‘Properties remain unaffordable’

This article first appeared in The Edge Financial Daily, on November 30, 2017.
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KUALA LUMPUR: When measuring housing affordability, policymakers should take into account a person’s “lifetime” earning capability, instead of basing it on current income level, said Monash University senior lecturer Dr Jason Ng Wei Jian.

Speaking on the sidelines of the Malaysian Statistics Conference 2017, Ng said that when assessing housing affordability, policymakers and researchers currently have primarily relied on short-term measures, such as the median multiple ratio that compares house price with current incomes.

However, such assessment is giving an incomplete picture of housing affordability as it ignores people’s lifetime income potential. Someone may have sufficient lifetime income to buy a house but have a short-term financing problem, he pointed out.

The “lifetime income approach” is not commonly used by policymakers, said Ng. The approach takes into account projected cumulative income and savings of income earners, according to Ng.

Ng is involved in Monash University’s study entitled “Measuring housing affordability in an emerging market: the lifetime income approach” endorsed by the ministry of higher education that introduced the Housing Affordability Index (HAI), which measured both short- and long-term affordability of houses.

The study found that all income groups are seeing house types traditionally affordable for them dipping into unaffordable levels as early as 2014 even after taking into account cumulative income and savings of homebuyers throughout their lifetime.

Until 2014, high-rise and terrace units were found to be affordable for median income earners aged 30 in Malaysia — where no more than a third of income is used for mortgage payment.

The same was seen for the top 25% income group against the more high-end semi-detached and detached houses — painting a less bleak picture compared with other studies that emphasised current earning capability, such as the house price-to-income ratio.

But since 2014, high-rise and detached houses have become unaffordable for the aforementioned income groups, with terrace and semi-detached units following the trend. Furthermore, both terrace and high-rise units have been unaffordable for M40 income earners since 2013, according to the study.

“Government have been putting measures to address housing ownership and house pricing woes since 2013, but despite these efforts, housing prices have continued to climb by an average 9.2% between 2010 and 2015

“This is almost three times the growth [on property prices] between 2000 and 2009, which was 3.4%,” said Ng, adding that a house purchase is a big expenditure for many households.

“Any purchase decision is most likely to be made on the basis of one’s assessment of his permanent income instead of the current income. There is currently no measure of long-term housing affordability in Malaysia.”

On a related note, Ng echoed other property developer associations in suggesting the government establish a single entity to facilitate affordable housing schemes, and to be the leading example of affordable housing development.