Home ownership and affordability in Malaysia: Facts and myths

Let us start with the definition of myth: (a) a widely held but false belief; and (b) an exaggeration or idealised conception of a thing. The dominant narrative in the discourse on home ownership and affordability in Malaysia is best captured in this one-page highlight in the Bank Negara Malaysia Annual Report 2021 (see Chart 1). The data is from Bank Negara, the Department of Statistics Malaysia (DoSM) and the National Property Information Centre (Napic) of the Ministry of Finance.

Others parties like Khazanah Research Institute (KRI), Ministry of Finance (MoF) and Ministry of Housing (MoH) also share similar conclusions (one feeding on the other). For example, take a look at KRI’s December 2022 report “Residential Settlements and Spatial Inequality”.

The widely held conclusions are therefore: (a) house prices in Malaysia are seriously unaffordable with the majority of Malaysians not earning enough wages to afford a home; (b) house price increases have outstripped income growth, and therefore wages must go up faster than before; (c) find ways to reduce the cost of building houses for prices to fall or go up by less (for example, Construction Industry Development Board Malaysia’s technical report number 188 on the use of the industrialised building system, IBS); (d) not enough affordable houses are being built, while overpriced properties are left unsold; (e) the property market is inefficient, uncompetitive and not meeting the needs and demand of homebuyers; and (f) houses are overpriced.

Policy proposals range from: (a) those who cannot afford to buy should rent instead; (b) financing innovations like rent-to-own, or government to step in to guarantee the repayment for home purchases by the lower-income group; (c) government intervention to more aggressively build affordable housing; (d) government should intervene in the labour market by pushing up salaries from minimum wage to reach that in the middle-income group; (e) government should regulate the property industry more to ensure the market is competitive and speculation is minimised (KRI’s December 2022 report), such as setting up an approving committee in the MoH to approve all residential projects in the country, including the selling prices and the products (the assumption is that the market lacks knowledge, is not competitive or efficient … and a bunch of people sitting around a table can make better decisions than the hundreds of property developers who risk their own millions of ringgit in investments).

All the proposed solutions involve government intervention, government funding, the government taking on the risks, and a “government knows best” mindset. Some create new layers for corruption and rent-seeking opportunities to profit from. The disasters of past interventions like PR1MA homes are forgotten (read Au Fong Yee’s piece entitled “Total rethink on PR1MA needed” in her column, The Real Deal, in The Edge Malaysia, Sept 18, 2023, and Fara Aisyah’s piece in The Malaysian Reserve, May 6, 2019, “An expensive failure at PR1MA”). And the fact that the Malaysian property development industry is one of the most competitive and open is not acknowledged.

Let us now look at the facts. Although birth rates in Malaysia have peaked (see Chart 2), the total population is still rising (Chart 3). With average household sizes falling, the number of Malaysian households has continued to increase (see Chart 4). Thus, the need for homes will continue to rise. Housing is a necessity and a human right, not just an economic privilege, and therefore a matter of public interest. And I would further argue that home ownership is an important core for national stability; those who own homes are less likely to destroy the property of others. So, yes, home ownership is an extremely important national issue that must be addressed, even if there are indeed serious impediments.

Home ownership rates rose from 2012 to 2019 across the country, except for Perlis and the Federal Territory of Labuan, according to a DoSM survey (see Chart 5). This is consistent with the department’s finding that the average home price to average household income fell from 2012 to 2022 (see Chart 6). Household income grew faster than house prices from 2012 to 2022. From 2009 to 2012, it was indeed the case that the rise in household income fell behind the increase in house prices (we will explain why later).

This contradicts Chart 1. The widely held false belief (myth) is that houses are increasingly unaffordable. Yet, the data sources are the same. According to Chart 1, 76%