Petaling Jaya, 14 May 2024, on the sidelines of REHDA Institute Regional Housing Conference 2024 – REHDA Institute, working in collaboration with various housing experts and industry stakeholder organisations (including Bank Pembangunan Malaysia Berhad) has launched a new research report titled “Affordable Housing II – Closing the Gap: A Strategic Approach to Balancing Supply & Demand“, to address the structural problems in affordable housing development in Malaysia at a micro level, including identifying underlying factors contributing to Malaysia’s enduring housing affordability challenge. This latest publication builds upon the insights of the inaugural report, “Affordable Housing – The Game Plan Transformation,” published in 2018.
Currently, in terms of the measurement of affordability, the Median Multiple (MM) Approach with a multiplier of 3 is promoted to measure housing affordability. REHDA Institute recognises that there can and needs to be a better way to more accurately measure and benchmark housing affordability, especially in Malaysia, undertook new research to review various comparative analysis of housing affordability measures.
Utilising data provided by the Government and various academicians, REHDA Institute Research believes that the Residual Income (RI) Approach is the more suitable approach in measuring housing affordability takes into consideration the different types and size of households and household expenses and nett household incomes compared to the Median Multiple Approach which is too conservative. In REHDA Institute’s Survey, which included input from bankers, professionals, authorities, and developers also revealed that most respondents concurred that the residual income approach is the best measurement of housing affordability. However, the non-availability of comprehensive statistics on demographics is a hurdle in an effective implementation of the Residual Income Approach in the short term.
Hence, REHDA Institute’s research recommends that the Housing Cost Burden (HCB) Approach be adopted in the interim, and if necessary, the Median Multiple Approach can be utilised with different multipliers depending on the location. Later, the Residual Income Approach should be applied in policymaking when there is a comprehensive housing and population database available. The reason is that the Median Multiple Approach may underestimate the housing affordability capability of urban households, thereby incorrectly exaggerating the demand for lower priced housing. As the number of unsold properties below RM300,000 increased from 6,509 units (23% of the total unsold units) in 2022 to 7,592 units (29% of the total unsold units) in 2023, this raises questions about its efficacy as the needy still struggle to get shelter, while others face inflated housing costs.
YB Nga Kor Ming, Minister of Housing and Local Government in his Keynote Address during the launch highlighted that, in terms of housing affordability, KPKT is currently implementing a more scientific mapping guide of affordable housing prices under the National Housing Policy to ensure that the right type of pricing could offered depending on certain states and localities. Minister also explained that through a more scientific guide taking into account, for instance, previously under the National Housing Policy, the definition of affordable housing was not more than RM300,000, but the price of affordable homes in Kelantan and Kuala Lumpur is measured on the same point of RM300,000 which may not make sense.
The Affordable Housing II Report also highlights that the changing demographic profiles and composition of the Rakyat may not have been adequately considered in determining affordability in Malaysia. For instance, Malaysia’s population was recorded at 17.56 million people in 1991, but comparatively it is estimated to reach a total population of 33.38 million by the end of 2023 with a compound annual growth rate (CAGR) declined from 2.6% (1991-2000) to 0.9% (2020-2023p). The number of households in Malaysia is also experiencing moderate growth from 3.57 million in 1991 to an estimated 8.88 million households in 2023 with a CAGR declined from 3.4% (1991-2000) to 2.6% (2020-2023p). Meanwhile, the average household size declined from 4.9 in 1991 to 3.9 in 2022 and is estimated to further decline to 3.8 in 2023.
Mohamed Nazri Omar, Managing Director, Group Corporate & Investment Banking of Bank Pembangunan Malaysia Berhad, emphasised, “At Bank Pembangunan, we are committed to supporting inclusive growth for the nation to drive sustainable development. As an institution dedicated to impact capital for national development, we understand the importance of informed decision-making in addressing Malaysia’s housing needs. This collaboration reflects our ongoing commitment to creating solutions that will benefit both individuals and communities. We are excited to be part of this and to work alongside industry leaders to promote a stronger, more inclusive housing market.”
Property stakeholders, including policymakers and private developers, should continuously monitor demographic profiles at a micro-level and consider economic activities to ensure a localised approach to housing demand assessment. It is crucial for policymakers to consider the changing demographic profiles when formulating guidelines for property stakeholders. Meanwhile, developers should proactively consider these factors before embarking on housing developments.
REHDA Institute emphasises that affordable housing should be differentiated from social and public housing to target different groups of people at the specific locality level. The primary objective of developing social and public housing is to provide shelter to the needy who can’t afford open market pricing units. Developers should build affordable houses in line with market demand and within an open market environment. It is crucial to avoid favouring the needs of specific target markets at the expense of neglecting the housing requirements of other potential purchasers. Free market forces should prevail in housing development.
In addition, the overlapping initiatives among Federal and State Governments may also contribute to the mismatch in the market. Based on the Household Income Survey 2022 by the Department of Statistics Malaysia, the income level below RM2,000 in the Country has been on a downward trend to 433,135 households since the year 2014 (845,757 households), reduction of nearly 50%. This indicates that more households in Malaysia can afford housing properties priced above RM150,000. The four major Government Housing Initiatives namely: People’s Housing Program (PPR), Rumah Mesra Rakyat, Kediaman SPNB, and PR1MA have collectively completed 212,328 units as of 2022 which indicated nearly half of the lower income households in Malaysia have secured shelter from the Government under these four major programs. Considering the other Programs by the respective States, it is highly likely that the majority of the needs of the lower income group would have been met. The absence of a transparent and robust monitoring system raises concerns about whether the actual demand for public housing is met and whether the resources are optimally utilised. The right monitoring systems needs to be put in place to review the deployment and effectiveness of the Government’s overall housing initiatives.
Dato’ Jeffrey Ng Tiong Lip, Chairman of REHDA Institute in his opening address speech, highlighted the importance of having the right ecosystem in affordable housing living, where these units must be built in locations where there are good and affordable public transportation and have adequate facilities for work, play, education and economic activities. In short, affordable housing quota cannot be imposed across the board in all private developments as the required ecosystem may not be present, he adds. High costs have always been the stumbling block and cross subsidies are not sustainable for the industry, hence Dato’ Jeffrey believes that it is also important to relook at overall cost increase in housing development, particularly concerning compliance costs, labour and building materials as well as the housing delivery system, especially in terms of time taken for approvals at various stages, to ensure that costs are contained and houses can be priced more sustainably.
REHDA Institute Research believes that engagement between the public and private sectors in collaborative efforts and the review of current policies and regulations, based on the current market situation, are crucial to resolving the mismatch. A centralised database for the provision on supply and demand data in a transparent manner, along with strict adherence to policy implementation based on the data, will be the solution.
Established in 2004, REHDA Institute is an independent research, education, and training organization (led by Chairman – Dato’ Jeffrey Ng Tiong Lip and a Board consisting of industry captains), dedicated to address the research and educational needs of the housing industry.
The new Affordable Housing II Research Report is available for sale. Go to (https://rehdainstitute.com/publications/) or contact (via Whatsapp Mobile: +6014-280 2969 or E-mail: riresearch.publications@gmail.com).
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