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Unaffordable Affordable Housing in Malaysia

18 February 2021 - The affordability of affordable housing has been a prominent issue in Malaysia for the past years as we observe an upsurge in the number of overhang in affordable housing.

What is exactly housing affordability?

In simple terms, housing affordability can be defined as the cost of housing being relative to the individual's or household's income. According to Khazanah Research Institute (KRI), housing affordability can be measured by Price to Income Ratio (PIR) — (Median House Price / Median Annual Household Income).

If the PIR of the housing market is more than 3.0 (threshold), it signifies that the median house price is more than 3.0x the median annual household income. Thus, according to global standards, the housing market will be deemed as 'moderately unaffordable' or 'seriously unaffordable'. The chart above displays the unaffordability of the housing market in Malaysia as it consistently remains in the 'seriously unaffordable' category (between 4.1 and 5).

To analyse the affordability of the housing market in Malaysia, the PIR by the state is calculated and displayed in the table above. At the national level, Malaysia possesses a PIR of 4.1, which is seriously unaffordable. At the state level, Sarawak (5.9) stands at the top in having the most unaffordable housing market, followed by Sabah (5.8) and Kelantan (5.4) while the only affordable housing market by the state is Melaka (2.5), as it is the only one below the 3.0 threshold.

An 18-year bar chart race is visualised to provide a better outlook of the PIR changes from 2002 to 2019 for each state in Malaysia. It is noticeable that Kelantan and Sabah have continuously remained as the top 3 most unaffordable housing state since 2004 while Melaka has consistently ranked as the most affordable housing state since 2007.

Affordable Housing

Contrary to housing affordability, affordable housing is classified by the House Buyer Association (HBA) as those priced between RM150,000 and RM300,000 (rural vs. urban), equipped with a built-up area of at least 900sqft (excluding balcony) with a minimum of 3 bedrooms (optimal for family-living), and situated in a strategic location that has access to public transportation and areas with adequate public amenities.

The decile group consists of 3 household income groups namely the T20, M40, and B40 market segment from a total of 8 million households in Malaysia. The maximum affordable house price is projected for each household income bracket (tied with the decile group). As it is understood that affordable housing comes between RM150,000 and RM300,000, the target market can be further broken down into B40 and M40; which is essentially B1, B2, B3, B4, and possibly M1. In total, that makes up a sum of 4.6 million households that could be potential buyers of affordable houses.

As an extension to the median income decile group in the previous table, the minimum and maximum income scales are displayed for the 10 income categories in 2019.

Affordable Housing Purchasing Factors

Although price tops the list as the most essential consideration when intending to purchase affordable housing, there are various other determinants as well. In this article, we have covered housing price as the sole buying decision factor and in the coming articles, we may look to explore other factors (i.e., interest rate, downpayment, lease/freehold status, access to workplace/school/health facilities, home quality, and crime rate).

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