HOUSING: (UN)AFFORDABILITY IS KEY ISSUE
Slower rise in household income relative to house prices is adding to the problem
ONE established developer is selling 30ft by 75ft five-plus-one bedroom link houses in the federal administrative capital of Putrajaya from RM1.58 million apiece (before Bumiputera discount).
Another major developer, building a township near Sungai Buloh, is offering 20ft by 70ft 2-storey link houses with a built-up area from 2,001 sq ft from RM683,888 a unit (before Bumiputera discount).
It said some 70 per cent of the 187 units were taken up during one weekend in October when the particular phase was launched.
Generally, the perception among consumers across the country is that home prices are out of reach of the ordinary Malaysian.
Thus, it was no surprise to us when Bank Negara, our central bank, declared that houses in Malaysia, as a whole, are “seriously unaffordable”.
It went on to say that within Malaysia, house prices range from “affordable” in Melaka (affordability ratio of 2.98 in 2014) to “severely unaffordable” in Terengganu, Kuala Lumpur, Penang and Sabah. Terengganu? Yes. Terengganu.
Well, how do you define housing affordability? For that matter, there is no standard definition of what is “affordable homes” since the benchmark varies from developer to developer.
Bank Negara, however, tends to use an international benchmark when it comes to defining affordability of home ownership.
According to the Median Multiple (MM) methodology developed by Demographia International to evaluate urban housing markets, a house is considered affordable if it can be financed by less than three times a household’s median annual income.
The median multiple of 3.0 is based on the historical trend in six nations where housing affordability ranged between 2.0 and 3.0 until the 1980s or 1990s.
While the accuracy of the MM in indicating an affordable housing market may vary between countries, it is a useful broad measure for comparing housing affordability.
Bank Negara data showed that using the MM approach, the ratio of median house price to the me-