Housing in Malaysia ‘severely unaffordable’

World Bank cautions that govt housing policies may have adverse effects on housing supply and affordability


HOUSING affordability in Malaysia has worsened over the years to a “severely unaffordable” level in several states, according to the World Bank Group.

The group also cautioned that government housing policies such as Residensi Wilayah and Rumah Selangorku may have adverse effects on housing supply and affordability.

World Bank senior economist Kenneth Simler (picture; left) said these two housing schemes — out of the total 16 — in part drove developers to build new housing at different price points in response to these policies.

Simler said while the Residensi Wilayah scheme contributed to the supply of housing units to the Kuala Lumpur (KL) market in the price range of RM300,000 and below, it also attracted higher-income households to take advantage of the scheme.

On the other hand, the Rumah Selangorku scheme exacerbated the undersupply situation in the Petaling District.

“Higher-income households with monthly income of RM15,000 can afford to purchase higher-priced homes of up to RM1 million, but sometimes (they) choose the Residensi Wilayah housing at RM300,000 due to its value-for-money and favourable characteristics such as central location and decent home size.

“As for Rumah Selangorku, 20% to 50% of residential units in a new development are required to be priced at less than RM250,000, while the remaining units may be priced at market levels.

“This resulted in the increasing number of high-end units compared to lower-priced units in 2019, as developers overcompensated by building high-end units first to subsidise the subsequent construction of lower-end units in the Petaling market,” he said.

The group lead economist Dr Richard Record said various studies using the price-to-income ratio (PIR) showed that the affordability of housing in Malaysia has deteriorated.

“It is as such that housing is now ‘severely unaffordable’ in several states and ‘seriously unaffordable’ in Malaysia as a whole according to that measure,” said Record during the launch of World Bank’s Malaysia Economic Monitor: Making Ends Meet report.

Also known as the median multiple index, the ratio compares the median house price to median household income. A widely used categorisation developed by Demographia (2019) categorises housing as “moderately unaffordable” (PIR of 3.1 to 4.0); “seriously unaffordable” (PIR of 4.1 to 5.0); or “severely unaffordable” (PIR of 5.1 and higher).

The World Bank’s report showed that, by this classification, the median multiple for Malaysia has exceeded the 3.0 threshold for affordability since at least 2002, and deteriorating sharply from 2012 to 2014, when the median multiple increased from 4.0 to 5.1.

As of 2016, Malaysia’s median multiple index stood at 5.0, categorising housing as “seriously unaffordable” in Malaysia overall, and “severely unaffordable” for several states such as Penang, Kelantan, Negri Sembilan and Sabah. Record said the findings of the report showed that lack of affordable housing is particularly severe among the bottom 20% (B20), B21-B40 and middle 40% households.

The analysis conducted for KL and the Petaling District showed that households with monthly income less than RM5,000 experience severe housing non-affordability.

“It is estimated that the number of households in this income group far exceeds the supply of housing affordable to them, with 55% in KL and 63% in the Petaling District lacking access to housing that they can afford.

“Households in the RM6,000 to RM10,000 income bracket can typically afford to purchase a home in the RM230,000 to RM500,000 price range, but the availability of such homes is very uneven,” Record said.

“Finally, wages have not increased as rapidly as housing costs have. While the cumulative salaries and wages increased by 59% from 2010 to 2018, the cumulative house prices increased by 87%,” Record said.