Measuring Malaysian housing affordability: the lifetime income approach

Abstract

Purpose The purpose of this paper is to measure the long-run housing affordability of Malaysia over time for households at various income levels and to demonstrate how short- and long-run affordability measures can reach contradicting conclusions. Design/methodology/approach In this study, a long-run housing affordability index (HAI) for Malaysia was constructed for the sample period 1995 to 2014, using data from house prices and household incomes. The HAI was also modified to compute a mortgage affordability index (MAI) to account for intergenerational transfers. Findings The results show that households at the 25th income percentile cannot afford any of the four dwelling types in Malaysia. For households at the 40th income percentile and the median income levels, high-rise and terrace housing are affordable. However, significant downward trends in HAI and MAI are documented beginning 2009, which indicates increasing housing stress for households at or below the median income. The short-run affordability measure represented by the median multiple (MM) indicator showed bleaker conclusion for housing affordability, with all dwelling types considered unaffordable over the entire sample period Practical implications On the basis of the empirical results, this paper provided several long-term proposals to ameliorate the housing affordability problem in Malaysia. Originality/value With the MM ratio being the official affordability measure reported for Malaysia, this study introduces the nation’s first long-run housing affordability measure. It is hoped that this long-run measure will achieve widespread adoption in Malaysia. Given the deteriorating long-term affordability, this study offers several possible long-term solutions.

Mitigating housing glut: an application to the Malaysian housing market

“…A review of the literature on the issues of housing affordability and housing glut in Malaysia reveals a general consensus whereby among the causes of residential property overhang are weaknesses in the local authority's planning practices (Rameli and Aman, 2011), housing prices are too high (Lee, 2014), insufficient affordable houses being built (Osman et al, 2017), home buyers' preference in conjunction with their affordable house price (Soon and Tan, 2019) and long-run housing unaffordability (Rangel et al, 2019). The followings are reviews of the above relevant papers in perspective.…”

“…However, Rangel et al (2019) emphasize that Malaysia is plagued with increasing longrun housing unaffordability. The increase in residential overhang can be attributed to the oversupply of the medium-and high-priced housing which are beyond the affordability of most Malaysian households.…”

Delivery mechanism on homeownership education among millennials in Kuala Lumpur

“…Additionally, homeownership education also changes in time. Based on a study by Rangel et al (2019), they used 30 years old as an example and stated that 30 years old between the year 1995 and 2014 can afford types of houses based on income percentile. This shows that housing affordability issues changes throughout the time and young millennials cannot follow the advice of older generations entirely.…”

“…Predominantly, most of the unsold residential property units are in the affordable housing price range and the reason of the overhang is beyond the price factor (Lee, 2014). Furthermore, high-rise development is considered affordable housing (Rangel et al , 2019).…”

Residential property market in Malaysia: an analysis of price drivers and co-movements

“…Reinhart and Rogoff (2013) confirmed it by showing the use of historical data sets that banking crisis generally preceded by housing price bubbles. Magnifying into the context of Malaysian housing market studies, the inquiry of the factor affecting housing price has been pondered on in the current times due the aberrant rises of price connected with unaffordability issue (Rangel et al , 2019) through the prevalent applied econometric approach (e.g. Kok et al , 2018; Baharuddin et al , 2019; Aris et al , 2018; Ganeson and Abdul Muin, 2015; Trofimov et al , 2018).…”