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Measuring Malaysian housing affordability: the lifetime income approach

Gary John Rangel (Department of Finance, Universiti Sains Malaysia, Minden, Malaysia)
Jason Wei Jian Ng (Department of Econometrics and Business Statistics, Monash University Malaysia, Bandar Sunway, Malaysia)
Thangarajah Thiyagarajan Murugasu (Department of Econometrics and Business Statistics, Monash University Malaysia, Bandar Sunway, Malaysia)
Wai Ching Poon (Department of Economics, Monash University Malaysia, Bandar Sunway, Malaysia)

International Journal of Housing Markets and Analysis

ISSN: 1753-8270

Publication date: 7 October 2019

Abstract

Purpose

The purpose of this paper is to measure the long-run housing affordability of Malaysia over time for households at various income levels and to demonstrate how short- and long-run affordability measures can reach contradicting conclusions.

Design/methodology/approach

In this study, a long-run housing affordability index (HAI) for Malaysia was constructed for the sample period 1995 to 2014, using data from house prices and household incomes. The HAI was also modified to compute a mortgage affordability index (MAI) to account for intergenerational transfers.

Findings

The results show that households at the 25th income percentile cannot afford any of the four dwelling types in Malaysia. For households at the 40th income percentile and the median income levels, high-rise and terrace housing are affordable. However, significant downward trends in HAI and MAI are documented beginning 2009, which indicates increasing housing stress for households at or below the median income. The short-run affordability measure represented by the median multiple (MM) indicator showed bleaker conclusion for housing affordability, with all dwelling types considered unaffordable over the entire sample period

Practical implications

On the basis of the empirical results, this paper provided several long-term proposals to ameliorate the housing affordability problem in Malaysia.

Originality/value

With the MM ratio being the official affordability measure reported for Malaysia, this study introduces the nation’s first long-run housing affordability measure. It is hoped that this long-run measure will achieve widespread adoption in Malaysia. Given the deteriorating long-term affordability, this study offers several possible long-term solutions.

Keywords

Acknowledgements

Funding: This work was supported by Malaysia’s Ministry of Higher Education’s Fundamental Research Grant Scheme under Grant no. FRGS/1/2014/SS07/MUSM/03/2

Citation

Rangel, G.J., Ng, J.W.J., Murugasu, T.T. and Poon, W.C. (2019), "Measuring Malaysian housing affordability: the lifetime income approach", International Journal of Housing Markets and Analysis, Vol. 12 No. 5, pp. 966-984. https://doi.org/10.1108/IJHMA-02-2019-0023

Publisher

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Emerald Publishing Limited

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