a site analysis; (iv) designing strategies
for community participation and institutional capacity building, and (v) developing a phased
program of activities and investments for relevant municipal agencies to implement.
| Annexes
99
The City Strategies and Action Plans should be approved through a Decree of the Mayor/Head
of District and communicated to the local parliament to ensure commitment and adequate
budgets. The approved City Strategies and Action Plans will then need to be operationalized
in an Annual Program on slums to be carried out by relevant municipal line agencies.
Medium-Term Actions: Implementation Phase (3-5 years)

Targeted cities/districts that participated in the planning activity in 2015 will implement the
program from 2016 to 2019. This implementation will follow the annual planning and budgeting
process at the Regional Consultation Meeting (Rakonreg) and the National Development
Planning Meeting (Musrenbangnas).
Cities/Districts will implement activities with local funds allocated in 2015 and supplementary
resources from central line agencies.
Beside the implementation phase of the rst batch of targeted cities/districts, other new cities/
cities that have submitted their interest, will participate in a planning phase in scal year 2016
and repeat the same process and steps.
It is expected that implementation will begin in about 50 cities in 2016, and 79 cities in 2017 (a
total of 129 priority cities under the National Strategic Areas), with the remaining cities following
thereafter.
Annex 4.3 Urban Land Policy

Principles of Urban Land Policy
In the context of high land values and overall land shortages, it is essential at the outset to establish
key principles for the provision of land for affordable housing in Indonesia. Without the adoption of
these principles, land provided for affordable housing is unlikely to sustainably meet the needs of
the poor, and the urban poor are likely to come back into inner cities and continue to form slums.
These principles are:
The poor have a right to the city as with all other citizens, and need land in locations where they
can earn a living wage
Just as laws/regulations establish the need to reserve land for green space, it is vital to
reserve land specically for low-income housing, even in areas of high land value.
The primary role for government should be to regulate land and housing markets in the public
interest.
Key Issues
Land and housing markets are not meeting the needs of the majority of the urban population.
There is a possible over-supply at the top end of the market due to a private sector focus on
meeting higher income needs. At the low end of the market, private sector supply is minimal and
public sector provision is inadequate. As a result, a large proportion of the urban population lives in
a range of informal settlements with inadequate tenure security and poor access to basic services.
100
Government appears to consider the provision of housing for the urban poor as a welfare burden
on the economy that is best addressed by supplying subsidized housing in peripheral locations
where land costs are lower. However, the urban poor themselves regard housing primarily as part
of economic development and locate on marginal land in vulnerable locations or pockets of public
land in central urban areas where they can maximize livelihood opportunities. Housing quality is
therefore a lower priority for the urban poor than accessibility to economic opportunity. As such,
it is essential to integrate housing policy within the broader economic and spatial framework of
urban development.
Whilst Indonesia has been undertaking an ambitious program of decentralization since 1999, and
responsibility for the provision of land for low-income housing is now the responsibility of local
governments, their capacity to deliver has not yet increased to the level required to meet needs.
Land Demand for Housing

Rapid urban growth during recent decades has increased pressure on land in urban and periurban areas. The number of housing units needed nationally to address the current backlog is
estimated at up to 13.5 million and this does not include additional units required to accommodate
new household formation in the years ahead. The area of land required to accommodate both
categories will depend upon the forms of housing to be provided and the net and gross density
levels implied by ofcial norms. A full urban land needs assessment will be required in preparing
detailed housing policy proposals, but initial estimates suggest a gure of at least 15,000 hectares
will be needed annually to meet the needs of low and middle income groups. Additional land
will be required for ancillary land uses. The preparation of an urban land needs assessment is
therefore an urgent requirement so that plans can be prepared to identify the areas and locations
where such land can be made available.
Land Supply for Housing

There are two main actors involved in the supply of land for housing in Indonesia, namely the
private sector and the public sector. Most private sector suppliers are members of Real Estate
Indonesia (REI), or Indonesias Housing and Settlement Association (APERSI - Asosiasi Perumahan
dan Permukiman Indonesia). REI members mainly provide housing for middle to higher income
groups, whilst APERSI members focus on lower to middle income groups. Each developer carries
out land acquisition by themselves and receives assistance from BPN during land administration
processes. In 2010, the Ministry of Public Housing issued a decree establishing the 1:2:3 regulation
(Permenpera No. 7/2013) requiring private developers to allocate two medium-cost and three
low-cost units for every high-cost unit. However, the implementing regulations have only come
into force recently, so it has rarely been enforced in most local jurisdictions and developers are not
eager to comply as they claim it makes developments nancially unviable.
Key public sector suppliers involved in housing provision nationally include Perumnas, the Ministry of
Housing, and the Ministry of Public Works (the Directorate of Settlement Development). Perumnas
was originally created as an SOE to be the major agency responsible for the provision of affordable
housing and initially was supported through government funding and programs during the New
Order regime. In later years, as government support for Perumnas has declined, the requirement
that Perumnas must make a prot has increasingly prevented it from providing affordable housing
in favor of more protable middle and high-end housing. Several Regional Government-Owned
Enterprises (ROEs) are also involved in housing provision, such as PT. Jakarta Propertindo and PT.
Sarana Jaya in the DKI Jakarta Province. The National Land Agency (BPN) assists these actors in
land administration processes.
| Annexes
101
Formal land supply for housing has failed to keep pace with demand. As a result, prices of welllocated and serviced land are estimated to have increased 20% annually during the last three
years and land is no longer affordable to the poor and even many middle-income groups. This
is largely because private developers and investors have acquired large land banks that they are
withholding from supply, whilst public agencies do not appear to regard low-income housing as
a priority. City level spatial plans (RTRW) are prepared without the involvement of the housing
agency. Detailed spatial plans (RDTR) and zoning plans do not specify areas for low-income
residential development.
For the last few decades, the gap between the demand and supply of land for housing has been
lled by an extremely efcient and responsive informal sector, involving a range of social networks,
dealers who subdivide public land illegally, or rental housing on private land. An estimated 9 million
households, representing more than 40 million people, or a quarter of the total urban population,
live in housing that lacks safe water and adequate sanitation.
A further impediment to the operation of an efcient land and housing market is the limited
coordination between national agencies responsible for land and housing and between these
agencies and local governments. For example, the local ofces of BPN and the local government
authorities have a role to play in land registration, land use and zoning decisions, yet they often do
not have an active mechanism for sharing data and land use information.
Legal Framework
Land policy in Indonesia is primarily regulated by Law No. 5 (1960) on Basic Agrarian Affairs. This
law mainly classies land rights and their attributes and provides an overview of land survey and
mapping and land registration. In addition to the laws, the legal framework for land policy and
markets are also set by a number of government regulations, presidential decrees and ministerial
regulations. However, since Independence in 1945, Indonesia has not systematically repealed
previous land laws or established a hierarchy whereby higher laws take precedence over lower
ones.
Lack of clarity regarding tenure status is widespread throughout Indonesia. This is a major
impediment to local and foreign investment and represents the largest category of complaints to
the administrative courts. Land grabbing, forced evictions and coercion in urban and rural areas
disrupt livelihoods and the ability of the urban poor to escape poverty, posing an urgent need for
legislation to protect vulnerable groups.
The Spatial Planning Law was passed in 2007. However, there is still a lack of comprehensive
land use planning guidelines, approved urban development plans and transparency about the
process of acquiring and developing urban land for public purposes or housing. The legal basis for
acquiring land for housing or in the public interest is addressed by Law No. 2/2012, though this only
applies to rental housing on public land, but not owner-occupied housing, or private low-income
housing development. Terms for land acquisition for housing on private land are stipulated in Law
No.1/2011 on Housing and Settlements and Law No.20/2011 on Vertical Housing. In addition
to private land, these laws also stipulate that the source of land for housing and settlement or
vertical housing can be taken from waqaf land, state land formerly known as abandoned land, or
by land consolidation. In the case of vertical housing construction above land with building rights
(HGB), or construction above use rights over management rights (HGU over HPL), the developers
are required to resolve the status of building rights or use rights over the management rights in
accordance with the provisions of the legislation before selling the vertical housing unit.
Presidential Decree No. 34 of 2003 transferred nine land management functions from the BPN
to the local authorities. However, the capability of many local governments to undertake these
new management functions was constrained by limited nancial and technical resources. Despite
102
efforts at strengthening local government capacity, progress has been severely impaired due to a
lack of political commitment at the highest level and continuity at senior administrative level.
Urban Land Administration

Land policy in Indonesia is formulated by Bappenas and implemented by BPN, which is responsible
for coordinating land policies, plans and programs and guiding, monitoring and controlling land
administration. All regulations on land are made at central level and are uniform throughout the
country. Although BPN has ofces at the local government level (Kantah), interaction and links with
the local government administration are minimal, and information is not shared.
Land and property taxes were established nationally by BPN based on 1995 values. However,
tax administration was decentralized in 2010 and 369 cities now collect these taxes, with rates
varying considerably from one jurisdiction to another. Property values have increased by three or
four times since 1995, so although the taxable values have increased, the property tax regime has
become regressive and denies local governments a valuable source of revenues. Tax rates also
vary according to land use, though collection rates do not necessarily reect the uses in practice.
As a result, property value systems are so complex that they risk deterring productive investment
on the one hand and being exploited by land and property owners on the other hand.
Land and property taxes are collected and retained in full by local governments for local allocation.
However, even in Jakarta, where a recent revaluation of property values has meant a huge increase
in property tax revenue, this revenue only represents a token percentage of Jakartas total revenue
as the tax rate is low by international standards. As much as 80% of all local government revenues
are a central government transfer (Dana Alokasi Umum or DAU) which is an equalization grant.
The DAU formula provides a clear disincentive to raise local government own-source revenue as
the greater the own-source revenue, the lower the DAU allocation. Thus, even though land and
property tax are important tools for managing the supply of land, the proper application of these
tools is discouraged in the current environment. In addition, land and property tax are combined
as one tax, which means that speculators owning large tracts of vacant land have a disincentive
to build on the land as they will have to pay a larger tax once they start building. This further
encourages land hoarding and underutilization.
The land and property transfer tax (BPHTB) is very high by international standards and is paid
by both buyers and sellers. The tax rate, together with the additional cost of VAT and brokers
charges, results in massive under-reporting, which also affects the taxes paid by landowners and
contributes to the distortion of the effect of property taxation as a tool to manage land.
BPN retains land maps recording ownership details, though mapping is incomplete in urban
areas, and certication and registration information is also incomplete. BPN is also responsible
for land registration. Costs are ofcially very low, though unofcial donations may increase this
signicantly. As a result, many low-income households cannot afford to register their property.
Land tenure includes a complex mix of customary and statutory tenure regimes, though in
practice, the state controls almost all land in the nation. Customary tenure has acquired the force
of law through usage in rural and some peri-urban areas. Other forms of tenure and property rights
include HGU46, HGB47 and HPL48. It is reported that the process of land registration can take 6-12
months.
Computerized land information systems were introduced in 1997. However, progress in
computerizing land records or building private sector capacity has been limited. No systematic
46 Hak Guna Usaha (Land Use rights), granted for up to 35 years and extendable by 25 years (Law No.5/1960).
47 Hak Guna Bangunan (Building rights) granted for up to 30 years and extendable by 20 years (Law No.5/1960).
48 Hak Pengelolaan Lahan (Land Management rights), granted for up to 50 years extendable by 30 years (Government
Regulation No.40/1996).
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review of legislation for licensing of surveyors and assistance was undertaken, and no regulations
governing industry practice have been developed.
Urban Land Management

Land management is the process of managing the use and development in both urban and rural
settings of land resources. Land acquisition often involves burdensome and corrupt practices,
both for those whose land is being taken, and for those who are acquiring land. Problems include:
Uncertainty over who holds rights to specic parcels of land.
Problems in assessing land prices for compensation.
Inadequate legal rules for land acquisition.
The governments willingness to favor investors at the expense of current landholders.
The governments willingness to use extralegal force and coercion to remove current occupants
or customary tenure landholders.
Spatial planning at national level is the responsibility of an inter-ministerial committee, BKPRN49. At
the local level, spatial planning is the responsibility of the local ofces of Bappeda and Dinas Cipta
Karya, which discusses it in the BKPRD50 forum. Currently, Law No. 26/2007 on spatial planning
stipulates that 30 percent of urban land should be designated as protected areas, or green space,
while Government Regulation No.15/2010 on Implementation of Spatial Planning states that of
this total, about 20 percent has to be allocated from public land and 10 percent from within private
land. This requirement reduces the area available for residential and other productive uses and
raises unit land costs. If it can be justied for purely amenity value, then there is an even greater
justication for allocating a signicant proportion of urban and peri-urban land specically for lowincome housing, at less than full land market prices. A nal concern with spatial planning is that
it takes 2 or 3 years to prepare spatial plans and developers move quickly to acquire land in key
locations, so land prices go up before the plans can be implemented.
Policies, Programs and Instruments to Improve Land Supply for Housing

Recent, current and proposed government interventions in the urban land and housing sectors
have focused on the following:
Slum clearance and relocation into rental housing. These programs tend to relocate settlements
in environmentally vulnerable locations, such as along riverbanks, to peripheral locations. They
may improve housing quality, but usually destroy communities and reduce incomes.
Land consolidation/readjustment programs. These were initiated in 1981 and by 1995, 132
projects covering 8,300 hectares had been undertaken in 25 provinces. Projects have been
hampered by an insufciently developed land titling and registration system.
In-Situ Upgrading. The Kampung Improvement Program was launched in 1969 and expanded
nationally during the 1970s in several phases. The NUSSP51 upgrading program was launched
in 2003 and the national level PNPM52 Urban program has recently introduced a Neighborhood
49 Badan Koordinasi Penataan Ruang Nasional National Spatial Planning Coordination Board.
50 Badan Koordinasi Penataan Ruang Daerah Regional (Province or municipal/district) Spatial Planning Coordination
Board.
51 Neighborhood Upgrading and Shelter Sector Project.
52 National programme for community empowerment (Program Nasional Pemberdayaan Masyarakat).
104
Development program which provides for infrastructure improvements by communities. These do

not increase land for housing but help reduce demand.
Rusunawa and Rusunami. Rental vertical housing (Rusunawa) and owner-occupied vertical
housing (Rusunami) are programs introduced by the Ministry of Public Housing.
Land Banking. GoI proposes to establish a land bank to acquire land for development at current
market prices and allocate it for public purpose needs, including housing. An estimated US$15
billion is proposed for initial capital to cover the anticipated costs.
The proposed 100 percent sanitation, zero slums, 100 percent water program is a major new
program and the new administration has committed to achieving this by the end of the 2015-2019
National Medium Term Development Plan (RPJMN).
Review of Current and Proposed Programs

The slum clearance and relocation program may provide better housing, but exacerbates the
economic problems facing the urban poor at high cost to the government. Few projects have
so far been undertaken. There is a risk that the poor will see this as removing them from the city.
Land consolidation/readjustment programs have been partially successful in Indonesia and very
successful in the East Asian region. They deserve another concerted effort at development.
Indonesia is a leading nation in the regularization and upgrading of existing informal settlements
and this experience can be put to good use in existing inner city settlements.
Land banking has been implemented in many countries but with serious limitations. These
include: potential conicts of interest between the role of regulator and supplier of land; agencies
may increase demands more than is needed; appraisers will be vulnerable to corruption and; the
different needs of land for strategic purposes and land for low-income housing will be confused.
Experience shows that the issues being addressed regarding urban land and housing are systemic
and entrenched and reect differences in the distribution of power, wealth and opportunity. Unless
these structural imbalances are addressed, the symptoms of inequality, as reected in limited
access to land and adequate housing are likely to remain.
Given the wide range of issues involved, international experience shows that no single policy
instrument or agency can meet diverse needs within dynamic land and housing markets. It will
therefore be essential to develop a diversied set of options and a suite of tools and build programs
around these to regulate land and housing markets in the public interest.
Legal Framework

Change Law No. 2/2012, Presidential Regulation No. 71/2012 to include the submission of
business plans with development permit applications and require implementation of the plans
according to the development timeline. If land owners/developers do not comply within 3
years, their land can be repossessed and developed for low-income housing and other priority
uses. At the moment, the three year clause is by Decree of the Minister of BPN, but is not
backed by a law or a regulation, which needs to be developed. In addition, amendment of Law
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105
No.2/2012 should also include the establishment of a land provisioning agency to acquire land
for public purpose, and incorporate land for housing using various instruments and different
land tenure options.
Urban Land Administration

It is recommended that the land tax (PBB) on unused or vacant land be increased to the same
level as if land were developed. This is intended to encourage land owners to develop their land,
increasing supply and reducing land price ination. It is also recommended that the existing
combined land/building tax rates be increased and the threshold for payment increased to protect
low-income groups.
It is recommended that the initial cost of land and building registration charges be reduced and
administrative procedures simplied and subject to external oversight. It is also recommended that
the land/building transfer tax (BPHTB) be cancelled and replaced with an administrative charge to
cover the costs involved. This would increase transparency in urban land markets and cancel the
current practice of under-reporting. This action can be funded by increased land revenues.
It is recommended that consideration be given to granting medium term (10-20 years) communal
leases to informal settlements selected for in-situ regularization and upgrading. This is mainly to
protect inner city settlements in areas where land prices are high from being vulnerable to marketdriven displacement and is an adaptation of adat tenure which is well established nationally. Once
upgraded, individual Building Right permits for 20 years are recommended, as already applies in
selected projects. This will provide adequate incentive for households to invest what they can in
home improvements, build on traditional concepts of communal ownership, minimize the need for
individual plot boundary disputes and provide a simple administrative basis for improving tenure
security and protection from market-driven displacement. Furthermore, the possession of a land
certicate should improve access to micronance as a means to improve livelihoods.
One Stop Shops should be introduced for land titling, registration, transfers and permits, perhaps
initially for slums and low-income housing, to incentivize faster production of low-income housing,
expedite registration, and make processes more transparent and cheaper.
Urban Land Management

Spatial plans (RTRW and RDTR) and zoning plans need to be developed in line with the resources
required to implement them. It is strongly recommended that the role of spatial planning in
Indonesia be reviewed and replaced with more exible policy instruments. A key consideration is
to specify the objectives of spatial planning and present these for public discussion prior to their
being formally approved. Spatial plans should be based on sound assessments of the needs of
key groups, including local communities, especially vulnerable groups such as the urban poor and
women. Although many different policy instruments have been applied in Indonesia before with
mixed success, it is important to acknowledge that any policy instrument will only succeed if it
enjoys strong and sustained high-level political and administrative support. Options could include
the following:
Land Consolidation/Readjustment. This is well-known in Indonesia and is worth undertaking
and expanding as it has been successful worldwide.
Land Sharing. This may be applicable on public land. Legally, landowners have the right to clear
the land from illegal occupants. However, if the nances demonstrate that land sharing is more
106
benecial than land clearing, it may be effective if the site is large enough. A relaxed FAR can also
provide scope for obtaining landowner agreement.
Requests for Proposals (RFPs). RFPs could bring public, SOE or waqf land into use in ways that
maximize public benets, such as the provision of low-income housing, in a competitive, marketbased manner. An RFP stipulates a number of mandatory requirements that any developer must
meet, together with a number of desirable additional benets. The winning bidder is then able to
commence development.
Planning/Design Briefs. Site development briefs can enable spatial planning agencies to stipulate
the requirements to which any development must conform in order to obtain planning permission.
It is a powerful tool provided that briefs are based on accurate assessments of market prices.
Transfer Development Rights (TDR). TDRs separate the right to develop land from the land itself.
This can provide local governments with innovative solutions to a variety of social and economic
problems. Transfer of Development Rights involve purchasing development rights in areas where
more development is desired. In effect, the owner is being paid to not develop in one location and
to develop somewhere else.
Public/Private Partnerships. The only obstacle to PPPs is the land use right which allows
developers to use government land for 30 years with an extension of 20 years. Developers usually
consider 30 years to be too short to gain prots for the large investment on the land development.
However, the approach offers scope for selective application.
Transit-Oriented Development (TOD) and Housing. If transit-oriented development is being
applied by some local governments, then by explicitly including plans for low and middle income
housing in the TOD areas, land which will be higher value in future (because of investment in
transport and other infrastructure) can be acquired or protected for public interest ahead of the
installation of the road and rail networks.
Allocating Public Land for Housing. The rst priority is to bring unused and under-utilized public
land into use for low-income housing. BPN should be required to identify all land belonging to
ministries, SOEs and other public entities as well as waqaf land so that negotiations can be
initiated regarding the release of land suitable for housing. This would require the establishment of
an institution that would have the legal mandate and authority to negotiate for land with all these
agencies.
First Refusal on Local Government and SOE Land to be Sold. Consideration could be given
to encouraging local governments and SOEs that want to sell land to offer it as a rst option
to a housing authority. This may require the development of clearer land release protocols or
regulations to ensure that the conditions of land release are transparent and that land prices are
fairly set between the agencies involved in each case. This may require legal or regulatory backing.
Housing Plans (RP3KP) to be coordinated and aligned with Municipal Spatial Plans (RTRW)
and Detailed Plans (RDTR). Instruction to BKPRD to review existing RTRWs to integrate
RP3KP. Low-income housing zones to be clearly marked in RDTR and relevant plans, and local
governments should implement tools for enforcement of these zoning conditions.
Policies, Programs and Instruments to Improve Land Supply for Housing

In addition to considering the above options, the following additional recommendations are
provided for consideration.
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107
Make full use of un- or under-utilized inner-city land as well as undeveloped peri-urban land. This
can provide areas for relocating inner-city squatter settlements without adversely impacting on
livelihoods for the urban poor who depend upon good access to major commercial centers.
Enforce permit conditions. Do not renew permits easily if development has not started.
BKPRN and BKPRD need to involve MPWH and Dinas Perumahan so that housing plans and
spatial plans can be integrated.
Conversion of agricultural land to urban land should have a proportion reserved for low-income
housing.
Reinstate the social purpose of Perumnas so that it is not required to make a prot but uses
its market expertise to obtain best value for lower-income groups, using public funds to assist
low-income households obtain affordable land in appropriate locations for housing.
Instead of acquiring extensive areas of privately-owned land for public purposes such as
housing, encourage land-owners to develop land themselves through incentives, such as
further relaxations on FAR, and penalties for non-use, such as increased tax rates for land
(especially for large land-holdings or empty properties) and the repossession of land not
developed within the three year stipulated development period.
Implementation Plan
The following are the immediate, short and medium-term priorities for urban land policy.
Immediate Actions (0-12 months)

Undertake a land needs assessment to ascertain the areas of land needed to meet existing
and projected increases in population and reduce the existing backlog and over-crowding.
This can identify changes that may be required to the current regulatory framework for spatial
planning, such as density levels, locations for priority uses and standards for road reservations
and public open space. It is recommended that the 30 percent standard of urban land for
public open space be lowered to reduce land development costs.
Put all unused or under-used public, SOE (including Perumnas) and waqaf land to more efcient
social and economic use, including allocations for low income housing. This can achieve
some quick wins to generate momentum and build condence in addressing more structural
constraints to land supply for affordable housing.
Amend current regulations preventing the provision of basic services into urban settlements of
unclear or illegal tenure status so that basic services can be provided.
Identify informal or squatter settlements that are suitable for in-situ upgrading and regularization
and encourage land sharing or re-blocking to put land to the most efcient use through the
active participation of local residents.
Make full use of un- or under-utilized inner-city land as well as undeveloped peri-urban land. This
can provide areas for relocating inner city squatter settlements without adversely impacting on
livelihoods for the urban poor who depend upon good access to major commercial centers.
Identify sites within existing urban areas to which environmentally vulnerable informal
settlements can be relocated with minimal disruption to current livelihoods. Encourage the
active participation of the communities in the relocation process.
Tighten the system of re-granting building permits (or land use rights which may lapse after a
period). Recommend that if permits or use rights are granted, they should be used within the
stipulated period. Land held in the new program would be exempt from this.
108
Work with local civil researchers, consultants and civil society organizations to improve
assessments of the needs, resources and priorities of low income groups, since not all low
income households will have the same needs and these change over time.
Short-Term Actions (1-2 years)

Consider scal and regulatory options for encouraging land-owners to put unused urban and
peri-urban land into productive use.
Investigate measures to incentivize land to be released for low-income housing, or mixedincome housing with at least a 50 percent low-income component.
Review procedures for registration, permitting and development of land and introduce One
Stop Shops to enable the procedures to be completed quickly and efciently.
Revise the legal status of Perumnas so that it is not required to make a prot.
Identify options for public-private partnerships and the active involvement of civil society
organizations in the provision of land for low-income housing.
Encourage implementation of poli-centric instead of mono-centric urban spatial forms in order
to diversify options for urban development and housing linked to improved transport and
infrastructure.
Explore options for introducing land value capture and betterment levies to generate revenues
and ensure that land is put to the most socially and economically effective use.
Amend Law No.2/2012 to establish a land provisioning agency to acquire land for public
purpose and incorporate land for housing using a range of policy instruments and forms of
land tenure and property rights.
Develop clear norms, standards, procedures and manuals for implementing land consolidation
and any other instruments to obtain land for housing.
Involve the Ministry of Home Affairs to deliver central government policies to the local
governments.
Medium-Term Actions (3-5 years)

Use increased revenues to strengthen local government and build collaboration between
central government agencies, SOEs and civil society organizations (CSOs) active in the housing
sector.
Encourage and improve capacity of local government to carry out several instruments of land
provisioning for housing as stipulated by Law No.1/2011 and Law No.20/2011.
Annex 4.4 Home Improvement and Incremental

Expansion
It is estimated that about 70% of the Indonesias housing stock is self-built and amongst lowincome households, this share may be close to 100%. Most Indonesians solve their housing
needs by building and improving their homes incrementally, as it is difcult for low-income
households to access mortgage nance, and most developers concentrate on building units for
higher-income households. This makes government support toward home improvement and
incremental expansion particularly important.
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Increasing the affordability of home improvement and incremental house construction should
receive the highest priority as a method of improving the availability of housing and improving the
quality of substandard units for low-income segments of the population. The following section
describes the characteristics of existing GoI support.
Since 2006, GoI has been implementing a subsidy program, known as the BSPS program, aimed
at supporting home improvement and incremental construction. The program has been managed
by the former Ministry of Housing. The key goal of the program is to increase affordability of home
improvement and incremental construction for low-income households, whereby beneciaries
receive a subsidy of either IDR 7.5 million for home improvement or IDR 15 million for new
construction.
The program has the following implementation scheme:
GoI selects several regions in each province where the program will be implemented.
The regional government selects the districts for program implementation.
A consulting company, hired by the Ministry, visits the selected district and randomly selects
poor households. By surveying the inhabitants it then selects potential beneciaries that meet
certain criteria (e.g. households have monthly income below IDR 1.5 million, own the house,
have legal land title, etc.)
After the list of beneciaries is approved, the consultants assist each beneciary in preparing
the basic design of the intended home improvement, including the set of required construction
materials and the total cost of the suggested home improvements. The cost of services of
these consultants is approximately IDR 220,000 per beneciary.
At the projects implementation stage, another group of consultants is hired to advise
beneciaries on how to select proper construction materials and conduct home improvements.
To ensure targeted use of funds, the money is distributed directly to material suppliers in
two installments, the second of which is paid only after the consultant conrms that 50% of
works are completed. The cost of services of these activities is approximately IDR 500,000 per
beneciary.
The work of the contracted consultants is monitored by a group of 300 controllers, (hired for
6 months each), as well as periodic random inspections that are carried out by staff from the
Ministry. Cost of this oversight is approximately IDR 100,000 per beneciary.
Detailed information about each beneciary, the type of home improvement made, design,
volume and cost of materials, as well as the total cost of the project, are all documented and
collected by MPWH.
The BSPS grant covers only part of the total cost of a project implemented by a beneciary.
The rest is covered by the beneciaries savings or is borrowed by the beneciary from various
sources, including family, community groups, or local money-lenders. An average total cost of one
housing project (part of which is nanced by the BSPS subsidy) is estimated to be approximately
IDR 20 million.
In total, GoI spends about IDR 1 million in overhead costs (management, supervision, control,
assistance, etc.) to distribute one subsidy of IDR 7.5 million or IDR 15 million. Such large
expenditure per grant is due to direct fulllment of all support functions by the central Ministry.
The BSPS program receives only limited government funding each year, receiving IDR 1.5 trillion
and IDR 2.1 trillion in 2014 and 2013 respectively. In comparison, disbursement of government
110
funds toward the subsidized mortgage program (FLPP), which assists households to purchase
developer-built housing stock, has ranged from IDR 3.7 5.4 trillion per year in the past 4 years,
as shown by Figure 11.
Figure 11. Government Budget Allocation to BSPS and FLPP Housing Programs
Budget, million IDR
6,000,000
5,000,000
4,000,000
FLPP
3,000,000
BSPS
2,000,000
1,000,000
0
2011
2012
2013
2014
Source: Ministry of Finance, 2014.
Overall, the program has the following positive characteristics:

Careful attention is paid to ensure that the subsidy reaches the target groups low-income
people with poor housing conditions, minimizing the risks of corruption and nepotism in the
selection of beneciaries.
The BSPS program effectively controls for the appropriate use of funds, i.e. there is accountability
to ensure that grants provided under the program are used exclusively for home improvements
and home extensions by poor people.
The BSPS program increases affordability through the reduction of the following elements
of home improvements/incremental construction projects: (a) nancing costs are reduced
through provision of subsidy; (b) engineering costs are reduced through the provision of free
advice on selection of materials, preparing bills of quantities, etc. as well as at implementation
of the project; (c) labor costs are reduced through free advice on how to conduct works on a
do-it-yourself basis.
However, there are the following issues related to the design of the BSPS program:
High overhead expenses as most of the services are provided with the assistance of a large
number of consultants, hired by the MPWH.
Very low coverage. According to MPWHs records, the BSPS program annually covers about
140,000 households, which is about 1% of the number of Indonesian households that are
estimated to live in substandard housing.
No measures address the cost of construction materials, which could be a means to improve
affordability of home improvements and incremental construction.
The program is stand-alone without links with other national or regional initiatives aimed at
improving housing conditions, such as slum-upgrading. Improving linkages to other programs
could help to enhance the effectiveness and impact of the home improvement subsidy.
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There is no support to leverage the private sector participation, either through affordable
housing micronance or links to stimulate the local building industry.
The subsidy does not use an integrated targeting system for identication and verication of
beneciary households.
As it reaches only a fraction of those households living in substandard units, and these households
tend to be in rural areas, the existing program has a minimal effect on Indonesias overall housing
situation, particularly in terms of new high-demand areas in urban centers. This Roadmap
recommends to substantially scale the BSPS program in order to provide the home improvement
subsidy to a much larger number of households and refocus subsidy provision to priority areas,
such as slums and low-income urban communities.
Yet, the current delivery systems are inefcient. The total budget allocated to the program from
2010 to 2013 was approximately IDR 3.86 Trillion for 543,925 beneciaries (as reported by
MPWH). Overhead costs (supervision, management, control, technical assistance to beneciaries,
etc.) that were associated with providing the BSPS subsidy were estimated to be about IDR 544
Billion. Hence, it is recommended to redesign the program to streamline delivery of the subsidy,
and then to increase the budget allocation. These recommendations are elaborated in the rest of
this section.
1. Strengthen the Design and Delivery of the Existing Home Improvement

Subsidy
The current subsidy program ccould be redesigned and complemented in the following ways.
Identication and Eligibility. Complement the existing beneciary identication system with the
utilization of the Unied Database (BDT) for social protection programs operated by the National
Team for Poverty Alleviation Acceleration (TNP2K), which can act as an effective tool for controlling
selection of nal beneciaries.
Currently, only a very small number of people that could benet from home improvement subsidies
are addressed by the program. A waiting list is not created and the beneciaries are selected
through a kind of a lottery. Every year a new set of regions is selected for program implementation.
In each region, one district is selected. Specially hired consultants visit the district, choose the
poorest looking houses and suggest a subsidy. If the selected candidates legally own their houses
and if the local administration conrms that their informal income is below IDR 1.5 per month,
they are approved for participation. This mechanism is very costly (due to the use of consultants),
and not very reliable (because local administrations cannot accurately or systematically assess
informal incomes).
Utilization of the Unied Targeting Database will allow local governments to simplify and reduce
costs of the selection of beneciaries.
Budget Allocation and Subsidy. The Roadmap recommends signicantly increasing the budget
allocated to the program, once the delivery systems have been strengthened, so that the subsidy
can be expanded to reach more low-income households. The amount of the subsidy could also
be reviewed, so that it is adjusted by geography (i.e. by province and by rural/peri-urban/urban/
metro). MPWH could even consider moving towards a progressive subsidy system for the BSPS
program across income segments and housing options, whereby lower-income households
receive more assistance.
112
Delivery System. It is recommended to improve the design of the subsidy and signicantly reduce
overhead expenses through:
(a) Shifting toward a local government-led implementation model where local governments take
a lead role in identifying and verifying beneciary households, administering the delivery of the
subsidy and implementation of the program, as well as monitoring and evaluation. This will
allow the local government to bundle the subsidy with other initiatives and local priorities, such
as upgrading or provision of services to specic locations.
(b) Standardize the system for the provision of engineering advice so that it is scalable. Currently
beneciaries conducting home improvements and home extensions are supported by direct,
personalized advice. This work is implemented by several teams of experts (mostly engineers)
paid by the government. It is recommended to change the approach of support to beneciaries
to utilize pre-developed tools in order to provide advice in a standardized and cost efcient
manner. The tools should be prepared for types of home improvements that are conducted
most often (informed by the home improvement data accumulated through the BSPS program).
They should also take into account regional variations in construction techniques. Examples
of tools include: (i) software calculators to prepare construction cost estimates for each home
improvement or extension; and (ii) detailed description of technological procedures necessary
for non-professionals to do the job (for example, using pictures).
c. Facilitate the crowding-in of housing micronance by connecting households to nancial
institutions offering housing micronacne, assisting with household nancial education and
underwriting. This recommendation requires more generalized support to the development of
the housing micronance sector as well.
d. Titling of beneciaries. Address bottlenecks to ensure that there is title regularization of informal
homes participating in the program. At present, BPN only has a small budget for registering
around 7,000 land titles per year. The Roadmap recommends increasing the budget so that it
covers all informal houses under the BSPS program. This, along with the tools for helping local
governments regularize land tenure (described in detail in Action 6 of this Roadmap) would
help reduce these titling bottlenecks.
Improved Targeting and Accountability. Complement the rural program with new programs
with strategic targeting characteristics, such as (a) densely populated urban clusters of slum/
squatter/starter core households in order to utilize economies of agglomeration and scale; (b)
lower and middle-income households willing to expand their homes in order to create additional
units at a low cost.
Communities could also be used more effectively to help deliver construction and nance
assistance. Currently, subsidies are administered in a group, but the potential for collective action
of the group is not well harnessed.
Implementing agencies may also consider output-based delivery systems to improve the
accountability of the use of funds and promote collaborative implementation that could improve
the efciency of the program.
Currently, a few measures for collaboration and collective action exist. Each household receives
the subsidy in their bank account, which cannot be withdrawn. Then, the households collectively
pursue market research with material shops and decide which material to buy, in bulk. Once the
material is ordered the money is transferred from the individual accounts to the material vendor(s).
In rural areas the households may collaborate to construct the houses during off-work seasons.
In urban areas, the households could hire construction labor together to minimize the costs of the
works.
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113
Alternatively, a model could be introduced so that households are required to collaborate more
closely. For example, a parallel scheme delivered by the West Jakarta Provincial Government
follows output-based principles: it releases 60% of the total subsidy, sufcient to construct, for
example, 6 out of 10 houses. Only when the 6 houses are completed does the group receive the
remaining 40% of the funds in order to construct the remaining 4 houses.
2. Link Home Improvement Subsidy to Other Public Housing Programs

Ensure coordination between the home improvement program and other public housing programs,
in particular, slum upgrading and delivery of incrementally expandable core housing.
Home improvement and extension can substantially increase the effect of slum upgrading initiatives
helping poor communities to further improve their homes that benet from tenure regularization
and improved access to infrastructure and social services.
3. Promote Home Expansion Amongst Middle-Class Households

A program can be explored that supports incremental expansions of existing homes so that
they become multi-family units. This would help to reduce urbanization pressures as it would (a)
reduce existing overcrowding and (b) prevent future overcrowding by catering to new household
formation.
Program parameters that could be considered include: (i) linkages to the housing mortgage or
micronance program, depending on borrower and collateral characteristics; (ii) a subsidy may
be considered (that should not exceed the amount of the home improvement subsidy to lowincome households); (iii) technical construction support, similar to the assistance which is used in
other home improvement programs. This construction support could be provided via professional
networks with trainings and practitioner guidelines for home expansion and then linking middleclass households with those architectural and engineering consultants that are deemed qualied.
4. Support the Development Of Local And Regional Building Industries

Explore measures to support development of local building industries, with the following objectives:
(i) to increase production of and availability of more affordable good-quality construction materials;
(ii) to stimulate local business development and job creation for artisans and builders in the
construction sector; (iii) improve environmental sustainability and maintain cultural preferences
through use of local building materials and construction techniques.
Strategies to be explored include: (i) labor-intensive construction technologies for core houses; (ii)
training of microenterprises and artisans in construction techniques for quality home improvements
and expansions; (iii) standardization of local/regional building material manufacturing; (iv) reduction
of trade barriers and costs to improve availability of affordable and quality construction materials;
(v) technical assistance to home-owners to reduce costs and ensure compliance with construction
standards for adequacy and safety; (vi) adaptation of regulations and policy to concentrate on
realistic and exible minimum standards.
5. Support Development of and Crowding in of Housing Micronance

Sector
Support the development of the housing micronance sector to provide improved options for
households who want to make higher-value improvements or incrementally expand their homes,
114
over time. A housing micronance program may also help to expand low-income households
access to the nancial sector. International examples are the Patrimonio Hoy program implemented
by Cemex in Mexico and SEWA in India. Lafarge and Holcim are building such programs in
Indonesia already.
Currently HMF lending is not very developed in Indonesia, though there is anecdotal evidence
that a substantial portion of microloans are used for home improvement purposes. Development
of the HMF industry may require nancial and technical assistance to be channeled to nancial
institutions to support them to develop HMF products. HMF is unique as it requires a combination
of nancial lending services and non-nancial services in order to address the specic risks of
home construction. This requires training of loan ofcers or partnerships with building materials
providers to assess home improvement projects, prepare cost estimates for materials, and monitor
quality of construction.
This Roadmap recommends the government consider supporting incubation of HMF product
development with several pilot nancial institutions in different regions of the country. This support
could be provided via an NGO contracted by government, regional banks, or via a state-owned
enterprise, such as SMF. Technical support should include systems for consumer education and
eligibility, training of loan ofcers, HMF product design, IT systems etc. Based on the results, the
capacity building program can be ne-tuned and scaled all over the country, provided for a fee, as
demanded by nancial institutions.
To make housing micronance more accessible, borrowers may need further assistance, for
example, in the form of a down-payment (to avoid the compounding of interest) or through
matching payments (as a behavioral incentive).
In the short-term, the government can use the existing programs (such as KUD, used to support
nancial institutions) to deliver support for HMF lending. In the medium-term, the government might
consider initiating a special state-enabled revolving fund that would provide liquidity to nancial
institutions for HMF at rates equal to the costs of funds to the government. This revolving fund
may be linked to the long-term liquidity provided through the reformed FLPP program, enabling a
certain level of integration across housing nance and housing micronance and a better level of
nancial integration for low-income households.
Implementation Plan
Immediate Actions (0-12 months)
Detailed design of the reformulated BSPS program.
Assess feasibility of integrating program to focus on spatial clusters of poor communities in
slums or other low-income urban areas.
Explore types of support toward a new program (or program pillar) for expansion of lowermiddle class homes.

Implement program reforms, including the local government delivery systems and use of the
Unied Targeting Database, and then scale home improvement subsidy program to respond
to demand.
Build up systems and capacity to execute and integrate subsidy with slum upgrading and new
green-eld incremental development.
| Annexes
115
Develop TA channels and access to nance to support nancial institutions in housing

micronance development.

Fine-tune and scale all programs nation-wide to respond to home improvement and incremental
housing needs.
Focus on executing the strategy for housing micronance sector development.
Annex 4.5 Public Housing Policy

The bottom 40 percent of Indonesian households cannot afford formal market-rate housing
solutions. The only housing options available to these households are to either produce
incrementally on a self-help basis or rely on highly subsidized public housing provision. Self-built
housing constitutes the majority of new housing construction in Indonesia. While support for
low-income households to build incrementally is a critical part of the proposed policy mix in this
Roadmap, the government will also need to reformulate public housing policy and expand public
housing production in order to effectively address the housing decit. A robust and diversied
system of public housing production will be necessary to respond to different characteristics of
household and regional demand.
Indonesia currently has two central government programs that subsidize public housing
supply53. The Rusunami Program supports resident-owned vertical housing and the Rusunawa
Program results in publicly-owned vertical rental housing. The following section summarizes the
key ndings from an assessment of each program as well as a summary of public housing policy
recommendations.
The largest housing need in Indonesia currently is for new low-cost units in urban areas. Not
addressing this need inevitably results in new slum formation for lower-income households and in
over-crowding of middle-income households.
Rusunami (Vertically-Congured, Resident-Owned Housing)

Overview
The Rusunami program can be characterized as a hybrid subsidy. On one hand, it is a very light
supply-side subsidy, which on its own would have no ability to drive construction of new units by
the private sector. It is also a light demand-side subsidy, also insufcient to act as a sole driver of
affordability or access to low-income buyers.
53 Public housing is used to refer to both Rusunawa (vertically-configured public rental housing) and Rusunami
(vertically-configured ownership housing) even though Rusunami is not developed, owned or managed by the public
sector.
116
In combination with the substantial demand-side mortgage subsidy, known as FLPP, and the
mandate to produce affordable units54, it is the least powerful part of a bundle of incentives for
affordable rusun55 ownership.
However, construction and land price increases in recent years have stalled the Rusunami
programs usage. A price cap increase on houses eligible for FLPP mortgages is pending. This
may revive construction, but without other changes, it is likely that the households beneting from
the program will migrate up the income pyramid and cost the government more in foregone tax
revenues.
Detailed Program Review and Analysis

The Rusunami program is meant to encourage production by the private sector and by Perumnas
of owner-occupied units in a low-, mid- or high-rise conguration. Tax incentives are available to
both buyers earning less than IDR 7 million per month and to developers for units below the sale
price limits.
The tax benet to buyers is a break from VAT tax (PPN), which is typically 10% of the costs of
production. These costs of production include construction materials and labor, but not land and
sales costs. Eligible costs are estimated to constitute between 85% and 90% of total development
costs (TDC). For example, the value of the tax benet to the buyer for a housing project that was
built in 2014, where TDC was IDR 216 million, would be about IDR 18.4 million (assuming 85%
TDC would have otherwise been subject to VAT). This is about 13% of the sales price that was
offered to the target market.
The tax break offered to developers is a reduction in the transfer tax that they owe upon conveyance
to the end buyer. For qualifying affordable Rusunami units, developers are charged only 1% transfer
tax on the sales price of the unit, instead of the standard 5%. For the same project example cited
above, the savings were calculated to be around IDR 13 million per unit, or 6% of TDC. This
subsidy does not begin to make up for the differential between the market value of units and the
sales price cap imposed by the Rusunami program. In the example, this differential was about
IDR 260 million (65% of the market value), thus illustrating the relative impotency of the subsidy.
Units receiving Rusunami tax benets are often nanced by the buyers through the FLPP mortgage
program. This program has the same income restrictions for borrowers and offers a subsidized
interest rate. Developers recognize the mortgage subsidy program as a demand-side booster and
as the main driver of developer behavior in the ownership market, which helps them to sell units
that they are required to build under the rule for developing 20% of units as affordable.
In order to qualify for Rusunami tax breaks, the units must currently be sold at prices below
a target level of IDR 144 million (specied in Law No. 31/ 2007). However, total development
costs have increased signicantly since the time that these limits were established, with some
estimations indicating that hard construction costs may have increased ve fold in that time.
Recently, in the interest of spurring production of housing for middle-income households, there
has been a proposed increase in the maximum sales price to IDR 315 million. If this increase is
54 20% of floor area of new developments in Rusun (vertical developments) must be in affordable apartments for
purchase or rental.
55 Rusun is the Bahasa Indonesia term for vertically configured housing, regardless of tenure. English terms of apartments,
flats or multifamily units are equivalents.
| Annexes
117
enacted without other measures, this will mean that units previously affordable to households with
monthly incomes just over IDR 4 million will now only be affordable to households with monthly
incomes at nearly IDR 8 million.
These tax and mortgage incentives are determined based on sales prices, not actual household
need. If house prices increase, the government is obligated to forego more revenue without the
ability to control the amount of the subsidy or to direct it towards certain beneciaries. These
incentives are also regressive, as higher price points will trigger more subsidy and will benet
higher-income families, who will be able to support larger mortgages and higher down payments.
Additionally, since these tax incentives are available on an open-pipeline and on a self-claim
system, they are difcult to direct, size and monitor. Only after the fact does the government
understand the amount of resources that it has utilized in foregone tax revenue. There is no realtime tracking of these subsidies nor any reporting to MPWH, which makes program evaluation
and scal controls difcult.
Table 13. Rusunami Program Quick Facts
CURRENT
PROPOSED
Target housing product
Rusuna (Apartments)
Sales price limits
Currently Rp 144 million
Target population
Formal workers with monthly incomes < Rp 7 million
Tenure
Rasun Apartment Ownership
Developers
Private and Perumnas (SOE)
Incentives offered by
government
To developers: 1% transfer tax, which is discounted from the typcial 5% of

sales price of the unit.
Proposal pending to raise limit to Rp 315
To buyers: No VAT (PPN), which is typically 10% of costs of productions and

due upon purchase of the unit.
Cash value of subsidy
per unit (based on
example)
VAT
Transfer Tax
TOTAL
Rp 18.4 million
Rp 5.6 million
Rp 24,0 million
Subsidy in 2013
reported by MoH
No data.
Units produced in 2013

reported by MoH
Not able to attain data.
VAT
Transfer Tax
TOTAL
Rp 18.4 million
Rp 12.6 million
Rp 31.0 million
Rusunawa (Multi-Family Public Rental Housing)

Overview
Government entities at various levels are the funders, developers and owners of the housing
stock of the current Rusunawa program. Private sector actors are engaged on a contract
basis by government entities to perform certain functions during the development process and
in operations. However, they do not provide nancing and do not assume risk, nor long-term
responsibility.
Detailed Program Review and Analysis

The current Rusunawa program is a multifamily public housing production program driven by the
central government, with long-term ownership placed in the hands of local units of government.
Each year, the central government allocates capital subsidy and administrative budget for public
rental housing programs, which was previously divided between Ministry of Housing (Kemenpera)
118
and Ministry of Public Works (DJCK). Generally speaking, DJCK is charged with construction
of units where trunk infrastructure is also required. Kemenpera generally constructed on sites
that were already serviced, although a local government could also be involved in infrastructure
provision.
Since 2011, Kemenpera received the majority of the government funds allocated to public rental
housing (60%), and was expected to produce roughly 76% of units. In 2014, Kemenpera allocated
IDR 1.3 trillion to the public rental program, which made up 33.2% of Ministry of Housings program
budget, while the Ministry of Public Works allocated IDR 1.1 trillion to public rental housing, which
was 1.5% of the total budget.
Comparisons between budget allocations and the number of units that were planned show that
the housing construction costs of the DJCK-produced units is signicantly higher, almost double
that of Ministry of Housing units. This apparent cost differential is only partially explained by the
provision of infrastructure by DJCK.
The budget allocations to the Ministries for the public rental programs do not come with nuanced
goals such as geographic distribution or project characteristics, instead there are only 7 minimal
threshold criteria.56 Even with few dictates for expenditure, it is challenging for Ministries to utilize
their full funding allocation. This is because the local units of government, who are the long-term
owners of the projects that result from the program, may not nd the proposition of a Rusunawa
project appealing and often struggle to identify suitable sites for the rental housing.
In construction, the Ministries act as developers for the Rusunawa projects by acquiring the sites
from local units of government, hiring a private rm to design, and construct the project on a feefor-service basis and hiring a private rm to monitor the construction of the project. In light of this
tendency to contract out the vast majority of the day-to-day responsibilities, the Ministries are not
readily exposed to the actual practice of real estate development.
Local governments supply the land for the public rental housing projects, approve land use, issue
permits and own and operate the project after construction completion. This includes taking on
the role of managing any operating decits and capital needs, which exceed the rent revenues
generated by the projects. Local governments are also charged with property management, which
is largely accomplished through site managers and vendors who are supervised by representatives
of local units of government.
The following characteristics of the program are problematic:
Total development cost of projects is not tracked. No single source of information exists
regarding the total development cost covered by both central and local governments, nor the
market value of the land contributed by local governments.
Operating costs are not reported or monitored. The absence of this information creates
challenges for meaningful long-term program planning and evaluation.
Tenant income eligibility is set by provincial minimum wage (UMP) not local minimum wage
(UMK), with a nation-wide limit of IDR 2.5 million per month, which equates roughly to Decile 6
households.
Rents are set at 30% of UMP, not set to actual household affordability, which may be problematic
for the lowest-income Indonesians (particularly those in Decile 1-4).
56 i.e. Compliance with local plans, serviced by water and sewer, not in risk zone, etc.
| Annexes
119
Table 14. Rusunawa Program Quick Facts
57 58 59 60
Target housing product
Rusuna (Flats)
Development cost limits
None
Budget allocations
2011
2012
2013
2014
2015 budget
Total
Rp 1.075
trillion
Rp 1.156
trillion
Rp 1.370
trillon
Rp 1.328
trillion
Rp 1.492
trillion
Per Unit58
Rp.
25,058,275
Rp.
22,416,910
Rp.
26,868,471
Rp.
44,254,153
Production
Assumptions
42,900
51,600
51,000
30,000
36,300
Rusunawa as
% of ministry
budget
31%
19%
28%
33%
32%
Total
Rp .853
trillion
Rp .649
trillion
Rp .823
trillion
Rp 1.099
trillion
Rp .770
trillion
Per Unit60
Rp.
40,648,062
Rp.
54,158,494
Rp.
40,978,628
Rp.
130,854,688
Rp.
116,666,667
Production
Assumptions
21,000
12,000
20,100
8,400
6,60
Rusunawa as
% of ministry
budget
1%
1%
1%
1%
1%
Ministry of
Housing
(Kemenpera)
57
Ministry of
Public Works
(DJCK)59
Rp.
41,113,829
Target population
General low-income population and special target groups (which are

largely slum or disaster relocation)
Income eligibility
Up to Rp. 2,500,000 monthly income as nation-wide cap, adjusted by

each local government, but not to exceed 1 UMP.
Tenure supported
Rental (three year lease terms with one extension allowed)
Developers
Central Government Ministries (Ministry of Public Works and Housing)
Incentives / subsidies offered Full (100%) subsidy for construction cost of the project and limited
by central government
administration and project management costs.
Subsidies offered by local
government
Contribution of land, obligation to pay operating decits and any capital

needs not covered by net rental income.
Rents
30% of the Provincial Minimum Wage (UMP), with rents not to exceed
prorated share of operating costs.
Affordability
Not calculated on an actual household basis, so households could pay

a very high or low percentage of their income for rent.
57 Includes housing unit construction, administration and supervision, but not land or other costs borne by the local
government.
58 Per unit imputed from budget figures provided by MoH, assuming 300 units per twin block
59 Includes housing unit construction, trunk infrastructure provision, administration and supervision, but not land or other
costs borne by the local government.
60 Per unit imputed from budget figures provided by MoH, assuming 300 units per twin block
120
1. Revitalize Perumnas Role as Master Developer in Public Housing
Production
A core recommendation of the Roadmap is to revitalize and renew the mandate of Perumnas to
act as the Government of Indonesias master developer for public housing production. GoI would
provide Perumnas with the mandate to lead bulk housing development on newly released land.
As outlined in Policy Action 6, GoI will develop a land inventory and utilization program to identify
and mobilize under-utilized or vacant public land assets. Land to be released or assembled under
this program is currently under the oversight of SOEs, LGs, BPN (abandoned land), waqaf, and
various line ministries. At a strategic level, Perumnas experience in land acquisition, aggregation,
development and management should be leveraged by the land assembly entity responsible for
executing the program.
In conjunction, Perumnas would be revitalized to act as a publicly-owned private institution
that serves as the lead developer, developer joint-venture partner, or lessee of land under the
strategically released land portfolio.
In this role, Perumnas will be able to support local governments with the delivery of housing
for sale, long-term leasehold options, as well as for rental (whereby local governments act as
landlord), with features similar to Turkeys TOKI or Moroccos Al Omrane initiatives. High performing
local governments could utilize Perumnas as co-developers, whereas Perumnas could take a
lead on development partnerships with lower capacity local governments, which will in turn gain
knowledge through project experience.
Specic activities of Perumnas may include taking a lead on site master-plans for projects,
incorporating principles of mixed-use and mixed-income zoning for sustainable settlement
planning, structuring development plans and nancing strategies, facilitating release of land to
private sector developers (structuring the RFQ and RFP processes and taking on non-commercial
risk), coordinating potential development guarantees, trunk infrastructure delivery, arranging sales
agreements or off-plan escrows and acting as landlords for lease-to-own housing.
For this strategy to be successful, a business plan will need to be developed for revitalizing the
role of Perumnas, clearly dening the needs for institutional strengthening, structuring of the
legal and nancial relationships with central and local government entities, and the framework for
engagement of private sector.
2. Introduce Starter Core Units as a Housing Solution

On central or well-connected peripheral areas, as well as select inner-city sites that require
densication, incrementally expandable core units or row housing could be a viable solution. The
Roadmap recommends developing and introducing a program for subsidized basic core starter
units or row houses that are incrementally expandable and target lower-income and vulnerable
households. These units can be delivered alone or in combination with other forms of public
or market-rate housing to promote a mix of uses, incomes and housing typologies. Housing in
new settlements can also be combined with space for non-residential uses for local employment
generation (e.g. non-hazardous manufacturing and commercial).
Incrementally expandable starter core units enable affordable and decent housing careers with
two key advantages:
| Annexes
121
1. Moving vulnerable and poor households quickly out of unacceptable housing conditions and
into basic starter cores, thereby achieving public health and humanitarian objectives quickly.
2. Supporting a swadaya platform for improvement and expansion towards continued home
improvement.
This platform may have characteristics of self-help, but it should not be confused with selfconstruction per se. In urban areas, many households may prefer to hire labor, rather than selfconstruct. Here, self-help implies self-management and self-determined decision making while
the sourcing of construction services constitutes an opportunity for crowding-in of private sector
construction.
There are two main types of projects that could be prepared:
Short-term small-scale projects: Primarily on centrally-located and smaller sites, where core
units or row housing is used for densication, redevelopment and inll development
Large-scale settlements: Comprehensive human settlement development (likely on peripheral
land), which requires land assembly, trunk infrastructure, and housing delivery. These projects can
integrate planning for non-residential areas and different typologies of housing to promote mixeduse and mixed-income neighborhoods.
New settlements may be developed according to a comprehensive approach similar to Tridaya
(i.e. the balance of housing, social and economic development) that was implemented in the
1990s with support of BTNs Triguna Credit scheme.
Starter core units for the lowest income groups might include the following characteristics:
i.
Dwelling Unit. Minimum-size unit (e.g. 10 square meters only, using kampung units as a
benchmark for the start that can then be expanded and improved). The core unit is ready to
move in with basic nishings (possibly no plaster, paint, tiles). Various typologies are possible,
including landed row housing or landed maisonette shells on narrow and deep individual lots,
as well as stacked core units to allow for multi-family housing in denser areas.
ii. Site Selection. Units should be built at accessible locations, with good connections to
employment and social services such as schools and health facilities.
iii. Infrastructure. Shared water and sanitation (to improve affordability, reduce project
management costs, and reduce demand from higher-income households); individual electricity
connections to boost the productivity of home-based businesses; basic street surfacing and
storm water drainage (e.g. compacted subgrade that can later be upgraded with paving,
natural storm water run off due to inclination that can later be upgraded with covered drains.)
iv. Land use. Efcient land use with small alleys, maximizing the number of units with groundoor access for commercial opportunities, waiving of minimum plot sizes and all minimum
parking requirements.
v. Collective tenure. Support collective construction, management and nance with collective
tenure options. This can also help to control entries and exits to reduce gentrication and
improve subsidy control.
vi. Finance. A homeowners association collectively possessing land and housing would allow
using member certicates as collateral. Incremental home expansion or improvement can
be supported by community funds or through the development of the housing micronance
sector.
122
vii. Eligibility/Targeting. The program can target households living in slum areas that are relocated
or redeveloped, as well as the bottom 40% of families living in substandard conditions, as
identied by TNP2K. Self-targeting can also be employed, as most characteristics of the
program will be unattractive to middle-income households.
viii. Delivery. Local governments take a lead in identifying and preparing projects. In the short
term, Perumnas or another private developer can support the development of core housing
projects, particularly on large sites. However, local government can also enlist small-scale
contractors to stimulate the local construction sector or transfer subsidy to higher-capacity
communities so that they can self-manage construction. Technical assistance for project
development will need to be provided at the local government and community level.
ix. Complementary actors. Linkages with CSR, PSO, community organizations and similar
groups may help to speed up the incremental process through additional nancial resources
and/or technical assistance.
The following table illustrates some examples of targets that could be developed over the next 5
years.
Table 15. Example of Delivery Targets for a Core Starter Home Program
Phase
Cities
Year 1-2
Year 3
Year 4
Year 5
15
10,000 units
50,000 units
150,000 units
300,000 units
+25
10,000 units
50,000 units
150,000 units
+50
20,000 units
100,000 units
+100
50,000 units
Total
+190
10,000 units
60,000 units
220,000 units
600,000 units
3. Reformulate Public Sector Support to Multi-Family Rental Housing

The Rusunawa program for public rental housing can be reengineered to increase production
levels and to improve the quality and sustainability of the apartments produces while continuing to
serve low-income populations. The new Rusunawa program (Rusunawa 2.0) should be developed
to increase the level of local government control to align with decentralization goals.
The current Rusunawa program is implemented primarily by the central government, via the
Ministry of Public Works and Housing, who provide deep capital subsidies and act as a developer,
procuring contractors for both construction and monitoring.
Local governments are expected to provide land and in some cases infrastructure for these projects.
Once the projects are complete they are turned over to local governments for ownership and
operation. However, local governments can be reluctant to participate due to: a) land availability;
b) management responsibility, c) operating decit obligations and d) capital improvement needs.
The reformulated public rental housing program will seek to address these shortcomings, with the
Rusunawa 2.0 program taking on the following characteristics:
Rusunawa 2.0 Beneciaries and Affordability. The new Rusunawa program would provide
subsidies to projects where all or a portion of the units will house qualifying beneciaries. Capital
funding will be made available to build units for target populations who have been displaced by
redevelopment activity in the local jurisdiction as a rst order priority. Other Rusunawa residents
may include newly formed households in the jurisdiction or those relocated from other areas.
| Annexes
123
Maximum allowable beneciary income should be set annually and each household should be
provided with a set-term multi-year lease (e.g. 3 years) with options to extend, to provide a certain
level of security. The program could use local minimum wages to correspond to the lesser of local
minimum wage or to households that rank in the lower 4 deciles nationally and adjust rent levels
based on income. In addition, renters could receive greater access to other government supports
(insurance, savings schemes, and services), which would build their household capacity to save
for an ultimate move to ownership housing.
Roles and Capacity Building under Rusunawa 2.0. Authorities, responsibilities and resources
will be pushed to the local level of government where there is existing capacity, allowing the central
government to focus on policy and strategy. Where local capacity is limited, nancial and training
resources will be made available to increase the ability of local governments to participate in the
provision of rental housing. Interim delivery methods will be established in the short and mediumterm, calling upon the capacity of Perumnas to ll in the gaps. Roles under Rusunawa 2.0 include:
1. Central Government can be charged with sizing production goals, budget allocation,
planning and implementation support, as well as monitoring and evaluation.
2. Provincial Government takes on the role of advisory and consultation on policy and program
development, support to local governments, as well as collecting the inputs for monitoring
and evaluation.
3. Local Government, depending on capacity, will propose projects, accept funding from
MPWH and act as developer and owner or may prepare joint venture partnerships with
Perumnas or a private developer of their choosing, which also meets MPWH approval. Local
governments who are deemed to have insufcient capacity can also nominate projects for
funding by MPWH for development and ownership led by Perumnas. These governments will
also be the recipients of capacity building funds from MPWH, and may be directly supported
by a real estate development specialist within the local government.
4. Perumnas. The State Owned Enterprise (SOE) Perumnas will act as lead developer for
Rusunawa projects for low capacity local governments and will also be a potential (but not
mandatory) partner to capable local governments. Perumnas will bring to these partnerships
considerable structuring, design, construction and management capacity.
Allocation and types of funding under Rusunawa 2.0. The new version of Rusunawa will
recognize the real challenges of building long-term quality housing for low-income segments.
By providing a more comprehensive suite of funding types, the program will seek to attract the
participation of local governments (and SOE and private developers) who are currently hesitant
to participate because of the considerable long-term nancial burden that they assume. Types of
funding may include:
1. Administration. Funds to support central and local government administration of the
program.
2. Capacity Building. Funds to build competencies of central and local government where they
are lacking and support local facilitators and program consultants.
3. Capital. Funds for the construction of the housing units and necessary infrastructure.
4. Operating. Funds to offset the difference between tenant rent payment capacity and the
costs of operating maintenance and replacement.
Allocations will be made according to MPWH-decided parameters and will favor growing markets
with demonstrated need.
124
To boost immediate production levels, qualifying local governments and their development
partners, including Perumnas, should be able to make applications to the MPWH on a rstcome, rst-served basis for funding of all types (Administrative, Capacity Building, Capital and
Operating). Later, a transparent and competitive system for funding allocation may be developed.
Low capacity local governments may nominate projects in their jurisdiction and receive funding
directly for capacity building, while Capital and Operating Funding would ow through Perumnas
for those projects.
Table 16. Summary of the Redesign of the Public Rental Housing Program
Rusunawa 1.0
(Current State)
Rusunawa 2.0
(Short Term)
Rusunawa 3.0
(Longer Term)
Developers
Central government
(MoH, MoPW)
Qualifying (high-capacity) local

governments, potentially in
partnership in with SOE & private
sector developers
Perumnas on behalf of nonqualifying local governments
Qualifying local governments,

Perumnas and private sector
developers
Owners
Local governments

developers

developers
Administrative
funds
To MoH, MoPW
To MoPW/PH, and to qualifying

local governments
To MoPW/PH, and to qualifying local

governments
Capacity
building funds
To MoH
To central government ministry,

and non-qualifying local
governments
To central government ministry, and

non-qualifying local governments
Capital
subsidies
To MoH and MoPW for

construction
To qualifying local governments

via MoPW/PH through a
transparent rst-come, rst
served fund allocation process
To qualifying local governments,

SOEs and private sector via central
government ministry through a
transparent and competitive fund
allocation process
Operating
subsidies
From local
governments to
project
From central government to

local government according to
project need
From central government to local

government, SOE and private sector
according to project need
Long-term
stewardship
Little focus and no

funding
Focus on property and asset

management. Require operating
budget and capital improvement
projections before funding
Focus on property and asset

management. Require operating
budget and capital improvement
projections before funding
Eligible
residents
General population,
those relocated for
slum upgrading. Up
to Rp. 2.5 m monthly
income, but not to
exceed UMP.
Those relocated for slum

upgrading, and general
population. Incomes up to Rp.
1.7m mo., (corresponding to
D3 and rst three categories of
MBR).
Those relocated for slum upgrading,

and general population. Incomes
up to Rp. 1.7m mo., (corresponding
to D3 and rst three categories of
MBR).
Rents
30% of UMP
30% of UMK maximum
30% of actual family income, with

lower income targeting favored
in competitive funding allocation
system
Rent increases
Rent increases are

sometime prohibited
by old voucher system
and / or not enacted
due to political
pressure
Rent increase would be

automatic, explicit in the lease
agreement between owner and
tenant
Rent increase would be automatic,

explicit in the lease agreement
between owner and tenant
| Annexes
125
4. Require and Support Good Asset and Property Management Practices

Housing production programs in Indonesia place little attention on the long-term stewardship
of the units produced. The current Rusunawa program turns units over to ownership to local
governments with limited analysis of the ongoing operating budget (surplus or decit).
In the interest of protecting the public investment and ensuring that housing is of a decent quality,
steps can be taken to ensure that all properties developed with public resources are well-managed
and that the physical structures serve the longest possible useful life.
This is particularly important in a multi-family conguration where systems are more complex,
investment levels are higher, repairs must be made by professionals and failures impact more
people. This discipline is necessary when developing ownership as well as rental tenure housing.
For example, if low-income buyers stretch their family budgets to afford mortgages, they may not
collectively have the resources or discipline to save for necessary capital improvements.
Moving forward, local governments and property developers receiving government support
should be supported to develop a property stewardship plan, particularly in the case of Rusunawa
housing. This plan should include:
Stafng plan
Role of private sector contractors
Operating budget and multi-year projections
Capital needs projections and reserve analysis
Market / targeting plan to include measures such as: population to be served, rent-setting and
ination, tenant selection.
Government should also explore setting requirements and SOPs that relate to construction
standards (materials, design and spatial planning), as well as operating standards (management
protocols, tenant selection, annual budgeting and multi-year projections, etc.) and capital needs
standards (multi-year projections and reserve sizing).
The property management standards and procedures that are developed will need to be socialized
with local governments during project initiation and then monitored and reported systematically
in order to allow local governments to qualify for additional project funding where performance is
high, or additional support, where the performance is lagging.
5. Incentivize Private Developers to Build Affordable Housing

The GoI currently extends a series of tax incentives under the Rusunami program including transfer
tax reductions from 5% to 1% to developers and VAT tax forgiveness to buyers as a means to
promote affordable housing production and home ownership.
First, phase out Rusunami tax incentives, which are not sufciently robust to drive production,
are not sized to actual household need and are difcult to monitor. Under this Roadmap, existing
Rusunami transfer tax and VAT incentives would be replaced with the mortgage-linked, downpayment assistance mechanisms discussed previously in this section. These offer greater
population and geographic targeting potential and the ability to size subsidies according to
household need rather than price point. They will also offer greater simplicity and direct reporting
which will increase quality of management and real-time understanding of the production levels
supported.
126
Second, strengthen the enforcement of inclusionary development requirements in strong

markets. Current law requires that new ownership housing developments include some units
geared toward lower income target groups, in the 3:2:1 model61. If enforced consistently, these
requirements have the potential to be a major driver of affordable housing production as well as
social and economic integration. Specic methods or modes of enforcement can be developed by
the MPWH or Pokja PKP and shared with cities, such as additional nes or penalties, cancellation
or non-renewal of construction permits, or additional incentives, such as developer preferences as
partners for development of public land assets and in public housing projects.
Third, enhance the mandate and support the institutional strengthening of Perumnas to
act as lead developer for mass housing production across all typologies and tenures. Land made
available to Perumnas through the under-utilized public land mobilization program can also be
made available to private developers for low-cost housing production targeted at the lower-middle
class (e.g. deciles 5 to 6), in addition to the supply of core/row housing and multi-family units
targeted at lower-income groups. This activity will help to support the nancial viability of the
program as well as to promote mixed-income communities and development of the private real
estate sector, as has been the case with TOKI in Turkey and Al Omrane in Morocco.
6. Increase Housing Production by Supporting Developers Access to Debt

Indonesian developers currently rely heavily on their own equity and that of investors to nance
land acquisition and construction of housing units for ownership housing. In the very limited market
of professionally-owned and managed rental housing, there appears to be no commercial lending
whatsoever. This has been reported by developers as a major barrier to their ability to increase
production levels. In addition, this equity-rich capital structure limits the ability of developers to
share risk, requires them to demand higher returns and constrains their ability to produce units.
As a result, their products tend to migrate up-market to serve higher income buyers and renters.
The Roadmap suggests exploring government support toward improving the availability of
construction nance in the interest of stimulating affordable housing supply. Such a program could
also add a special focus on building a commercial lending market for permanent rental housing.
This initiative could aim to address the primary concerns of lenders, which include payment
capacity, occupancy and market risk, and their own capitalization requirements.
An example of a potential rental transaction is:
Utilize underwriting expertise of existing commercial lenders, translating their experience in
ofce and hotel underwriting, with special training.
Comprise less than 10% of new housing development (maximum of 65,000 units), in the rst
year62.
Require participation of developer / owners, not turn-key developers.
Include developer/owner equity of 25%-35%.
Offer tenors of 15 20 years.
Working with BTN and other willing and experienced commercial lenders, the government could
carry out the design and assess the feasibility of different approaches to extend market-rate
construction nance. There are many international precedents of the different mechanisms that
61 The 1:2:3 rule is a cross-subsidy scheme that requires developers to allocate a percentage of the number of units (or
a certain portion of the total land being developed) for middle and low-income housing.
62 BTNs own assessment of the potential for rental housing to satisfy new housing demand.
| Annexes
127
could be considered for Indonesia. These include partial guarantees of loans or tenant payment
streams, loan participations, interest rate buy-downs and liquidity mechanisms. A review of these
options will be the rst step; followed by detailed design of the chosen model and a limited roll-out.
Implementation Plan
Immediate Term (0-12 months)
Core Unit/Row Housing Program:
Select a sample of ten to fteen primary and secondary cities based on capacity, geography,
need, etc.
Convene key stakeholders from central, provincial and local government, as well as relevant
private sector, nancial sector and civic leaders, for participatory design of delivery systems
and program parameters, aligned with capacity building on incremental housing design, etc.
Identify suitable locations and conduct community need assessments and action plans through
a simplied approach (e.g. participatory rapid appraisals).
Reformulate the Rusunawa Program:
Establish systems to qualify high-capacity local governments.
Designate Perumnas as developer for low-capacity local governments.
Gather information and determine actual total development costs and operating expenditures
based on experience from existing projects in order to create realistic budget for future.
Develop training and resource manuals for capacity building of central and local governments
for program delivery.
Increase private sector affordable housing production:
Announce end of the Rusunami tax incentives and set the deadline for nal project certication.
Strengthen the implementation of inclusionary development requirements by establishing
regulatory frameworks that enable local governments to enforce Law No. 20/2011 and
promote tested methods and models.
Consider international experience with support to developer nance, against Indonesian
realities, to determine the appropriate structure/mechanisms.
Short Term (1-2 years)

Implement at least 15 projects of 200 to 1,000 units each to test ideas.
Discuss and revise the program approach based on peer learning in order to rene policies and
to create an enabling environment for scale-up and replication.
Exchange ndings and conclusions with other cities based on peer learning.
Increase public rental production levels by establishing rst-come, rst-served allocation
system.
Expand types of funding available to local governments, including ongoing capacity building
and operating subsidies in addition to capital subsidies.
128
Include property and asset management requirements in funding allocation threshold criteria.
Reset tenant eligibility and rent methodologies.
Track TDC, operating, replacement and production under the new program.
Establish tax benet phase out in sync with the launch of the mortgage-linked down-payment
assistance program.
Share inclusionary zoning systems with local governments and monitor and enforce
implementation.
Detailed design of a limited program to test support to construction nance and/or other
private sector incentives.
Medium Term (3-5 years)

Replicate the program in other cities, based on best lessons and local adaptation.
Scale number and size of projects in participating cities. Address capacity and resource
constraints through improved delivery system, serviced land supply, nancial markets, etc.
Diversify the housing mix in larger projects to avoid socio-economically segregated settlements,
develop a larger variety of starter cores and other public and market-based housing units
and other land uses (e.g. commercial and manufacturing for livelihood development and
industrialization).
Shift to a competitive allocation system.
Consider expanding participation and roles of private developers.
Scale up program to support access to developer nance or other private sector incentives to
stimulate affordable housing production.
Annex 4.6 Mortgage Markets

Mortgage Sector Background
The mortgage market, although growing, remains shallow63. Mortgage lending, despite its fast
growth, is still moderately developed in Indonesia relative to the countrys overall wealth: IDR 325
Trillion in June 2014, or slightly over 3% of GDP and about 9.5% of total bank credit. The supply is
relatively concentrated - the three main nancial players have consolidated market share of about
70%, although housing loans are offered by all major commercial banks. There is little product
diversity. Almost all (non-state assisted) loans have a tenor of between 10 and 15 years and carry
a oating interest rate indexed to Bank Indonesia (BI)s policy rate currently around 12%. Fixed
rates are only offered in some cases for a short initial period before switching to oating rates.
Sharia-compliant housing nance is widely available in Indonesia.
63 In-depth analyses were conducted in 2013 and 2014 by the World Bank .
| Annexes
129
Mortgages are estimated to only cater to the top two deciles of the income distribution, yet the
government aims to deepen it. Housing nance should become available for the missing middle
of underserved, yet bankable households, i.e. those with income placing them in Deciles 4-8.
A continuum will thus develop in the access to decent housing from lower-income groups for
whom alternative measures to mainstream housing nance must be offered, to the higher-income
households whom the market already serves.
Obstacles to the deepening of the mortgage market lie rst on the demand side. These are:
The low degree of nancial inclusion. Only 19.6% of the population aged 15 and over have
access to a bank account. Branchless banking, a very important access factor given the
geographical structure of the country, is in its infancy. Although, a legal and prudential
framework is underway to support its development.
The level of housing prices in urban areas, which varies depending on location, has been
experiencing a stark increase in the recent few years, especially for small housing units, thus
limiting effective demand.
The large share of the population active in the informal sector of the economy estimated at
60% of employment64. There is a lack of experience to assess actual incomes and credit-risk
of households that source their income from informal sources, meaning that banks typically
abstain from lending to this category.
Obstacles also exist in the supply of affordable housing nance. These include:
The incomplete geographic coverage of the land registration system, which limits the availability
of mortgageable titles.
A lack of long term funding. The Indonesian banking sector has traditionally a high Loan-toDeposit ratio (more than 90% in September 2014 overall, and 108% in the case of BTN).
However, the capital market remains a very marginal source of funding, BTN being the main
user of this channel65. Liquidity is therefore a systemic concern (and a major objective of macroprudential regulations) that, in many cases, constrains the development of long-term lending.
The structure and strategies of the banking system. Public sector banks tend to concentrate
where they historically have a competitive advantage, and are not necessarily keen to develop
their activity in the low and middle market segments that are BTNs area of specialization.
Regional Development Banks (RDBs) could be more active in these segments, but their lending
activity is limited. In the private sector, intermediation margins are high, and the extension of
smaller loans that involve customized risk assessment processes is handicapped by lower
protability. The same protability considerations are probably behind the limited mobilization
of long-term resources from the capital market. This is currently the case, with a very steep
yield curve of government bonds (SDN) from 0 to 5 years;66 this makes such resources
comparatively expensive (see Figure 12). Note that, conversely, banks hold one third of the
SDN outstanding.
64 70% if irregular workforce in the formal sector is included. Source: International Labor Office 2013 Women and Men
in the Informal Economy : a Statistical Picture
65 IDR 54 trillion in the consolidated liabilities of commercial banks at the end of 2013 , compared to 3,800 trillion deposits.
BTNs capital market debt is estimated to amount to about 13 trillion at the end of 2013 (without securitization).
66 A less unfavorable yield curve should result of the decline of inflation expectations that the deceleration of the price
increase should eventually trigger.
130
Figure 12. SDN yield curve November 12, 2014

INDONESIA GOVERNMENT BON DS YIELD CURVE
12-Nov-14
IPBA Yield Curve
9.50
9.00
Yield (%)
8.50
8.00
Last Month
7.50
Last Week
7.00
6.50
Yesterday
Today
6.00
5.50
5.00
05
10
15
20
25
30
Maturity (Year)
Source: Indonesia Pricing Agency.
The government has developed a series of programs and institutions to overcome these
obstacles. These include:
1. To provide, or help raise, long-term funding for mortgage lending, a state-owned intermediary,
PT Sarana Multigryia Finansial (SMF), was created. Its mandate is (i) to issue bonds and pass
on the proceeds to lending institutions, and (ii) to help arrange securitization transactions. Its
interventions target loans of a maximum amount of IDR 500 million, i.e. the upper end of the
mid-market. SMF enjoys high, although not top, grades from rating agencies (AA from Fitch,
AA+ from PEFINDO). It has provided renance loans for an outstanding amount of IDR 6.2
trillion at the end of 2013, and arranged 6 securitization transactions for BTN totaling IDR 4
trillion, in which it also provided some credit enhancement.
2. Various subsidy schemes have been developed over time. In particular, interest rate subsidies
based on BI funding in the seventies and, from 2005 to 2010, a direct demand support
program in which two options were offered by the government: a down-payment subsidy, or a
buy-down subsidy, which assumed part of the interest payments. This program was replaced
at the end of 2010 by a new scheme, FLPP, managed by Ministry of Housing through a semiautonomous BLU structure. The FLPP scheme pursues two objectives: subsidizing interest
rates for individual borrowers and provision of long-term funding to lenders. The recycling
of capital repaid by the lenders is supposed to warrant the durability of the mechanism; this
revolving principle is a major part of the rationale to house the scheme in the BLU structure. In
addition, FLPP was designed to bring xed rate loans into the mortgage system, an important
feature in the case of low-income borrowers whose earnings are insufcient to cushion interest
rate hikes.
3. FLPP supports nancial institutions by lending them funds at deeply concessional terms (up
to 20 years, 0.5% interest rate). These loans contribute to 75% of the mortgage amount
| Annexes
131
extended by lenders, who are responsible for funding the remaining 25%. Mortgages must
have a xed interest rate of 7.25% p.a., and benet households who meet specic eligibility
criteria. These criteria are mostly about income and price limits. Currently, household income is
not suppose to exceed IDR 4 million per month or IDR 7 million per month, for landed houses
and apartments respectively. Home prices are capped at IDR 115-130 million for landed
houses and 250-300 million for apartments, depending on the geographic area67. These limits
have been raised several times since FLPPs inception. From the last quarter of 2010 until the
end of 2014, FLPP will have helped nance about 340,000 new units for a cumulative nancing
volume of IDR 15 trillion.
4. To mitigate the increased credit risk of low-income borrowers, FLPP-supported mortgages
are guaranteed by the state-owned insurance company, ASKRINDO. This credit enhancement
is provided at extremely favorable terms. The guarantee now covers 100% of loan balances,
claims are payable as soon as loans are in default68, and the insurance premium, which includes
life and property insurance beside credit default, has been reduced to a very low 0.24% p.a.
Diagnostics of Government Strategy

The impact of government interventions has been generally below expectations. This section
evaluates the role and performance of SMF, FLPP, and mortgage guarantors.
Analysis of SMF. SMF is a well-run institution that charges a reasonable margin (0.5%). It has
helped to jumpstart a previously non-existent mortgage secondary market. It has been conducting
commendable efforts to diversify the partnering primary lenders, with some success. SMF has
now renancing arrangements with 13 institutions, including 3 Regional Development Banks and
Multi-nance companies, although BTN remains by far SMFs main customer. SMF diversied its
product offering, including Sharia-compliant renancing loans and short-term liquidity support. It
is also providing technical assistance to new, or small, lenders, and training on securitization both
to lenders and investors.
Nevertheless, SMF has not had as much impact on primary lending as was envisaged at
its creation. Its support represents hardly more than 2% of the mortgage market (3.5% with
securitization deals), and consequently, the institution appears relatively overcapitalized, with a
debt-to-equity ratio, of 1.769. Moreover, the term of funds it channels to the mortgage system has
become increasingly short lately it has been limited to only one year maturity70.
One clear factor behind SMFs limited success is the cost of the resources channeled through
it. In addition to the yield differential between capital market and deposits, SMF is handicapped
by the spread of its bonds over Treasury bonds: 200 to 250 basis points, or a higher spread
that BTNs bond issuances enjoy. These conditions are not in line with the strong security
prole of the company, which comes from multiple factors: (i) state ownership; (ii) the low risk
of lending to nancial institutions; (iii) the pledging of mortgage portfolios it renances, with an
overcollateralization requirement; and (iv) the soundness criteria required from the loans included
67 Excluding outlying real estate sub-markets where prices are specially high
68 More than 4 month arrears.
69 The credit enhancement provided in securitization transactions (limited guarantee of interest and expenses payments)
must be taken into account in the assessment of the capital need, but the scope of this contingent liability is likely very
small.
70 SMF accordingly launched a Medium Term Note program (370 days to 5 years) instead of full-fledged bonds.
132
in these portfolios. In contrast to similar mortgage renancing facilities elsewhere, SMF bonds do
not receive any favorable treatment in investors portfolios, be it institutional investors or banks
that would be consistent with the degree of security its debt offers.
There is untapped potential for attracting funds from institutional investors. This component of
the nancial system is relatively small in Indonesia about 10% of GDP71, although interest is
growing, especially in the case of insurance companies, 44% of the latter being life insurers, which
are natural long-term investors. According to BI72, the aggregated volume of assets managed by
the insurance industry, pension funds (including 40% attributable to Jamsostek) and xed-income
mutual funds exceeds IDR 800 trillion. Banks that are not large housing lenders are also a potential
source of funds to target.
Analysis of FLPP. FLPP has been supporting 68,000 units on average per year since 2010, i.e.
the same volume as the previous subsidy scheme. It has fallen well short of the planned objective
of nancing 1,350,000 units in 5 years, or 270,000 annually on average.
The under-achievement of the FLPP scheme has several causes: (i) ination of housing prices, and
the unavoidable lag of the scheme to adjust to these. The same dynamic probably explains, at
least in part, the upward shift of the actual beneciaries towards more afuent targets than initially
planned; (ii) irregular and under-calibrated73 public allocations, which declined sharply in 2013
and 2014; and (iii) low leveraging of private resources, the volume of credit mobilized beside the
government allocation amounts to 25% of loans nanced by the lenders.
Overall, very few institutions are participating in the scheme, although 22 have entered into an
agreement to do so, half of which are RDBs with limited mortgage lending activity. BTN, and its
Sharia subsidiary, have extended 95% of the FLPP-supported loans. The participation of private
commercial banks is negligible. The limited participation of nancial institutions acts as a bottleneck
for extending the reach of the governments assistance. BTNs network only represents 1.5% of
the 19,000 commercial bank outlets in the country. Its partnership with the Post Ofce (over 3,000
outlets) will give a boost to its geographic coverage once the role of the local post ofces in the
origination of mortgages is well established. However there is further potential for widening the
distribution network for subsidized mortgages.
One achievement of the scheme has been on the credit risk front. The delinquency level is far
below the previous subsidy program, with NPL rates in BTNs portfolio of 1.45% and 10.34%
respectively (June 2014). As stressed by BTN, the xed rate feature of the subsidized mortgage
loans was instrumental in keeping NPLs low. However, a more in-depth analysis would be useful.
First, ASKRINDO reports a 25% rate of claims on its portfolio, which gives a very different picture
even if most of the claims are motivated by risks other than the credit risk. Second, it would be
necessary to factor in the age of the two types of portfolios, as well as the upwards shift of the
actual incomes of households beneting from FLPP, as currently only base incomes are reported.
This shift in the household targeting requires some further analysis in itself. It is likely to be linked
to the appreciation of prices and the dearth of affordable housing supply, but other factors have
probably also played a role, such as the fact that income ceilings are applied to individual borrowers
71 IMF / World Bank 2010 FSAP.
72 Financial Stability Report, March 2014.
73 The initial appropriations implied an allocation of IDR 13 to 16 million per unit, whereas the actual consumption of
finance has actually been above 40 million.
| Annexes
133
base rate, and not to household incomes, or inclusion of employment benets. The largest gap in
the coverage of the scheme remains however the exclusion of informal sector households. This
category is basically unserved despite its large share among lower income groups74.
Analysis of ASKRINDO. FLPP-supported loans must be guaranteed by Askrindo. The company
therefore accepts all loans, without adding any soundness criteria to their eligibility for coverage.
Furthermore, it seems that there is little check of the validity of claims, the vast majority of which
are accepted. This is a matter of concern, since the credit risk is now entirely transferred to the
government. As such, the existing design of the guarantee mechanism is conducive to moral
hazard and promotes lenders to relax risk management practices instead of strengthening them.
If these risks were to materialize, it would jeopardize for a long time the trend towards a more
inclusive mortgage market.
The cost of government interventions is fairly high, although mostly implicit.

On the liquidity front, SMF has been endowed with a signicant amount of capital by the State
(IDR 2 trillion, susceptible to be increased to IDR 4 trillion75). But beyond this explicit support, state
control implies that the institution enjoys a quasi-government guarantee for its bond issues. This
is a contingent liability that is purely nominal today, but could eventually lead to actual nancial
support in stressed situations, as seen in other markets with government-backed renancing
institutions starting with the giant Fannie Mae and Freddie Mac in the US, but also in Mexico
with Sociedad Hipotecaria Federal.
Besides receiving 58% of the government budget allocated to housing76, FLPP includes a large
subsidy element resulting from the difference between the government cost of funds and the rate
of return of this particular investment. At current market conditions, the rate of subsidy embedded
in 20 year loans to primary lenders, i.e. the net present value of this difference over time, is around
55%, or about 24 million per unit on average since 2010 (30 million in 2014). Taken into account
the 25% of mortgage loans nanced by banks, the portion of subsidy in a FLPP mortgage is
between 40% and 45% (see Box 1). This is an economic evaluation, which does not appear in the
State budget. Note that the absence of a clear assessment measure is not conducive to optimize
the cost/ benets balance of the scheme.
Moreover, it is unlikely that FLPP can achieve steady state equilibrium. Because of the long
maturity of its loans, the cumulative amounts of capital repayments will only slowly reconstitute
the initial endowments, and the value of the recycled amounts will be eroded by price increases
in the meantime. This means that the government will have to continue to allocate funds to FLPP,
as it does for explicit subsidies.
In the case of the guarantee, the premium charged is clearly below the level that would
warrantee stand-alone sustainability of the scheme. ASKRINDO is periodically re-capitalized
by the government, and although this has not been the case specically for the subsidized
housing programs, future capital injections are likely. This is a signicant contingent liability of the
government that should be monitored.
74 BTN does lend to independent workers, provided however that they their activity is recorded in formal accounts
75 SMF total equity is IDR 2.8 Trillion
76 Affordable Housing Finance Policies in Indonesia Bappenas, presentation at the World Bank global Housing Finance
Conference May 2014
134
Overall, the total cost of explicit support, implicit subsidies and contingent liabilities incurred by the
government for encouraging the provision of housing nance is fairly high but is not reected in its
budget for the most part. The relevance of the policy is not questionable. However, the fact that
the aggregated cost of the governments involvement is not transparent to policy-makers may
distort the rationality of resource allocation, and lead to overlooking inefciencies of the system
if interventions are perceived as cost free. Given the relatively low impact of government efforts,
which despite their magnitude have triggered little response from the banking sector, a deep
structural reform of the components of the government strategy appears necessary.
The Roadmap recommends a strategy that uses four pillars: (i) developing a more efcient and
more inclusive subsidy policy (ii) stimulating the market-based provision of long term funding;
(iii) avoiding credit risk slippage and moral hazard phenomena, especially at the expense of the
State; and (iv) increasing the number of lending institutions active in the affordable housing nance
system.
A. Improve the Economic and Social Efciency of Credit-Linked Housing

Subsidies
The subsidy policy is the starting point of a new strategy, since assessing the conditions of its
optimal impact highlights the need to strengthen other government actions and instruments.
Beside interventions on the housing supply chain to make affordable prices more widely available,
the key improvement of the current mechanism is to measure and minimize its economic cost,
multiply its impact by leveraging more resources from the banking system, and expand its reach
to underserved categories. The institutional design, and in particular, the integration of SMF as a
potential liquidity channel, would need to be carefully studied prior to rolling out reforms.
Develop a Down-Payment Subsidy linked to Mortgage Finance

The main recommendation is to transition to a direct demand subsidy system, either with up-front
or buy-down subsidies. If well designed and operationally set-up, this type of subsidy should allow
a much larger outreach than the current FLPP for the same economic cost to the government.
Table 17 shows the cost to the government, both in terms of initial budget outow and Net Present
Value, of the three subsidy types which achieves the same affordability level as the FLPP currently
does, assuming a regular increase of incomes after year 1 in the case of the buy-down subsidy77.
Table 17. Cost of Subsidy Type, as a % of Mortgage Loans
Current FLPP
Down-payment subsidy
Buy-down subsidy paid up-front
(assuming a 5% p.a. income
increase)
Interest rate on
mortgage loans
Initial government
spending
Economic cost
(Net Present Value)
7%
75%
42%
11%
25%
12%
30%
11%
8.5% (6 years)
12%
13.5% (8 years)
77 i.e. An annual mortgage servicing payment of IDR 944 for each IDR 10,000 borrowed (20 year loan).
| Annexes
135
Simulations show that the same economic cost could support between 1.5 to 3 times more
mortgages than the existing instrument, for interest rates prevailing at the end of 2014 in the
mortgage market.
The structuring of a new scheme would require feasibility studies and cautious design, in particular
to draw the lessons from the previous program.
As an example, a possible scenario for structuring of the downpayment assistance could be as
following:
The core of the system could be a new interest buy-down subsidy, coupled with a buffer
against interest rate surges.
An upfront subsidy payment would be made to participating lenders, for instance, at the level
of a down-payment subsidy, with the same affordability impact.
This upfront payment would be divided in two parts: the provision to cover buy-down interest
charges for a certain number of years (8 years for instance), requiring an initial contribution of
13.5%, and an allocation to the interest uctuations buffer for the balance (16.5% of the loan).
The buffer would be drawn down when needed to maintain debt servicing to income ratios
as constant as possible. At the end of the coverage period, possibly longer than the subsidy
period itself, any balance left would be returned by the lender to the government.
Using such an approach, the BLU structure within MPWH would still be useful. If well-designed
and operationally set-up, this type of subsidy should reach a much larger number of beneciaries
than the current FLPP (1.5 to 3 times) for the same economic cost to the government.
Note that a lease-to-own product is not recommended as a solution78. This instrument, which is
often developed to encourage credit discipline when enforcing mortgage rights, is not efcient,
especially for borrowers who do not have, at the onset, any equity to invest in the home they want
to buy. The efciency of the mortgage rights is not a major issue in Indonesia. Moreover, leaseto-own options can be expensive, are particularly sensitive to lack of long term funding (similar to
rental investments), and raise relatively complex legal and tax questions.
78
136
Except in its Islamic Finance version (Ijara), which reflects other objectives.
Box 2. FLPP Economic Cost and Comparison with the Down-Payment / Buy-Down
Subsidy Scheme (2005 2010).
The cost of FLPP to the public results from two factors: (i) ination, which reduces the value of
the cash ows received over time and affects the actual recycling capacity of the revolving fund;
and (ii) the yield - in real terms after ination- of State Bonds (SBN) that is above the return of
their investment in FLPP. The difference between the loan amount allocated to primary lenders
and the Net Present Value (NPV) of the cash ows received by the BLU measures the subsidy
element in the renancing mechanism, which is 55% at currently prevailing conditions.
The rate of subsidization of the mortgage loan derives from the subsidy amount, by taking into
account the share of nancing assumed by the primary lender, i.e. 33% of the FLPP contribution.
The subsidization rate varies as follows in several scenarios:
Ination SBN real rate
3%
5%
7%
0%
19.0%
29.8%
37.9%
1%
24.9%
34.3%
41.4%
2%
30.0%
38.2%
44.5%
3%
34.5%
41.7%
47.1%
Comparison FLPP / 2005-2010 subsidy scheme

Cumulative
realizations
(IDR billion)
Cumulative
number of
units
Realization
per unit
(IDR million)
Subsidy amount
per unit
(IDR million)
FLPP 2010-2014
14,700
338,300
43.5
2479
Direct demand
subsidies 2008-201080
1,112
337,443
3.3
Source: Ministry of Housing

79 80
Reform FLPP by shifting to a Limited Liability Structure and Market-Rate Pricing.

In the short term, reform the mechanics of the liquidity support provided under the FLPP program
to increase the number of nancial sector participants and reduce the overall cost to government,
while maintaining long-term funding for banks and xed-rate mortgages for consumers.
Specic reforms that are recommended include reducing the interest rate subsidy to the lenders
by setting the cost of funds at the long-term government bond rate (currently around 8.5% p.a.).
In addition, consider reducing the bank co-pay requirement and altering the process of funds
disbursement to lenders by conrming borrower and property eligibility and transmitting the funds
prior to loan closing, in order to achieve the goal of widening lender participation and lowering
entry barriers, particularly for smaller nancial institutions and regional banks.
Shift the administration of the liquidity facility to a regulated nancial entity under a limited liability
structure in order to signicantly strengthen program administration and increase control over
loan underwriting and servicing practices. SMF is recommended as a potential candidate for this
role. Finally, improve the reporting requirements to put in place stronger controls for borrower
compliance.
79 55% of refinancing loans.
80 Only the last 3 years are considered to limit the impact of housing price increases on the comparison between the 2
successive mechanisms
| Annexes
137
Only after these corrective actions are adopted to strengthen program efciency, sustainability and
targeting to low-income households, should the government consider increasing scal allocation.
Explore Ways to Provide Housing Loans to Informal Sector Households.

Efforts to expand access to housing nance to lower, yet creditworthy, income groups should
include mechanisms to address the majority of households active in the informal sector. A threepronged strategy is recommended, which includes: (i) building the capacity to assess credit
risk linked to undocumented incomes, including the methodology and information to estimate
their income levels and the share of income available for debt repayment. This could be done,
for example, via regularly conducted surveys and the dissemination of their results; (ii) promote
savings-for-housing products, to enable lenders to check the savings capacity of would-be
borrowers; and (iii) assess the feasibility and conditions of a guarantee product specic to this
category of borrowers.
This strategy should prioritize cooperation with banks active in the micro-nance sector and
selected community-based institutions, possibly some cooperatives, which are already familiar
with the informal economic sector. Pilot projects could be initiated to test the viability of the tools
and practices developed for this purpose.
B. Develop Market Capacity to Provide Adequate Funding and Manage

Financial Risks
Despite (i) the liquidity constraints of the banking system, (ii) the existence of institutional investment
capacities, and (iii) the availability of a well-conceived intermediary entity to bridge both, there is
an enduring deciency to mobilize long-term resources from the bond market. The policy should
primarily focus on correcting this market failure, rather than aiming to offset it through the allocation
of scarce, and irregular, scal resources. A progressive switch to the market as the provider of
critically needed long-term, xed-rate funding will free up public resources in the medium-term for
other usages.
Adjust SMF bond status

It is of utmost importance for SMF to fulll its mandate that its bonds benet from a regulatory
treatment that reects the high degree of security of the company as described above.
Amendments to existing frameworks should include: a relaxation of risk concentration limits in
the case of institutional investors; the lowering of risk weights for capital adequacy purposes in
the case of banks; the eligibility of bonds to the repo operations of Bank Indonesia, and to banks
liquidity ratios, in particular the qualication of liquid assets for the liquid assets-to-core deposits
ratio, a major indicator of nancial stability in Indonesia. Some of these changes may imply putting
SMF under the purview of OJK.
Strengthen assets/ liabilities balance requirements

Indonesian banks do not demonstrate a proactive policy to match long-term loans such as
housing loans with corresponding debt. It must be assessed whether banking regulation should
be strengthened in this respect, in addition to the requirements applied to Loans-to-Deposits
ratios. The OJK prudential regime applicable to banks should be reviewed along with rules or
guidelines to mitigate liquidity risks that constrain the development of affordable housing nance.
138
The introduction of the Basel III regime in Indonesia provides an opportunity for changes, both
for short-term liquidity considerations, with the new Liquidity Coverage Ratio, and for long-term
funding requirements with eventually the new Net Stable Funding Ratio.
Promote market practices that mitigate the risk of oating interest rates for borrowers
Lenders should be encouraged to better mitigate the risks that oating rate mortgages create for
borrowers, which translate into credit risk for the lenders. This can involve, for instance, averaging
short term indexes over several months to smooth out rate uctuations, extending the periodicity
of the resetting of rates to longer time intervals, possibly in parallel to SMF renancing operations,
or lengthening the maturities of loans to a certain extent to avoid, or limit, the increase of monthly
installments. Variable rate loans with these type of features could be eligible to the subsidy program.
C. Reform State Credit Guarantees

The guarantee scheme should ensure that loans it supports are based on sound origination
principles and that adequate recovery actions are taken by lenders before ling claims. This would
limit the governments contingent liability and promote sound and sustainable practices in the
market.
In consultation with lending institutions, OJK could develop a set of standards that would need
to be met for the loans to be eligible to the guarantee, instead of automatically providing the
coverage. The regulator could then consider lowering the risk weight of mortgages complying with
these conditions, which would be a signicant and economically justied incentive for lenders to
develop this type of lending.
Eventually, the revised guarantee facility could become available to a broader range of low-income
borrowers, even for non-subsidized mortgages. This could encourage institutions that are not
participating in FLPP, or another subsidy program, to consider lending to large underserved
market segments, including informal sector households.
It would be important for the soundness of the scheme that the risk being covered by companies
is economically valued. The level of premiums needed to cover expected losses should be known,
even if the beneciaries only pay for part of it. The implicit government subsidy would thus be
measured, as well as the economic capital required to cover stressed situations. Risk modeling
will be needed to conduct these actuarial evaluations.
D. Promote the Diversication of Lenders Active in Low-Income Market

Segments
Provide technical assistance to potential lenders
Serving lower income customers requires adjusting ordinary lending and servicing methodology
and processes. Risk assessment needs to be customized and processes need to be reengineered
to mitigate the higher origination and servicing cost of smaller loans. Recovery practices need to
be revisited to allocate more emphasis on loss mitigation rather than foreclosures, which might
be less appropriate than in the case of wealthier debtors. In addition, special attention must be
granted to consumer education and information.
| Annexes
139
Technical assistance is needed to help potential lenders conduct the necessary adjustments.
SMF, which already has developed technical support programs for new-comers to the market,
could play a pivotal role in this respect by expanding its services to cover this support to lenders.
Scope of the assistance should include setting up operating conditions, dening organizational
adjustments, setting lending and servicing standards and designing procedure manuals. In
addition, setting up staff training programs in these new processes will be critical.
Contribute to lower operational costs and adjustment processes

The entry in a new, and challenging, market segment involves signicant investments by potential
lenders. It may imply creating new sale points in underserved locations or developing low cost
payment technology81, to develop customized procedures, and train staff to apply them adequately.
These developments would not t into the general corporate strategy of some institutions. But in
other cases, the consideration of the investment cost would be the main roadblock. Assistance
for trainings and development of new products and systems could be considered for nancial
institutions that would invest in the low-income market segments. These advisory services could
be provided for a fee, which could be foregone if veriable results can be demonstrated.
In a similar and complementary vein, the government could consider organizing tenders to
stimulate the interest of new participants in the use of these advisory services to test new market
segments, while enlivening competition and encouraging a reduction of the currently very high
intermediation margins in the banking system.
Encourage new business models

New commercial approaches can be explored to provide small mortgages in an economically
viable manner. As an illustration, one approach that has been successfully tested in some
countries (India, Senegal) relies on the design and facilitation of standard development nancing
models to structure tripartite arrangements between a group of home-buyers, a lender and a
developer. Potential demand is aggregated, creditworthiness of the group members is assessed
by the lender, future borrowers are pre-qualied and savings are collected. A wholesale
agreement is established with a developer that develops units to match home-buyers needs,
in terms of characteristics, location and prices. During the construction phase, down-payments
are built up and deposited withthenancial institution, which also facilitates the nancing of the
development.Costs are reduced thanks to this standardized industrialized or group approach,
credit risk is limited for the lender, as is the market risk for the developer, as buyers are brought to
developers by the mortgage lender, not the opposite (quasi pre-sales). MPWH agents in charge of
distributing housing subsidies could play a role as facilitators of such arrangements.
81 A legal and regulatory framework for branchless banking is under way, pilots to test mobile banking systems have
been developed with BIs support.
140
Implementation Plan
Immediate Action (0-12 months)
Design a new direct demand subsidy/ down-payment assistance program.
Prepare the reorientation of FLPP onto market-based long term liquidity scheme.
Align SMFs status vis--vis institutional investors and banks prudential regime with the high
quality of its bonds.
Conduct a consolidated assessment of all implicit subsidies supporting low-income housing
nance.

Fully transition to demand subsidy/down-payment assistance scheme, linked to a marketbased liquidity support model, including the secondary mortgage market entity SMF.
Develop a permanent evaluation system of government interventions to support low-income
housing nance.
Develop market practices that mitigate oating interest rate risks incurred by borrowers.
Assess the feasibility and conditions of expanding access to housing nance for informal sector
households.
Design restructuring of mortgage guarantee products towards risk reduction and not only risk
transfer-instruments.
Develop and pilot approaches for attracting new players into the low-income market segments.

Reform mortgage guarantee schemes, including the introduction of a specic product for
informal sector borrowers.
Expand government support toward diversifying lenders active in providing affordable housing
nance to low-income market segments.
| Annexes
141
5. Overview of Recommended
Policy Actions
Action 1. Develop a Comprehensive Slum Upgrading Program to improve existing slum and squatter
settlements.
1.1
Design the Framework for a National Slum Upgrading Program
Immediate
1.2
Launch Phase 1 of the City-Led Slum Upgrading Program
Short Term
1.3
Scale National Slum Upgrading Programs to all Cities and Areas
Medium Term
Action 2. Reformulate the Approach to Formal Subsidized Housing including different typologies
(core starter units, row houses, vertical housing) and tenure options, (rental, shared-equity,
owner-occupied) to respond to different stages in the housing career.
2.1
Revitalize Perumnas Role as Master Developer in Public Housing Production
Immediate
2.2
Introduce Starter Core Units as a Housing Solution
Immediate
2.3
Reformulate Public Sector Support to Multi-Family Rental Housing
Short Term
2.4
Require and Support Good Asset and Property Management Practices
Medium Term
Action 3. Redesign Support to Home Improvement to expand focus to low-income urban areas and
incorporate construction assistance, titling and crowding in of housing micronance.
3.1
Strengthen the Design and Delivery of the Existing Home Improvement Subsidy
Immediate
3.2
Link Home Improvement Subsidy to Other Public Housing Programs
Short Term
3.3
Enable Home Expansion for the Urban Middle Class
Medium Term
3.4
Support Development of Local Building Industries
Medium Term
3.5
Support Development Of and Crowding in of Housing Micronance Sector
Medium Term
Action 4. Enable the Affordable Formal Housing Market and Increase Private Sector Participation
to make low-cost formal housing and affordable mortgage nance more readily available to
low- and middle-income households.
Part A: Improve the Economic and Social Efciency of Government Support to Deepen the
Mortgage Market
4.1
Develop a Down-Payment Subsidy linked to Mortgage Finance
Immediate
4.2
Reform FLPP by shifting to a Limited Liability Structure and Market-Rate Pricing
Immediate
4.3
Regulatory and Institutional Strengthening of SMF
Short Term
4.4
Reform State Guarantees for Housing Finance
Short Term
4.5
Explore Ways to Provide Housing Loans to Informal Sector Households
Medium Term
4.6
Introduce Complementary Measures to Diversify the Mortgage Market
Medium Term
Part B: Stimulate Private Sector Supply of Low-Cost Affordable Housing
142
4.7
Incentivize Private Developers to Build Affordable Housing
Short Term
4.8
Increase Housing Production by Supporting Developers Access to Debt
Medium Term
Action 5. Build Robust Delivery Systems where capacity building, funding and responsibilities are
transferred from central government to local governments over time. Perumnas and SMF are
assigned as specialized actors to spread the responsibility and cost of implementing housing
policy.
Part A: Strengthening and Empowering Local Governments
5.1
Develop a System for Local Government Accreditation
Immediate
5.2
Build Capacity of Local Governments
Short Term
5.3
Design Programs and Allocate Funding with Performance-Based Rewards
Short Term
Part B: Developing the Building Blocks of Effective Housing Policy

5.4
Establish Minimum Housing Standards that are Flexible to Local Conditions
Immediate
5.5
Invest in a Housing & Settlements Management Information Systems
Immediate
5.6
Build an Effective Housing Affordability and Targeting System
Immediate
5.7
Elevate the role of the Pokja as Lead Housing Reform Coordinating Body
Short Term
5.8
Support the Development of Network of Real Estate Professionals
Medium Term
Action 6. Mobilize Urban Land for Housing and Settlements by focusing initially on
under-utilized public land assets and regularizing informal settlements, then exploring
alternative instruments for making land available.
6.1
Develop a National Land for Housing Program to Assist Low-Cost Housing

Delivery
Immediate
6.2
Regularize Tenure for Investment in Informal Settlements
Short Term
6.3
Strengthen Local Government Regulatory Systems for Land Management
Short Term
6.4
Explore Alternative Strategies to Assemble Urban Land for Housing
Medium Term
| Annexes
143
6. Relevant Case Studies

A. Housing Policy Reform in Morocco
International Case Study of Integrated Housing Policy
In 2002, Morocco faced a housing decit of 1.24 million units with 120,000 new units per year
required to meet the demands of population growth.82 The Ministry of Housing and Urban Planning
called for housing policy reform to increase the annual construction of 170,000 units to meet
demand and reduce the existing decit.
The next year, Morocco launched the comprehensive Villes Sans Bidonvilles program (Cities
without Slums), which involved a coordinated set of policies led by the Ministry of Finance,
Central Bank and Ministry of Human Settlements, and included a national in-situ slum upgrading
program, in combination with the empowerment of a national land and housing developer, Al
Omrane, assertive development of greeneld public land, tax incentives to increase private sector
participation in low-income housing construction and creation of guarantee funds to incite private
banks to offer mortgage products for Moroccans with low or irregular incomes.
This mix of both supply side and demand side interventions, summarized below, has enabled
Morocco to emerge as the most developed housing market in Africa and the Middle East. The
slum population in Morocco has decreased from 8.2 percent of the total population in 2004 to 3.9
percent in 2010, over 2 million affordable housing units have been built since 2000, there has been
a reduction in the housing decit by over 40%, the number of private developers building low-cost
housing has increased from a handful to over 500, and there has been a rise in the mortgage to
GDP ratio to 18 percent in 2014, with over 70 percent of households now qualied to access
housing nance.
Key initiatives on the supply side:

The Cities Without Slums program (or Villes Sans Bidonvilles). This state program for the
period 2004 to 2012 was aimed at improving the living conditions of slum dwellers and offered
three alternative solutions to beneciaries: sale of a social housing unit, a very low cost unit,
or a low-cost serviced land plot. Most households prefer land supply, some teaming up with
other households, and yielding a part of building rights in exchange for the construction of their
homes.
Empowerment of a national land and housing developer, Al Omrane83, which is responsible
for housing PPPs and providing housing at scale by ensuring and supervising land allocation,
overall technical aspects of construction works, nancial follow up of projects, collecting
beneciary contributions, preparing sales contracts, and delivering individual property titles. Al
Omrane also prefunds eligible developers for the costs of land purchase, allowing them to pay
for the land they develop in phases.
A Social Housing Program (Launched in 2000, reformed in 2010). Social housing is dened as
units that sell at a maximum price of Dh 250,000 and have surface areas between 50 m2 to
82 MHU, Habitat et urbanisme 2003 2007, un secteur en mouvement.

83 Al Omrane was created out of the 2003 merger between ANHI, Attacharouk Company and the National Company for
Development and Construction (SNEC).
144
80m2. By law, property developers who agree to build a minimum of 500 social housing units
over 5 years benet from VAT exemption and 50% of the corporate tax. The 2010 law revision
reduced the threshold for tax breaks from 1500 to 500 units (already down from 2500 when
the program rst began) to enable small developers to benet. Homebuyers must occupy the
unit for 4 years before resale.
A Very Low Income Housing Program ( or Logements a Faibles Valeur Immobiliere Totale
(FVIT)). FVIT units are dened as not exceeding a sale price of Dh 140,000 and are aimed at
households earning less than 1.5 times the minimum wage (about Dh 3000 per month).
Upgrading informal settlements. Some neighborhoods are being renovated in situ, often when
a home complies with regulations (size and quality of construction). In this case, housing has
been built without permission or adequate services, but are selected by local authorities for
formalization, particularly the appropriate land titles. Beneciaries contribute nancially to the
program.
Key initiatives on the demand side:

FOGARIM: a guarantee fund launched in 2004 and used to mobilize bank resources to nance
households with irregular and low incomes. FOGARIM offers a guarantee to banks for up
to 70% of the mortgage loan amount, and up to 80% of the loan for the VSB participants.
Loans can be made available up to 100% loan-to-value (80% in the case of VSB), and there
are xed premiums charged of between 0.33% (for LTVs less than 50%) and up to 0.65% (for
LTVs above 90%). Main eligibility criteria are housing price and repayment instalment level, an
income proxy.
FOGALOGE: a guarantee fund targeting middle income groups, public or private sector
employed or non-salaried, and non-resident Moroccans. Mortgage loans with LTV up to 100%
are eligible. The guarantee covers up to 50% of the debt, and is capped at Dh 400,000.
Repayments must not exceed 40% of incomes. Premiums range from 0.25% to 0.35%
depending on LTVs.
These funds are housed in an umbrella Fund called Damane Assakane managed by the Caisse
Centrale de Guarantie (CCG), a government agency.
Key Lessons for Indonesia

A high-priority and integrated strategy that address both slum alleviation and the nancing and
delivery of new formal housing is necessary to successfully curb the absolute number of people
living in slums and increase low-cost housing supply.
Providing the right incentives for private sector participation can have a large impact on reducing
entrance barriers and stimulating the number of real estate actors, particularly those serving lower
or middle-class households.
B. CODI Thailand
International Case Study of Slums Alleviation
One of best instances of a community-government partnership is Thailands Baan Mankong
Upgrading Program. In 2003, the Thai Government announced an ambitious policy to address the
housing needs of the urban poor. The Baan Mankong Upgrading Program channels government
| Annexes
145
funds, infrastructure subsidies and soft housing loans directly to the poor who then jointly design and
execute improvements to their homes, environment and basic services while managing the budget
themselves. As part of this program implemented by the Community Organizations Development
Institute (CODI), a program of the Ministry of Social Development and Human Security, the poor in
200 Thai cities work in close collaboration with their local governments, universities and NGOs to
survey all urban settlements and plan an upgrading process that attempts to uplift all settlements
in that city within ve years. Once these city-wide plans are nalized, CODI channels the budget,
infrastructure subsidies and housing loans directly to communities.

Central government programs can enable community-driven development while empoweering
and increasing the capacity of local governments.
Community participation must be part of the planning, design and implementation of housing
programs.
C. Housing Development Agency, South Africa

International Case Study of Land Provision Agency
Established in 2009 through the Housing Development Agency Act of 2008, the Housing
Development Agency (HDA) is a public development agency whose mission is to accelerate the
acquisition and release of state, private and communally owned land for housing delivery and the
development of human settlements. As a government agency, the HDA is accountable through its
Board to the Minister of Human Settlements.
HDA obtains its funding from:
Proceeds from the sale of land;

Parliamentary appropriations;
Government grants; and
Fees for services rendered.
The HDA has established two main objectives to fulll its mission, namely:
To identify, acquire, hold, develop, and release well-located land and buildings;
To provide project management support and housing development services.
Each of these objectives is detailed in the following two programs:
1. Land Planning and Assembly
The primary aim of this program is to design and coordinate strategies and support programs that
facilitate the release of integrated land and landed property for sustainable human settlements
development. It is structured into four areas of operation:
1. Land assembly strategy and support
2. Land geo-spatial info services
3. Knowledge and best practice services
4. Monitoring and Evaluation
146
One of the key initiatives of this program is to develop a national land assembly strategy, in concert
with a variety of stakeholders, including provinces and municipalities.
2. Land and Housing Support Services
This program is housed in the regional ofces where the Land and Housing Support Services work
closely with their partners, including provincial and municipal governments, to implement support
programs and projects that promote sustainable human settlements. Program support areas may
include but are not limited to: informal settlement upgrading support, emergency housing support,
land geo-spatial services, and project technical implementation support.

Land identication, release, and development is an integral aspect of affordable housing provision.
No single instrument or agency can effectively manage the complexity of land and housing
markets. Instead, a suite of options and regulatory mechanisms is required to obtain, develop and
release land for affordable housing.
D. TOKI, Turkey
International Case Study of Public Housing Developer
TOKI was established in 1984 to deliver well-planned affordable housing at scale. However, TOKIs
low-income provision in the 1980s and 1990s often became suburbs for the middle class. Even
when the agency began making long-term soft loans to building cooperatives, the beneciaries
were mainly middle class.
The 2003 Emergency Action Plan for Housing and Urban Development set a 250,000 low-cost
unit target for the 5 years until the end of 2007. Regulatory amendments in 2003 and 2004
transferred a number of responsibilities on to TOKI, allowing TOKI to become a powerful actor in
the development of mass affordable housing for sale or rent to low and middle income households,
reporting directly to the Prime Minister. The Land Ofce was closed with its land reserve and nearly
all of its authority given to TOKI, and the assets and shares of the publicly-owned real estate bank
were transferred to TOKI.
TOKIs main role now reaches across identication land areas for priority housing projects,
preparation of site master-plans, assembly of nancing for developments, partnerships with
municipal housing companies84 and private real estate developers and sale of units to end users.
TOKI engages private sector developers, as well as real estate investors, project managers, service
providers, contractors and trade companies through a public tender process and revenue-sharing
model and also has the power to expropriate and rezone land, providing a successful revenue
source for TOKI.
TOKIs revenue sharing model relies upon a public tender process to generate short-term prots in
order to subsidize low-income housing. The minimum value of land is determined and a tender is
announced. A contractor is selected using a formula determined by the highest possible revenue
rate and income-share ratio in TOKIs favor. The contractor takes on all responsibility for covering
the cost of nancing. The revenue collected from sales is allocated to TOKIs account and used to
84 Municipal companies are private entities under the executive of municipal administration that provide housing typically
through partnership with TOKI. For example, KIPTAS is a company owned by the Istanbul Metropolitan Municipality.
| Annexes
147
subsidize affordable housing projects. As of 2011, over 90 percent of TOKIs operating revenues
were derived from the proceeds of its sales.
TOKI has been responsible for the construction of a total of 285,000 units built by the end of
2007, 500,000 by the end of 2010, and 559,840 by 2012. From 1984 to 2002, TOKI provided
credit support to 940,000 housing units through a cooperative credit structure and has provided
completion credit support to 92,215 homes and constructed 43,135 housing units on its own.
The total investment cost of this construction was TL 48 billion, involving 3,793 tenders and 2,486
construction sites. Social housing units are high-rise and generally vary in size between 80 120
m2 with costs kept around US$ 180 200 per m2. The timeline of social housing projects from
tender to opening is generally 12 to 18 months.
Although successful at increasing supply of apartments, the incentives that arise with the revenuesharing model results in TOKI building and selling many units to middle or high income families,
for which they can achieve higher sale prices. Secondly, as TOKI is a central agency with rezoning
ability, it has been criticized for not always coordinating adequately with city governments to
understand and integrate with local needs and spatial development plans.

A centralized housing developer agency can be effective at delivering mass affordable housing
for sale or rent to low and medium income households, partnering with government and nongovernment actors through a transparent tender process.
If proper targeting, assessment of demand, or standards for housing design and settlement
planning are not put in place and adjusted to each local context, public housing projects risk
turning into middle-income neighborhoods or future slums.
E. Department of Family and Community Services (FACS),

Government of New South Wales/Australia
International Case Study of Technical Support Facility
The Department of Family and Community Services (FACS) provides housing and support services
for special needs population, rental and homebuyer assistance, community regeneration services,
and development and regulation of social housing policies.
Below are FACS three key initiatives:
1. Center for Affordable Housing
The Center for Affordable Housing was established to educate key stakeholders (supply and
demand side), announce availability of grants and subsidies, and publish best practices in
affordable housing development. The website also provides information for potential partnerships
between stakeholders. By disseminating relevant information on its website, the Center aims to
bring together stakeholders to leverage resources in the most optimal way possible.
2. Local Government Housing Toolkit
The New South Wales Department of Housing created the Local Government Housing Toolkit to
help councils understand local housing needs and issues to formulate appropriate local responses.
148
The aim is to enable local governments to use their statutory powers and resources to improve
local housing needs through their role in planning, development, and construction.
The kit provides step-by-step guidelines for the development of an affordable housing strategy,
with the following three frameworks:
Analysis of local or regional housing needs and conditions;
Goals and detailed set of objectives;
Implementation Plan.
3. Land and Housing Corporation
The Land and Housing Corporation (LAHC) is a Public Trading Enterprise under the New South
Wales Ministry of Family and Community Services. It is responsible for owning and managing land,
buildings, and other assets within the social housing portfolio, with the goal of providing more
houses for people in need. LAHCs objectives are:
To advise the government on best use of its land and housing assets to achieve social housing
outcomes;
To manage and develop land and housing assets;
To procure effective tenancy management services;
To collaborate with other government agencies to inuence policy and implement initiatives
that relate to LAHCs purpose and goal.
In carrying out its objectives, LAHC collaborates with government agencies and community
organizations including local councils, community housing providers, building and maintenance
contractors, and local communities.
Lessons for Indonesia

A step-by-step toolkit can help local governments develop housing solutions in accordance with
local needs.
Public enterprises can convene the various actors responsible for housing delivery in order to
create optimal solutions.
F. Homes and Communities Agency, United Kingdom

International Case Study of Technical Support Facility
The Homes and Communities Agency (HCA) is the national housing and regeneration agency
whose main business is investment in new affordable housing. Additionally, the HCA also works
to improve existing social housing and to regenerate land, and is also the regulating agency for
social housing providers in England.
The HCA strives to develop strong partnerships at national, regional and local levels. The key to
their success as a national agency is to partner with the local authorities and other key stakeholders
in the housing ecosystem such as housing associations, private-sector builders, developers and
contractors, lenders and investors, and the voluntary and community sectors.
| Annexes
149
1. Housing: The HCA has a statutory duty to improve the supply and quality of housing in England.
Activity: Get Britain Building: The HCA created a 500 million investment fund for developers to
address weaknesses in the housing market. The aim is to create homes and jobs on development
sites that have stalled, havent started, or are classied as being on hold. So far, this program has
helped jumpstart construction on nearly 12,000 homes.
2. Enabling: HCA enabling role includes a range of services - from advice on legal agreements
and planning applications, to investment models and brokering deals, to the provision of spatial
and market intelligence.
Viability & Planning Tools: The HCA uses their practical, experience-based tools to help their
partners with a variety of technical areas relating to housing, regeneration and economic growth:
Area Wide Viability Model Testing the viability of planning at a strategic level
DevelopmentAppraisal Tool Appraisingin detail the viability of an individual site
ATLAS Guide T10 Financial Appraisal & Project Viability. Dealingwith nancial viability
Planning Obligations Good Practice Recommending best practices in housing delivery.
Expertise & Skills: HCA also depends on the skills and know-how of their partners in their success.
The HCA has developed a number ofviability and planning tools85and other resources to help
local authorities. In addition to the enabling work of their local delivery teams, their Advisory Team
for Large Applications (ATLAS) usesplanning expertise86to provide direct specialist support to
HCAs partners to help them deliver strategic projects through the planning system.
Research & Best Practice: The HCA places a premium on insight and intelligence to ensure
that their activity meets the needs of the places and communities where they work, and that
their decisions about where and how to intervene are underpinned by sound analysis.They are
also committed to sharing their ndings with their partners, and developing best practice and
guidance87 documents based on these ndings. They also publish regular information and analysis
such as theirmonthly housing market bulletin88.
HCAs research function delivers:
Strategy and program development based on analytical evidence and support
New thinking to support innovation to respond to new challenges
Monitoring and evaluating the impact of HCA programs
Best Practice and Guidance: The HCA has published or worked with their partners on a number
of documents to help local authorities and other partners to maximize delivery in their areas.
They also have a library of external guidance and research that may be of use, available through
downloads and synopses.
85 Refer to: http://www.homesandcommunities.co.uk/ourwork/viability-and-planning-tools

86 Refer to: http://www.homesandcommunities.co.uk/ourwork/planning-expertise
87 Refer to: http://www.homesandcommunities.co.uk/ourwork/best-practice-and-guidance
88 Refer to: http://www.homesandcommunities.co.uk/ourwork/market-context
150
3. Land and regeneration: The HCA plays a key role in land, regeneration and local economic
development. During 2011, the HCAs land holding were increased by the transfer in of
approximately 1,000 ha of coalelds sitesand over 2,000 ha of othereconomic assets from the
Regional Development Agencies.
The HCA is also supporting large land, property and commercial projects with potential for
growth through theLocal Infrastructure Fund89. This could includeland remediation or reclaiming
contaminated land, upgrading or installing utilities, linking to local road networks or reconguring
site layouts. The HCA also works with otherpublic sector land owners to promote the release of
public sector land for development.

National agencies can use their experience, tools and relationships with housing development
actors to help local authorities meet their housing needs.
National agencies can receive and consolidate land holdings and other existing public assets.
G. Department of Human Settlements, South Africa

International Case Study of LG Accreditation
Operated under the Department of Human Settlements, the Comprehensive Plan for Sustainable
Human Settlements envisages that municipalities will play a substantial role in the delivery of
sustainable human settlements. The key thrust of the Plan is to have all three levels of government
(central, provincial and local) work together with the cooperation of the private sector, as well
as the promotion of a developmental local government that efciently responds to the needs of
citizens.
Through an accreditation process, the Department of Human Settlements (DHS) will progressively
devolve and assign dened functions pertaining to the administration of housing programs to the
municipalities. Such accreditation will be structured to enable accelerated delivery on important
housing priorities in local areas.
Given that the capacity of municipalities differs, there are three levels of accreditation, which outline
incremental responsibilities of accredited local governments:
Level 1: Beneciary management, subsidy budget planning and allocation, and priority program
management and administration (delegated functions);
Level 2: Full management and administration of all housing programs;
Level 3: Financial administration (inclusive of program management and administration).
Municipalities seeking accreditation must go through a rigorous, multi-step accreditation
process that includes different eligibility criteria for each level. The DHS established some priority
municipalities including, but not limited to: Cape Town, Johannesburg, Buffalo City, and Mangaung.
89 Refer to: http://www.homesandcommunities.co.uk/ourwork/local-infrastructure-fund
| Annexes
151
City governments will set up a National Housing Program ofce that will implement the new
processes received through accreditation. Provincial governments will be intermediaries between
the local and national governments, and their (new) roles will include: (i) capacity development
and support for municipalities; (ii) monitoring and oversight; and (iii) setting up accreditation units.
Moreover, provincial governments will retain the authority to distribute funding to municipalities.
The end goal of the accreditation and devolution is to improve the abilities of municipalities
in integrated urban management and planning; response to housing demand in cities; and
acceleration of housing development and household quality improvement.

An accreditation process is necessary when the responsibility for administering housing programs
is devolved to local governments.
Accreditation processes should be rigorous and tiered in order to match responsibilities to
capabilities
H. Real Estate Information Center (REIC) - Thailand

International Example of Housing Management Information Systems (MIS)
Established in 2004 as a resolution by the Thai Cabinet, the REIC is a part of the Government
Housing Bank though directed by its independent Board of Directors. The REIC missions are to
(1) become the Real Estate Industrys consultant center and knowledge base, (2) develop housing
and real estate research, analysis and forecasting capabilities, (3) build tools and indicators that
reliably forecast the Thai property markets demand, supply and price levels and (4) disseminate
relevant real estate information to both the public and private sectors.
The REIC is funded primarily by the Thai Ministry of Finance (through the Government Housing
Bank), although over the last several years, about 10% of its budget has come from fees derived
from services it provides to the private sector.
The REIC collects data from three key sources:
1. Government Ministries (Department of Land, Bank of Thailand (Central Bank), Ministry of Public
Works, Ministry of Urban Planning, Bangkok Metro Public Company Ltd., National Statistics
Ofce, National Housing Development Board, Legal Execution Department for foreclosure
data);
2. Primary housing starts and housing completion data from key developers;
3. Quarterly consumer survey conducted across the 77 provinces outsourced by external research
agencies.
The REIC publishes a real estate annual report that includes data relating to home sales, housing
starts, land allotment permits, building permits, housing transfers, housing completions, housing
mortgages, a housing developer sentiment index and a condominium price index.
152

Government can develop the information systems necessary for monitoring market dynamics and
informing policy decisions.
Consolidating and analyzing data from government ministries as well as developers and consumers
enables government to build tools and indicators that can reliably forecast housing needs.
I. Housing Micronance in Tanzania

International Case Study of Housing Micronance Sector Development
As with most developing countries, Tanzania has large unmet demand for housing micronance.
Mortgage products are usually only available for wealthy households and there are limited nancing
sources for incremental housing improvements.
In Tanzania, a number of nancial institutions have recently started developing and promoting
housing micronance, partly with the support of multilateral institutions, such as the World Bank,
as well as international NGOs.
In November 2009, a housing micronance working group was established with representatives
of a number of institutions that are interested in fostering the development of the HMF market in
Tanzania. This group included representatives from the Central Bank of Tanzania, the Centre for
Community Initiatives (CCI), Habitat for Humanity Tanzania, the Tanzania Gatsby Trust (TGT) and
WAT Human Settlements Trust. Activities include a market study report, published by Bank of
Tanzania, on the HMF opportunities in the country.
A three-year pilot program aimed at establishing a sustainable business model for providing
housing micronance for low-income earners was undertaken from 2009 until 2012, led by WAT
in collaboration with SACCOS (Savings and Credit Cooperative Society), with funding and support
from Rooftops Canada and the Norwegian Federation of Housing Cooperatives. The goal was to
start with pilot savings and credit institutions in order to develop sustainable and replicable loan
products and processes, that were suitable for low and middle income Tanzanian communities
and eventually to extend throughout a network of over 4,000 SACCOs.
The three-year pilot program consisted of:
A loan guarantee fund to mitigate nancial risks and stimulate interest for the investment of
commercial capital into HMF.
Provision of technical assistance for loan product development and ongoing assessment of the
WAT SACCOS.
Financially subsidizing operational costs during the period of scaling up.
Conducting research and analysis to support the program and training materials for the broader
sector.
| Annexes
153
At completion of the pilot phase of the project in 2012, 753 loans, worth a total of Tshs. 786,164,000
(US$485,000) had been disbursed for home improvement and WAT is now extending its program
to continue to support the development of the HMF sector.
Rooftops Canada, and Habitat for Humanity have also been running a pilot program for housing
micronance in Tanzania, called Makazi Bora (Improved Housing), in which they work directly
with interested MFIs and support them in HMF product development and training of loan ofcers.
Once the HMF product has been successfully piloted, these MFIs are eligible to access low-cost
nance via a housing micronance fund, MicroBuild, to assist the scaling of HMF loans to a larger
number of customers.
In 2010, the Bank of Tanzanias housing nance initiative (supported by USD 40 million provided
by the World Bank) included an explicit HMF component, in line with a similar project with Bank of
Nigeria. The HMF component was allocated USD 5 million or 12.5% of the total program costs.
The project intended to undertake advisory on regulatory reform and capacity building required
to foster a safe lending environment for housing micronance in its rst phase, working towards
the establishment of a USD 3 million Housing Micronance Fund to provide MFIs with access to
long-term funding for micro-housing loans in Phase 2 of the program.
Yet, progress has been slow. The number of HMF loans increased to 1091 in December 2014 with
7 participating credit institutions, from a baseline of 462 and 4 institutions in March 2010, and the
establishment of the Fund has been delayed, pending nalization of the terms and conditions for
eligible nancial institutions.

International studies indicate substantial unmet demand for housing micronance in emerging
economies, particularly where incremental housing is the main mode of housing production.
Development of the HMF sector takes time, and rst requires investment in sector studies as
well as trainings and standardized materials for nancial institutions to build awareness of the
opportunities and support interested MFIs in HMF product development, before funding may
become an issue.
J. Ministry of Housing and Urbanism, Chile

International Case Study of Down Payment Subsidies
The Chilean housing system is based on public-private synergies and relies heavily on the provision
of down payment vouchers by the government. The system has proven highly successful by most
standards. In 1990 one out of every four houses was overcrowded or extremely overcrowded,
while in 2006 only one out of every 10 houses was measured as overcrowded. In 2006 the housing
decit stood at 410,000 units, a small number considering that each year the public housing
system provides around 100,000 units. In terms of stability, the system successfully coped with
the international nancial crisis of 2007-2008.
There are two main down payment subsidy programs in Chile and they target different groups.
Eligibility is determined by income. Since the 2000s the Housing Solidarity Fund has enabled poor
families to buy or build a house for up to USD 23,000 without a complementing mortgage loan.
Essentially, the government provides a down payment voucher for basic housing in combination
154
with a small contribution from family savings. Bankable households operate under the General
Housing Subsidy System. The standard nancial package under this program includes three
ingredients: a voucher applicable to a down payment, a contribution from family savings, and a
long-term mortgage with a maximum payment-to-income ratio of 25 percent to cover the bulk of
the cost of the dwelling.
The program has effective targeting mechanisms. The use of the down payment subsidy is in itself
a mechanism to decrease capture by higher income households since it prevents the regressive
qualities inherent in below-market interest rates. The Chilean government initially used Social
Assistance Committees to assess and qualify beneciaries. In 2008 they introduced the Social
Protection Form, which took over this role and functions similarly. The form ascertains vulnerability
and is administered by social workers working for municipal governments. Information for the
whole country is kept in a database in the Ministry of Planning.
In addition to these targeting mechanisms, the amount of subsidy is based on the home price,
which is capped at USD 23,000 and varies by geography. There are also signicant tax benets
for homeownership. Homes with an area of less than 140 m2 are exempt from payment of half
the land tax for a period of 10 to 20 years. In addition, income earned from renting a house is not
classied as taxable income under the revenue tax law. Finally, since 1998 buyers of new homes
have been able to deduct the payment of interest on mortgage loans from their annual taxable
income. On the supply side, the voucher is paired with tax breaks that encourage the construction
and purchase of new housing.
The subsidy is administered and delivered through the Ministry of Housing and Urban Development
and, for bankable households, it is recommended that the subsidy be combined with mortgage
nancing from a private institution. However, in recent years most commercial banks have not
provided credit through this scheme. Only Chiles national bank, Banco Estado, has taken a key
role in this market. This has occurred even though Banco Estado is already highly exposed to
low-income mortgage loans, owning around 75 percent of credit originated in private vouchers.
Though the reluctance of most nancial organization to lend to bankable households as part of the
scheme is a concern, the program has run quite smoothly and helped reduce Chiles quantitative
and qualitative housing decit

Down payment subsidies can help improve accessibility and affordability of mortgage nance for
low-income citizens,
Upfront subsidies are less regressive than interest rate subsidies; however, good targeting and
administration measures must be in place for such systems to work well.
K. Linkage Fees - Boston, USA

International Example of Developer Contributions
Linkage fees are an example of a method that local governments use to boost the supply of
affordable housing. In the United States, linkage fees are levied in some states (Massachusetts,
New Jersey, and California) on nonresidential and market-rate multifamily residential projects, with
| Annexes
155
the aim to socialize private development and spread the benets of construction through the city.
Bostons linkage program requires that developers of large-scale commercial, retail, hotel, or
institutional structures seeking zoning relief make payments into a fund (called the Neighborhood
Housing Trust) administered by the City of Boston. The City uses the trust proceeds for the
construction and rehabilitation of low- and moderate-income housing. The regulation was
expanded in 1986 to allow for increased payments by developers, which were to be used for job
training programs for city residents.
The impetus for the linkage program was the ever-decreasing availability of affordable housing
caused by economic and job growth in Boston. At the same time, a combination of decreasing
federal aid and limited revenue from property taxes in the city meant that linkage payments was
one of the ways Boston could provide adequate housing and job training for low income residents.
Moreover, the statute provides that the linkage fees can be raised based on a combined consumer
price index but not more frequently than at 3-year intervals.
Developments in downtown Boston are required to pay the linkage fees on a 7-year schedule,
while developments in other neighborhoods pay on a 12-year schedule, usually at the time of
issuance of a building permit. The extended payment period adds an element of exibility that
has facilitated the progress of development in difcult circumstances. Deferred payments from the
7- to 12-year schedule allows developers to pay linkage fees out of operating revenues from the
project rather than from up front equity investment, reducing the nancing necessary to begin
construction. It is important to note that this deferral does diminish the Net Present Value (NPV)
of the fee.
Scheduled payments have also helped assure a steady inow of funds to the Neighborhood
Housing Trust (NHT), even over periods of low development activity, such as the recession in the
late 2000s. As of 2006, the Neighborhood Housing Trust (NHT) had awarded $87 million to 120
different projects throughout the city, which had contributed to the creation of ~8000 housing
units of which ~6000 were affordable.

Local governments in active real estate markets should leverage their position in order gain
concessions from developers.
Spatial regulations, such as a mechanism for zoning restrictions and bonuses, can generate
private sector funding for affordable housing.
156
7. Selected Reference Documents

1.
Asian Development Bank. Housing and Housing FinanceA Review of the Links to Economic
Development and Poverty Reduction. 2013.
2.
Colombijn, F. Public housing in post-colonial Indonesia. The revolution of rising expectations.

2011.
3.
Devisari, T and Peresthu, A. Self-help housing in Indonesia: The only option for the poor?
2010.
4.
DFID. Jakarta City and Metropolitan Region: A Contextual Overview. 2000.
5.
Firman, T. B. Major Issue in Indonesias Urban Land Development. 2004.
6.
Heryani, E and Grant, C. Land Administration in Indonesia. Conference Paper. 2004.
7.
Hoek-Smit, M.C. Technical Assistance for Policy Development for Enabling the Housing
Market to Work in Indonesia. HOMI Project. 2001.
8.
Hoek-Smit, M.C. The Housing Finance Sector in Indonesia. 2005.
9.
Hudalah, D. State of Low Income Housing Policy and Finance. Land Policy and Markets.
March 2011.
10. International Finance Corporation & PT Holcim. Indonesia Micro Housing Finance Survey.
2012.
11. Ministry of Housing, Republic of Indonesia. Housing Finance Policies and Programs in
Indonesia. 2012.
12. Monkonnen, P. Urban Land-use Regulations and Housing Markets in Developing Countries:
Evidence from Indonesia on the Importance of Enforcement. 2013.
13. Nurdini A. and Harun, I.B. Incorporating User for Rental Housing Design Case Study: City of
Bandung, Indonesia. 2010.
14. Nurbaity, A.M. and Hasbullah, A. Housing Policy for the Poor in Malaysia and Indonesia.
2011.
15. Peppercorn, I. Public Rental Housing in the United States Lessons for Indonesia.
16. UN-HABITAT. Housing Finance Mechanisms in Indonesia. 2008.
17. Rolnick, R. Report of the Special Rapporteur on Adequate Housing. High Commission for
Human Rights (OHCHR). 2013.
18. Widyoko, Good Governance and Provision of Affordable Housing in DKI Jakarta. Case Study.
2007. August, 2012.
19. World Bank. Land Consolidation. A Review of Policy and Implementation Procedures in
Indonesia. May, 1999.
20. World Bank. HOMI Housing Market Indonesia. 2002.
21. World Bank. Housing Finance in Emerging Markets. 2009.
22. World Bank. Housing in Indonesia: Expanding Access, Improving Efciency. Report. 2012.
| Annexes
157
23. World Bank. Indonesia Housing Policy: Key Strategic Issues. Technical Note. July 2013.
24. World Bank. Indonesia: State of Low Income Housing Policy and Finance. 2011
25. World Bank. Protecting Vulnerable Households in Indonesia. 2012.
26. World Bank. Towards Indonesian Land Reforms: Challenges and Opportunities. A Review of
the Land Sector (Forest and Non-Forest) in Indonesia. 2014.
Websites:
1.
Bappenas: http://www.bappenas.go.id/
2.
Bank BTN: http://www.btn.co.id/
3.
BPN: http://www.bpn.go.id/
4.
BPS: http://www.bps.go.id/
5.
Coordinating Ministry for Economic Affairs: http://www.ekon.go.id/
6.
Indonesia Database for Policy and Economic Research: http://data.worldbank.org/datacatalog/indonesia-database-for-policy-and-economic-research
7.
Ministry of Housing: http://www.kemenpera.go.id/
8.
Ministry of Public Works: http://www.pu.go.id/
9.
Ministry of Social Affairs: http://www.kemsos.go.id/
10. Perumnas: http://perumnas.co.id/

11. SMF: http://www.smf-indonesia.co.id/
12. TNP2K: http://www.tnp2k.go.id/
158
8. Glossary of Terms
ALM
Asset-liability management
APERSI
Developers Association of Housing and Settlement
APR
Annual percentage rate
ARM
Adjustable-rate mortgage
Askrindo/Jamkrindo
Public mortgage guarantee providers
BLU
Badan Layanan Umum. Public Service Agency.
BOI
Bank of Indonesia
BPN
National Land Agency
BTN
State Savings Bank Limited
BUDP
Bandung Urban Development Program
CG
Central Government
DAK
Special purpose grants for LGs.
DAU
General allocation grants for LGs
DTI
Debt-to-income ratio
FLPP
Subsidized mortgage liquidity fund by MOH
FRM
Fixed-rate mortgage
FSAP
Financial Sector Assessment Program
GOI
HF
Housing nance
HGB
Hak Guna Bangunan. Building Rights Title.
HM
Hak Milik. Freehold Title.
HOA
Homeowners Association
HP
Hak Pakai. Right to Use of Land.
HPA
Housing price appreciation
HPL
Hak Pengelolaan. Right of Management.
HREIC
Housing and Real Estate Information Center
IDR
Indonesia Rupiah
IT
Information technology
IUIDP
Integrated Urban Infrastructure Development Program
KIP
Kampung Improvement Project
Landed House
A stand-alone house with a small land plot
| Annexes
159
160
LG
Local Government
LTV
Loan-to-value ratio
MFA
Multi-family apartment building
MI
Mortgage Insurance (lender credit risk coverage)
MIIP
Market Infrastructure Improvement Program
MOF
Ministry of Finance
MOH
Ministry of Housing
MPW
Ministry of Public Works
MPWH
Ministry of Public Works and Public Housing
MSOE
Ministry of State Owned Enterprises
NBFI
Nonbank nancial institution
NPL
Nonperforming loans
OKJ
Financial Regulatory Commission
PT Perumnas
Housing Developer (State-Owned Enterprise)
POKJA PKP
Inter-Ministerial Working Group
PPPSRS
Perhimpunan Pemilik dan Penghuni Sarusun. Tenants Association.
PSO
Public Service Obligation
REI
Real Estate Indonesia
REIT
Real estate investment trust
RMBS
Residential mortgage-backed securities
RP3KP
Rencana Pembangunan dan Pengembangan Perumahan dan

Kawasan Permukiman. Strategic Plan for Housing.
Rusun
Multi-family housing.
SKBG
Sertikat Kepemilikan Bangunan Gedung Sarusun. Certicate of

Apartment Ownership.
SMF
Indonesia Secondary Mortgage Corporation
SOP
Standard Operating Procedures
TA
Technical Assistance
TNP2K
The National Team for Acceleration of Poverty Reduction
USD
United States Dollar
Waqaf
Donated religious land for public purpose, held in trust.
WBG
World Bank Group
Yoy
Year-on-year

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A Roadmap For Housing Policy Reform

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Indonesia

A ROADMAP FOR HOUSING POLICY REFORM

Indonesia | Roadmap for Housing Policy Reform

The World Bank

Bappenas, Directorate of Housing and

Nugroho Tri Utomo, Housing and Settlements Director

Taimur Samad, Task Team Leader, Sr. Urban Economist,

Tiara Anggita, Supporting Staff

Bappenas, Directorate of Land and

Miya Irawati, Urban Land Policy Specialist

Oswar Mungkasa, Land and Spatial Planning Director

Ruslan Prijadi, Housing Finance Specialist

Uke Moh Hussein, Head of Land Sub-Directorate

Anindiaztuti Rachmadani, Housing Finance Analyst

Gita Nurrahmi, Supporting Staff

Adhitya Wirayasa, Urban Land Policy Analyst

Budi Prayitno, Housing Sector Governance Specialist

Ministry of Public Works and Housing

Rochdianto, Head of Self help Housing Strategy, Self Help

Victor Mints, Operations Ofcer, GFMDR

Merlina Rubiyati, Head of Formal Housing Strategy, Formal

Dao Harrison, Housing Policy Specialist

Haryo Bekti, Head of Program and Budgeting, Housing

Olivier Hassler, Sr. Housing Finance Specialist

Diah Parahita, Head of Foreign Cooperation Administration

Matthias Nohn, Incremental Housing Policy Specialist

Rika Revireza, Supporting Staff

Raven Anderson, Urban Development Analyst, GSURR

Geoffrey Payne, Sr. Urban Land Policy Specialist

Key Messages of the Roadmap

Objectives of the Roadmap

Why Indonesia Needs Housing Policy Reform

Strategic Framework for Housing Policy Reform

Targets and Budgets

Description of Policy Actions

Develop a Comprehensive Slum Upgrading Program

Reformulate the Approach to Formal Subsidized

Redesign Support to Home Improvement

Enable the Affordable Formal Housing Market

Build Robust Delivery Systems

Mobilize Urban Land for Settlements

Principles of Housing Policy Reform

Target Population an Affordability

Background to Housing and Settlements Policy

4.1 Housing Sector Governance

4.2 Slums and Settlements

4.3 Urban Land Policy

4.4. Home Improvement and Incremental Expansion

Indonesia | Roadmap for Housing Policy Reform

4.5. Public Housing Policy

4.6. Mortgage Markets

Overview of Recommended Policy Actions

Relevant Case Studies

Selected Reference Documents

List of Annexes Figures

Household Ownership Rate per Decile.

List of Annexes Tables

Percentage of Housing Units with Various Substandard Characteristics

International Example of Housing Decit In Latin America

Indonesia | Roadmap for Housing Policy Reform

Indonesia | Roadmap for Housing Policy Reform

The Roadmap recommends the following:

Increase overall housing sector investment and reorient housing