COMMENT Malaysia’s most unaffordable housing is in Sabah, followed by Sarawak and Kuala Lumpur.

 

Research by Institut Rakyat has revealed that the price of an average home in Sabah is over eleven times more than the annual income of a typical Sabahan family.

 

In general, homes in Sabah were twice as unaffordable as the national average.

 

Housing that costs more than three times the annual income of the median household is considered unaffordable.

 

By the end of 2012 the average house price was 5.79 times the annual income of the median Malaysian household.

 

By the first half of 2014 the national housing affordability index had improved slightly to 5.52. By international standards this makes Malaysian housing severely unaffordable.

 

However, the national figure disguises tremendous regional disparities.

 

Using the most recently available data from official sources, we compared median household income by state to the average house price by state in late 2012 .

 

We found that the Housing Affordability Index ranged from moderately unaffordable Malacca (3.16) to severely unaffordable as in Sabah.

 

Ranking states from worst to best we find the top three spots taken by Sabah (11.41), Sarawak (9.04), and Kuala Lumpur (8.22), followed by Selangor (5.88), Penang (5.83), and Kelantan (5.54).

 

The three most affordable states were Malacca (3.16), Negeri Sembilan (3.71), and Johor (4.20). However, average house prices for these states still exceeded three times the annual income of each state’s median household.

 

Sabah and Sarawak suffer from a combination of weak household incomes and house prices that are far higher than the national average, with average prices comparable to Selangor.

 

Housing affordability for middle-income families

The median household income in the first half of 2014 was RM4,258 per month.

 

An affordable house for such a middle-income household should be priced at RM153,000 and below. Such a house should offer a built-up area of at least 800 square feet and three bedrooms in order to be adequate to a family’s needs.

However, these sort of homes are in short supply.

 

By early 2014, the average house price had more than doubled compared to 2000. Prices have been climbing steeply since 2009.

This is good news for homeowners who can enjoy appreciating assets, but official data shows that 27.2 percent of Malaysian households did not own a house in 2012.

 

The government has established several schemes to make affordable housing more available to low-income groups. However, the options established for the squeezed middle-class remain sub-optimal.

 

PR1MA was established in 2012 to provide housing for middle-income households earning between RM2,500 and RM10,000 per month. The price of PR1MA houses ranges from RM100,000 to RM400,000.

 

If we apply our housing affordability criteria of being within three times annual income to PR1MA homes we find that a household earning RM2,500 a month should be paying RM90,000 and under for an affordable home, whilst those earning RM10,000 a month should be paying RM360,000.

Thus we find that PR1MA homes are overpriced by at least 11 percent.

 

The upper ceiling of qualifying incomes for PR1MA was raised in Budget 2015 from RM7,500 to RM10,000, signaling that the government recognised that the upper price range of PR1MA houses was too high. However, it remains so despite the revision.

 

In comparison, we find the Selangor state Rumah Selangorku scheme under Perbadanan Kemajuan Negeri Selangor (PKNS) to be affordably priced. The upper bound of RM250,000 homes for those earning RM8,000 a month is only 2.6 times annual household income.

 

The Pakatan Rakyat-run states of Selangor, Penang, and Kelantan rank as the fourth, fifth and sixth most unaffordable states in Malaysia respectively.

 

They have an opportunity to distinguish themselves from the national government by making home ownership genuinely accessible to both the lower- and middle-income groups.

 

Prices and incomes matter

 

Housing affordability is a factor of both house prices and household purchasing power. The government has focused most of its efforts on controlling house prices, so far with mixed results. However, its efforts on raising incomes have been lacklustre.

 

Institut Rakyat’s research on the share of wages in the national economy shows that the government is projecting a similar rate of growth from 2014 to 2020 as from 2008 to 2013.

 

Wages in Thailand and South Korea take up over 60 percent of their Gross Domestic Product (GDP), meaning that workers share more in national prosperity. In Malaysia wages comprised only 33.6 percent of GDP in 2013, and the government is only aiming to raise them to 40 percent of GDP by 2020.

 

Growth in the wage share has been deeply unimpressive. In 1971, wages comprised 33.8 percent of GDP, little different from today. In contrast, the share of GDP taken home by the corporate sector has risen from 51.7 percent in 1971 to 64.2 percent in 2013.

 

Individual salaries have not kept pace with the rise in house prices. While average house prices increased 11.8 percent between 2011 and 2012, the median salary only grew by 7.7 percent.

 

While national and state governments should continue to apply downward pressure on house prices, the federal government needs to generate more upward pressure on wages in order to close the gap between market conditions and the desire of Malaysian families to own a home.

 

 

YIN SHAO LOONG is executive director of Institut Rakyat.