A Micro-Level View of Housing Affordability in Malaysia Using an Age Cohort-Housing Type Analysis

Abstract

Housing affordability has been a troubling issue for both developed and developing countries. Much of the prior literature has used the price-income ratio as the main standard to assess housing affordability, with the median disposable household income of the sample population commonly used. As such, conclusions drawn from macro-level analyses are devoid of practical policy recommendations. This paper attempts to address the housing affordability issue in greater detail by considering age cohorts, income percentiles, and different house types. An analysis was also conducted over the time period from 1995 to 2014 to compare affordability across time. Using the common benchmark of banks, a cut-off ratio of 0.35 for the mortgage installment to income ratio is used as a measure of housing affordability. The results show that for those aged 20-24 and 60-64, housing is severely unaffordable across all house types, except for the 75th income percentile group. The most expensive are semi-detached and detached housing types, which remain unaffordable to all income and age groups, except for the 75th income percentile group aged 30 and above. Terrace and high rise housing types are the most affordable across each income percentile. There is a lack of housing affordability improvement over time even with recent government interventions through affordable housing schemes specifically targeted at the lower income groups. This paper makes several contributions. By analyzing the affordability problem from a more granular perspective, strategies to develop a thriving rental market should be targeted to those in the 20-24 age cohort. A concerted effort in information dissemination by the government must be undertaken to convince would-be house purchasers that the best time, on average, to enter the housing market is when they reach their mid-30s. Emphasis should also be placed on entering housing with high-rise and terrace housing types. This analysis also helps commercial mortgage lenders segment their clienteles and thus helps reduce information asymmetry.