Bank Negara's five-pronged approach to affordable housing

Affordable housing is expected to be one of the projects to be given greater emphasis.

KUALA LUMPUR: Bank Negara Malaysia has proposed a five-pronged strategy as a holistic approach to effectively bridge the affordable housing gap in Malaysia.

It said on Wednesday that in 2016, houses in Malaysia remained seriously unaffordable by international standards with a median multiple of 5.0. 

Bank Negara said the maximum affordable house price in Malaysia is estimated to be RM282,000 . However, actual median house price was RM313,000, beyond the means of many households, where the median national household income is only RM5,228. 

The housing affordability issue in Malaysia is largely due to the supply-demand mismatch and slower income growth. 

Financing continued to be available for purchases of houses for eligible borrowers, with more than 70% of housing loans accorded to first-time buyers and close to two-thirds of new housing loans channelled to the purchase of houses below RM500,000. 

On the supply side, structural and cyclical factors in the housing market in Malaysia have resulted in a failure of the market to provide an adequate supply of affordable housing for the masses. 

On the demand side, growth in household income has not kept up with the rise in house prices. 

Together with a low state of financial literacy amongst a majority of Malaysian households, and a cultural preference towards home-ownership instead of renting, these have contributed to the high demand for house purchases. 

The article, “Affordable Housing: Challenges and the Way Forward” was authored by Cheah Su Ling, Stefanie Joan Almeida, Ho Su Wei. 

Bank Negara said the measures were:

1) Centralisation of affordable housing initiatives; 

2) Establishing an integrated housing database and an effi cientlymanaged applicant registry for the planning and allocation of affordable housing; 

3) Reducing the cost barrier to affordable housing; 

4) Rehabilitating household balance sheets by enhancing financial literacy; and

5) Improving the rental market by strengthening the legal framework.

Firstly, Bank Negara said a single entity should be established to spearhead national affordable housing initiatives among the various government and state agencies, and private players alike. 

Affordable housing provision is currently fragmented and uncoordinated nationwide. Over 20 national and state-level agencies are involved in the provision of affordable housing. 

“This institutional factor has led to policy coordination being an issue, resulting in slow progress towards achieving the Government’s target of providing one million aff ordable homes by 2018. 

“Between 2013 and October 2017, only 255,341 homes have been completed by the various public and private sector players. 

“The consolidation will improve efficiency in planning, implementation and execution. Other strategic benefits of establishing such an entity include the acceleration of construction activities and reduced development cost due to economies of scale,” it said. 

The affordable housing initiatives could be consolidated first at the federal level, where the single entity can then leverage on the integrated database to plan aff ordable housing supply across the nation. Once this is successful, state authorities would be encouraged to be partners of the entity 

Secondly, an integrated database is key to addressing information asymmetries in the aff ordable housing market. 

Currently, Malaysia lacks such a database that captures the supply and demand of housing. The scarcity of information such as household income, characteristics and preferences has hindered the ability of supply to be tailored eff ectively to meet the demand of households. 

This has contributed to the large number of unsold residential properties, even for affordable houses, in various states including Johor, Selangor and Kedah. 

The database should comprise household income, characteristics and preferences (build-up size and location) in the market. 

Routine surveys which leverage on existing ones such as the Household Income and Expenditure Survey or the launch of a new National Housing Survey9 , could be conducted to gather household-level data. 

Such information could provide guidance on the supply to the market and should be tapped into by the Government and developers to inform developments going forward. 

In Singapore, the HDB formulates optimised housing policies and builds public housing with the support of a comprehensive database that is updated based on a survey conducted every fi ve years. 

In the United States, the Department of Housing and Urban Development plans and designs its housing programmes for different target groups utilising the American Housing Survey11 that is conducted biennially. 

For Malaysia, the survey should gather relevant indicators that will enable the centralised entity to determine the price point, location, size, design and specifi cation of aff ordable housing. 

On the supply side, more precise inventory of existing housing stock and new planned supply by location would facilitate in identifying pockets of shortages in specifi c locations. 

In addition to guiding the planning of housing by price, type and location, the integrated database would also help in identifying household segments that can aff ord to purchase a home. These households could then be prioritised in the allocation process of affordable housing units. 

Households that cannot afford a home could be directed to rental housing by state authorities. In Singapore, new HDB fl at buyers must have a valid HDB Loan Eligibility (HLE) letter before purchasing their flat. 

The HLE letter considers the fl at buyers’ age, income and fi nancial commitments to calculate the maximum loan eligibility and corresponding monthly instalments to ensure they are not fi nancially overstretched. 

To encourage an efficient allocation process of aff ordable housing units, each state should ideally have only one applicant registry. 

Currently, separate applicant registries maintained by multiple agencies and affordable housing providers may result in overlapping of applicants, where an eligible applicant might experience delays in being allocated an affordable housing unit or in some cases, allocated more than one unit. 

Thus, state agencies should consolidate applicant registries among the various affordable housing providers in each state. 

The registry should then be cleaned up to remove duplicate applicants, and updated frequently to reflect latest household information. 

The consolidation would offer a one-stop centre for potential buyers of affordable houses, enable easier detection of genuinely eligible affordable housing applicants, speed-up the allocation process, and reduce the number of unsold aff ordable housing units. 

Thirdly, reducing the cost barrier to affordable housing.

Efforts to reduce the costs of housing are crucial to lower house prices towards a more affordable level. 

High construction costs remain one of the largest barriers towards wide-scale provision of affordable housing where costs such as construction materials, labour, compliance and land could reach up to 80% of house prices according to the Real Estate and Housing Developers’ Association Malaysia. 

Labour-intensive traditional construction methods are less productive, resulting in lengthy project duration and higher overall project costs. 

Malaysia’s adoption of technologically-advanced construction methods is not helped by the abundance of low to mid-skilled foreign workers offering lower cost of labour. 

These factors have resulted in wages and productivity levels in the construction sector that are lower than the national average and far below other countries. 

Land costs in and around urban centres are also very high, impeding the ability for houses to be priced reasonably in these locations, where they are demanded the most. 

There are potential areas for cost reduction in affordable housing projects, namely adopting more advanced construction methods, pooling together resources under a single entity and reducing compliance cost for affordable housing projects. 

While a centralised entity would consolidate affordable housing initiatives at a macro level, micro-industrial improvements such as that mooted by Khazanah Research Institute could also streamline delivery and further realise cost efficiencies. 

Countries such as Singapore, India and Hong Kong have made progress in this regard through technological innovation, and standardising of housing design through the use of uniform building codes which has helped spread such practices. 

Singapore has successfully reduced its overall construction costs with a wide adoption of Industrialised Building Systems (IBS), resulting in labour cost savings of more than 45% compared to conventional means (HDB, 2011). 

Land for affordable housing could also be uncovered through the release of public land for affordable housing, transit-oriented development and idle-land policies (McKinsey, 2014). 

For example, New York City is considering using land banks, reclamation and infrastructure decking to unlock new landbank for affordable housing. 

Fourthly, rehabilitating household balance sheets by enhancing financial literacy.

For households, the purchase of a home is among the biggest financial decisions one would make.

However, the majority of households in Malaysia were found to have inadequate knowledge to make informed fi nancial decisions. 

More than 75% of Malaysians find it difficult to raise RM1,000 to meet emergency needs, while 47% of youth engaged in excessive credit card borrowings. 

The combination of low financial literacy of households, with high household indebtedness (88.4% of GDP in 2016) and house price growth exceeding household income growth contributed to lowering the ability of households to afford a home. 

This underscores the need for homebuyers to make prudent financial decisions to avoid being distressed by their financial obligations. 

It is also crucial for them to understand that the costs of owning a home goes beyond purchase costs. 

Recognising this importance, Bank Negara Malaysia aims to enhance financial literacy and homebuyer education through the Credit Counselling and Debt Management Agency (AKPK). 

For example, POWER! by AKPK off ers an online learning portal which provides home-buying advice and guidance on the decision of buying or renting a home. 

Through AKPK’s Housing Loan calculator, homebuyers could calculate the loan amount they are eligible for, while the budget assessment calculator enables homebuyers to calculate their net disposable income after taking into account other expenses. 

In addition, banks have also started off ering rent-to-own home ownership plans, where renters are given the option to purchase the house after a set period of time. 

Fifthly, improving the rental market by strengthening the legal framework.

While the country works towards increasing the supply of aff ordable housing for the masses, strengthening the residential rental market off ers a means to alleviate the issue in the short run as households rehabilitate their balance sheets and increase their income. 

Unlike countries where housing are also unaffordable (e.g. Canada, New Zealand, and Australia), Malaysia does not have a legislation that is enacted specifi cally to govern the residential rental market. 

The lack of strong legal safeguards and the absence of a speedy and affordable tenant-landlord dispute resolution process have influenced some Malaysian households to purchase rather than rent. Statistics show that Malaysia has a relatively low share of households who live in rented accommodation (24%) as compared to Canada (31%), Australia (33%) and New Zealand (36%).

 In a stronger rental market, renting instead of buying would become a viable option of choice for households who are financially overburdened. In this regard, Malaysia has taken a step in the right direction. 

In the Federal Budget 2018, the formulation of the Residential Tenancy Act was announced. The landmark initiative would provide legal safeguards for both landlords and tenants, encouraging both demand and supply for rental housing in Malaysia. 

The next step would be to establish a Tenancy Tribunal, which offers an inexpensive option to resolve disputes between landlord and tenant. 


While cities around the world have made great strides in alleviating the affordable housing issue, progress remains slow in Malaysia, the report pointed out.. 

The need to increase supply of affordable housing has been recognised in recent years, but efforts to truly improve the affordable housing market in the long run must confront the deep-rooted issues that prevent the adequate supply of reasonably priced homes. 

Housing remains out of reach for many Malaysian households despite the availability of bank financing, reflecting the ongoing concern of house price growth outpacing income growth. 

This emphasises the need to rehabilitate and improve the balance sheet of households, alongside implementing measures to increase household income in the longer-run. 

As the experiences of successful cities have shown, concerted eff orts by the Government, housing developers, banks, consumers, interest groups and regulators alike are needed to bridge the affordability gap. 

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