iii housing equilibrium price framework for malaysian...

iii

HOUSING EQUILIBRIUM PRICE FRAMEWORK FOR MALAYSIAN MIDDLE

CLASS GROUP IN AFFORDABLE HOUSING MARKET

FAZILAH BINTI RAMLI

A thesis submitted in

fulfillment of the requirements for the award of the

Degree of Master of Technology Management

Faculty of Technology Management and Business

Universiti Tun Hussein Onn Malaysia

AUGUST 2017

v

For my beloved mother and father

My brother, my sister,

My love

Much appreciate for all the support,

understanding and love

from all of you

vi

ACKNOWLEDGEMENT

I would like to express my sincere appreciation to my supervisor, Dr. Rozlin binti

Zainal and my co supervisor, Dr. Maimunah binti Ali for the support, advice and

guidance given through out the duration for this research.

Also, my deep appreciation goes to my parent for their support in terms of

encouragement and financial, patience and prayers. Last but not least, appreciation

also goes to everyone involved directly or indirectly towards the compliation of

thesis.

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ABSTRACT

Failure in getting housing equilibrium price for affordable housing market has

become a hot topic that is often discussed in the press due to the imbalance between

housing demanded and supplied. The basic purpose of the research was to investigate

the relationship between macroeconomic housing demand and supply determinant

factors and affordable housing needs in Malaysia, and to determine the equilibrium

house price for middle-class income in the affordable housing market. The research

involved the development of theoretical framework by synthesising the models and

framework developed by past researchers on the housing equilibrium price

framework. It also uses time series analysis together with regression analysis to

collect and analyse data. As initial, 371 respondents from household’s side and 32

respondents from developer’s side in Melaka Tengah were selected as samples as

case study in Melaka. During data analysed, around 200 questionnaires from

households and 32 questionnaires from developers can be used. The data was

analysed using SPSS software to investigate the relationship between

macroeconomic housing demand and supply determinant factors towards the needs

and supply of affordable housing market. From the investigation, current house price,

monetary status and population changes are the most critical factors that lead to the

needs of affordable housing supplies. Meanwhile, developers put the interest rate,

government interventions and population changes as the catalyst to develop the

affordable housing projects. On the other hand, the empirical data of housing prices

are collected from NAPIC from 2006 to 2015. The equilibrium price calculated from

the sales performance within four quarter reported by NAPIC is examined using

linear regression method. Based on these themes, the research contended that the

housing equilibrium price can be achieved using empirical data from demand and

supply with supported from current house price, monetary status and population

changes the interest rate, government interventions and population changes. Hence,

government is the key player and be a pulling effect in controlling the housing price

by using the housing demand and supply determinant factor to create a win-win

situation between middle-class income and housing developers.

viii

ABSTRAK

Kegagalan dalam mendapatkan harga keseimbangan perumahan untuk pasaran

perumahan yang mampu dimiliki telah menjadi topik hangat yang sering

dibincangkan dalam akhbar kerana ketidakseimbangan antara perumahan yang

diminta dan dibekalkan. Tujuan asas penyelidikan ini adalah untuk mengkaji

hubungan antara permintaan perumahan makroekonomi dan faktor penentu bekalan

dan keperluan perumahan yang mampu dimiliki di Malaysia, dan untuk menegtahui

harga rumah keseimbangan untuk pendapatan kelas pertengahan di pasaran

perumahan yang berpatutan. Kajian ini melibatkan pembangunan model teoritis

dengan mensintesis model yang dibangunkan oleh penyelidik terdahulu mengenai

kerangka harga keseimbangan perumahan. Ia juga menggunakan analisis siri masa

bersama-sama dengan analisis regresi untuk mengumpul dan menganalisis data.

Sebagai permulaan, 371 responden dari pihak isi rumah dan 32 responden dari pihak

pemaju di Melaka Tengah dipilih sebagai sampel memandangkan kajian kes di

Melaka. Sebanyak 200 soal selidik dari isi rumah dan 32 soal selidik dari pemaju

boleh digunakan. Data dianalisis dengan menggunakan perisian SPSS untuk

menyiasat hubungan antara permintaan perumahan makroekonomi dan faktor

penentu bekalan ke arah keperluan dan penawaran pasaran perumahan yang mampu

dimiliki. Status kewangan dan perubahan penduduk adalah faktor yang paling

kritikal yang membawa kepada keperluan bekalan perumahan yang mampu dimiliki.,

Pemaju meletakkan kadar faedah, campur tangan kerajaan dan perubahan penduduk

sebagai pemangkin untuk membangunkan projek perumahan yang mampu dimiliki.

Sebaliknya, data empirikal harga perumahan dikutip dari NAPIC dari 2006 hingga

2015. Harga keseimbangan yang dikira daripada prestasi jualan dalam tempoh empat

suku yang dilaporkan oleh NAPIC diperiksa menggunakan kaedah regresi linear.

Kajian ini menegaskan bahawa harga keseimbangan perumahan dapat dicapai

dengan menggunakan data empirikal dari permintaan dan bekalan kerana permintaan

untuk perumahan selalu wujud sebagai perumahan adalah suatu keperluan bahkan

harga yang ditawarkan tidak munasabah. Walau bagaimanapun, kerajaan adalah

pemain utama dan menjadi daya tarikan dalam mengawal harga perumahan dengan

menggunakan permintaan perumahan dan faktor penentu bekalan untuk mewujudkan

situasi menang-menang di antara isi rumah dan pemaju perumahan.

ix

TABLE OF CONTENTS

ACKNOWLEDGEMENT vi

ABSTRACT vii

ABSTRAK viii

TABLE OF CONTENTS ix

LIST OF TABLES xiii

LIST OF FIGURES xv

LIST OF SYMBOLS AND ABREVIATIONS xvii

LIST OF APPENDICES xviii

CHAPTER 1 INTRODUCTION 1

1.1 Background of Research 1

1.2 Research Problem 2

1.3 Research Questions 6

1.4 Research Aim and Objectives 7

1.5 Scope of Research 7

1.6 Significance of Research 8

1.7 Research Organisation 9

1.8 Conclusion 10

CHAPTER 2 LITERATURE REVIEW 11

2.1 Introduction 11

2.2 Current Scenario of Housing in Malaysia 11

2.3 General Attributes and Operational Definitions 18

2.3.1 Affordable Housing 18

2.3.2 Malaysian Middle Class Income Group 20

2.3.3 Housing Market 21

2.3.4 Medium-Cost Housing Needs 22

2.3.5 Medium-Cost Housing Provided 24

2.4 Previous Study on Related Topic 25

x

2.5 Law of Demand 28

2.6 Law of Supply 30

2.6.1 Short-Run Aggregate Housing Supply 32

2.6.2 New Construction 35

2.7 Macroeconomic Housing Demand Determinant Factors 38

2.7.1 Factor of Economy 38

2.7.2 Factor of Social 41

2.7.3 Factor of Politic 46

2.8 Housing Equilibrium Price Model 48

2.9 Summaries on Housing Demand and Supply Determinants 49

2.10 Theoretical Framework 52

2.11 Conclusion 56

CHAPTER 3 RESEARCH METHODOLOGY 57

3.1 Introduction 57

3.2 Research Design 57

3.3 Research Process 61

3.4 Research Instrument 64

3.4.1 Secondary Data Analysis 64

3.4.2 Questionnaire Survey 67

3.5 Selection Sample 71

3.6 Reliability Test 75

3.6.1 Pilot Test 75

3.7 Research Flow for Achieving Objective One 77

3.7.1 Preparing Data File 77

3.7.2 Factor Analysis 80

3.7.3 Factorability Considerations Analysis 80

3.7.4 Factor Extraction Analysis 80

3.8 Correlation Analysis 82

3.8.1 Pearson r Correlation Analysis 83

3.9 Regression Analysis 85

3.10 Research Flow for Achieving Objective Two 86

3.10.1 Correlation Analysis 88

3.11 Research Flow for Achieving Objective Three 89

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3.12 Conclusion 92

CHAPTER 4 DATA ANALYSIS AND RESULTS 93

4.1 Introduction 93

4.2 Data Analysis Results for Survey Method (Set I) 94

4.2.1 Effect of the Housing Demand Determinants toward

the Affordable Housing Market in Malaysia 97

4.3 Data Analysis Results for Survey Method (Set II) 105

4.3.1 Effect of Housing Supply Determinants toward

Affordable Housing Market in Malaysia 107

4.4 Data Analysis Results for Document Analysis Method 110

4.4.1 Stage One (Histogram Bar Chart Analysis) 110

4.4.2 Stage Two (Demand and Supply Mechanism) 114

4.4.3 Stage Three (Housing Equilibrium Price Identification) 115

4.5 Conclusion 120

CHAPTER 5 DISCUSSION 122

5.1 Introduction 122

5.2 Summary of Findings for Objective One 122

5.3 Macroeconomic Housing Demand Determinant Factors

toward the Need of Affordable Housing Market 123

5.3.1 House Price 123

5.3.2 Monetary Status 124

5.3.3 Changes of Population Structure 125

5.3.4 Infrastructure & Amenities Provided 126

5.3.5 Location 126

5.3.6 Housing Physical State 127

5.4 Summary of Findings for Objective Two 128

5.5 Macroeconomic Housing Supply Determinant Factors toward the

Affordable Housing Market Provided 129

5.5.1 Interest Rate 129

5.5.2 Government Interventions 130

5.5.3 Changes of Population Structures 130

5.5.4 Land Availability 131

5.5.5 Cost of Construction 132

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5.5.6 Location 133

5.6 Information Required in Performing Housing Equilibrium Price 134

5.6.1 Housing Demand and Supply Behavioural 134

5.6.2 Interaction between Housing Demand and Supply 136

5.6.3 Housing Equilibrium Price Respond in Housing Market 137

5.7 Conclusion 140

CHAPTER 6 CONCLUSIONS AND RECOMMENDATIONS 141

6.1 Introduction 141

6.2 Achievement of the First Objective (Housing Demand

Determinants) 142

6.3 Achievement of the Second Objective (Housing Supply

Determinants) 143

6.4 Achievement of the Objective Three (Housing Equilibrium Price) 145

6.5 Limitation of Research 146

6.6 Recommendations for Research 147

6.6.1 Recommendations for Practitioners 148

6.6.2 Recommendations for Body of Knowledge 148

6.6 Closure 149

References 149-163

Appendices 164-213

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LIST OF TABLES

1.1 Total number of squatters for each state in Malaysia during

the year 2014

4

2.1 Housing affordability category 13

2.2 Comparison of housing affordability across states in

Malaysia 2014

14

2.3 Gap between housing needs and housing provided for low

starting year 1971 until 2010

17

2.4 Definition of affordable housing according to the type of

scheme

19

2.5 Mean and median monthly salary and wages by

occupation

20

2.6 Housing needs under five year Malaysian housing plans 23

2.7 Housing provided under five year Malaysian housing plans 25

2.8 Research gap analysis on housing market issues 26

2.9 Policy to curb speculations 34

2.10 Revised of RPGT 34

2.11 Scheme eligibility for each type of housing scheme 47

2.12 Housing demand determinant factors 51

2.13 Housing supply determinant factors 52

3.1 Sampling and coding plan 65

3.2 Total housing demand and supply for year 2006-2015 66

3.3 Summary of element in questionnaire form set i 69

3.4 Summary of element in the questionnaire form set ii 70

3.5 Descriptive scale of Likert scale 71

3.6 Sample size determination 74

3.7 Reliability statistics I (questionnaire set I) 76

3.8 Reliability statistics II (questionnaire set II) 76

3.9 Variable coding instruction 78

3.10 Summaries of screening data for questionnaire factors 79

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3.11 Guidelines for determination of relationship strength 83

3.12 Variable coding summarise 87

3.13 Summaries of screening data for questionnaire factors 88

4.1 Household’s Demographic Results 94

4.2 KMO and Barlett’s Test 97

4.3 Total variance explained 98

4.4 Comparison of eigenvalues from SPSS software and

Monte Carlo parallel analysis

99

4.5 List of factors in five components extracted 100

4.7 New r-value set i 102

4.8 Interrelationship among demand determinant factors 103

4.9 Developer’s demographic results 106

4.10 Correlations result set II 107

4.11 New r-value set II 107

4.12 Interrelationship among supply determinant factors 108

4.13 Housing equilibrium price during the year 2006 until 2015 114

4.14 Regression results 116

4.15 Housing equilibrium price according to the level of price

categorised 117

5.1 Summary of findings for objective one 123

5.2 Summary of findings for objective two 128

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LIST OF FIGURES

1.1 Total of housing unit’s construction approved from year

2010 until 2014

4

2.1 Comparison between growth average of house prices and

household income

12

2.2 Comparison of new housing supply and households

density

15

2.3 Fundamental law of demand 28

2.4 House price growth 29

2.5 Fundamental law of demand 30

2.6 Long-run period supply 31

2.7 Short-run period supply 32

2.8 Theory of housing prices 33

2.9 Pipeline effect 36

2.10 New construction (completions) 36

2.11 Effects of exogenous shifters on new construction 37

2.12 Hierarchy of housing needs 42

2.13 Chart of urbanization level amongst key states 44

2.14 Process of ‘goldfish phenomenon’ 45

2.15 Demand and supply mechanism 49

2.16 Theoretical framework 55

3.1 Case study in Melaka 58

3.2 Research flow chart 63

3.3 Flow chart of data analysis process 77

3.4 Monte Carlo PCA analysis 82

3.5 Stages achieving objective one 84

3.6 Stages achieving objective two 89

3.7 Research flow chart for objective three 91

4.1 Scree plot 98

4.2 Macroeconomic housing demand determinant factors

involve toward affordable housing market need

105

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4.3 Macroeconomic housing supply determinant factors

involve toward affordable housing market provided

110

4.4 Histogram bar chart of housing demand and supply

develop across year 2006 until 2015

111

4.5 Housing equilibrium price at RM50,000 until RM100,000 117

4.6 Housing equilibrium price at RM 100,000 until

RM150,000

118

4.7 Housing equilibrium price at RM150,000 until

RM200,000

118


RM250,000

118


RM300,000

119

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LIST OF SYMBOLS AND ABREVIATIONS

α - Alpha

β - Beta

ρ - Price

CAGR - Compound Annual Growth Rate

CFO - Certificate of Occupancy

DIBS - Developer Interest Bearing Scheme

EP - Equilibrium price

GDP - Gross domestic Product

ICS - Interest capitalization schemes

NEAC - National Economic Action Council

NEP - New Economy Policy

NKRAs - National Key Result Areas

NRV - National Research Venture

OPR - Overnight Policy Rates

PAKR - Public Low Cost Housing Program

PHP - People Housing Program

PIR - Price-Income Ratio

PPA1M - Perumahan Penjawat Awam 1 Malaysia

PR1MA - 1 Malaysia Housing Program

REHDA - Real Estate and Housing Developers

RUMAWIP - Rumah Mampu Milik Wilayah Persekutuan

SPNB - Syarikat Perumahan Negara Berhad

UNCHS - United Nations Centre for Human Settlement

xviii

LIST OF APPENDICES

A Reliability test (households) 164

B Reliability test (developers) 165

C Categorical variables (household - demographic) 166

D Categorical variables (household - house price) 168

E Categorical variables (household - housing state) 170

F Categorical variables (household - monetary status) 172

G Categorical variables (household - population) 174

H Categorical variables (household - location) 176

I Categorical variables (household - infrastructure) 178

J KMO and Barlett test 179

K Total variance explained 180

L Rotated component 181

M Correlation (I) 182

N Categorical variables (developer) 183

O Correlation (II) 184

P Linear regression result I 185

Q Linear regression result II 187

R Linear regression result III 189

S Linear regression result IV 191

T Linear regression result V 193

U Graph of normal P-P plot of regression standardized

residual (Total Demand)

195

V Graph of normal P-P plot of regression standardized

residual (Total Supply)

195

W Sample of questionnaire form for households 196

X Sample of questionnaire form for developers 204

Y1 Chart of the housing demand trend in 2015 204

Y2 Chart of the housing supply trend in 2015 204

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Y21 Chart of housing equilibrium price during 2015 210










CHAPTER 1

INTRODUCTION

1.1 Background of Research

In recent decades, the demand for affordable housing has been increasing over the

world until today (Wood, 2007). Even today, the affordable housing sector market

has yet to meet the demands of the global population in the city (Jenkins et al., 2007).

The population of Malaysia has increase from 21.3 million in 2000 to 30 million

people in 2013 with a growth rate of 1.6%. The GDP has increased within this time

along with the per capita income. The housing prices have increased by 12.3%

annually all over the country (DoS, 2015). In the last decade, housing needs

increased more than three times as fast for very low-income households with full-

time employment than for all other very low-income households. It is generally

accepted because housing market conditions can vary greatly across geographic areas

so local planning agencies and governments have a greater understanding of the

demographic and housing characteristics for their regions and are able to develop

effective housing strategies (Feldman, 2002).

The issue of affordable housing in the world has not subsided. Past research

in the US showed housing absolutely needs assistance in the form of federal financial

and require either for profit or for non-profit parties to be responsible (Wallace,

1995). Immense chasm between demand and supply of affordable housing supply

will cause the housing market price to be unstable besides leading to the problem of

squatters (Arman et al., 2009). According to the Kalarickal & Buckley (2006),

affordable housing market sector was identified as one of the most under-penetrated

markets by private companies.

2

As an alternative to compulsory affordable housing construction, the

government take initiatives to provide free land at strategic areas backed by efficient

public transportation systems. The government can also fix the price or the

proportional rise in price per square feet for affordable housing units under the

development projects (EPU, 2015). Besides that, starting the year 2014, developers

must build at least 20 percent low-cost houses and 20 per cent medium-cost houses

in any housing project. The houses are open to first-time buyers with a monthly

household income of RM3,000 for low-cost houses and a maximum of RM6,000 for

medium-cost houses (Shuid, 2011).

The Tenth Malaysia Plan includes establishing 78,000 affordable housing

units, out of which 38,950 will be under the People’s Housing Program (PHP) and

39,050 units will be under the programs conducted by Ministry of Rural and

Regional Development. Government has a lot to do when it comes to developing

low-cost and affordable housing for the people of Malaysia. Most importantly, in

2014 Budget, government is providing subsidy of RM30,000 per unit, which

encourage developers to build more low- and medium-cost houses (EPU, 2015; KRI,

2015).

1.2 Research Problem

Failure in getting equilibrium price for affordable housing in Malaysia lately has

become a hot topic that is often discussed in the press due to the increase in a number

of overhang units of housing recorded across our country. Residential, Shops and

Industrial Properties Market Status Report Q1 2014 issued by NAPIC shows that the

houses priced below RM50,000 recorded the highest sales performance which is

about 73 percent of the total new houses launched in the past two years (NAPIC,

2014). However, NAPIC (2014) found that developers tend to build houses ranging

from RM150,000 until RM500,000 even the majority of overhang units is about

7,801 units of 13,055 recorded after being launched into the market came from house

prices below RM300,000. According to the Malaysia Housing Minister, there is

about 40% difference between the demand for affordable housing and its supply in

Malaysia recorded in the year 2014 (EPU, 2015). Dos (2014) states that 80%

Malaysians earn less than RM 6,900 per month and cannot afford houses priced at

higher than RM 300,000 (EPU, 2015).

3

Most of the private housing developers used the cost-based pricing method to

determine the price of residential properties (Rasid, 2013). According to Sheehan

(1997), cost-based pricing method is referring to the total up from the land cost,

construction cost, and soft cost. Even though the local authorities had set the price

ceilings housing category but the developers still disobey the regulations (Shuid,

2011). The mismatch between real market demand and what is being offered

obviously happen because of the developer’s behaviour. Even the policy had been

regulated which is there must be 30% medium-cost and 20% low-cost components

respectively to the landed development more than three acres while 30% medium-

cost component for developments on an area less than three acres, still the developers

do not show their interest to participate (NAPIC, 2014). Situation always happen

more likely despite there are 10 affordable houses unit requested by the market, the

developers only supplying two affordable units, four office spaces units, two retail

spaces units and two very high-cost properties units (MoF, 2015).

Besides that, developers seem take too much profit up to above 50% of the

cost of selling the house since there is no specific ways or methods they must

followed. This is happen because the developers are forced to pay high amounts of

constructions premium to the state government besides the soft cost, which act as a

hidden cost in the housing development projects. As sequences, the developers will

include the addition costs when pricing the house (Osmadi et al., 2015). They set the

house price at will even for the affordable housing price because there is no

monitoring from the government done all this time (Sinar Harian, 2013). The impact

is, the buyer cannot afford to buy the house and the speculators will control the

housing situation until the house price boomed (Osmadi et al., 2015). However,

limited studies have discussed on the weaknesses of pricing method used by the

developers to evaluate the housing prices (Osmadi et al., 2015).

Nevertheless, the traditional method used can be improved so that the

developers are more interested to provide the affordable house with affordable price

without ignoring the profit margin (Rasid, 2013; Bakhtiar, 2013). In addition, the

problem encountered based on the report shows immense chasm happening between

demand and supply for affordable housing in our country. From the perspective of

surplus in high-cost housing, it shows that our country has prompted real estate

developers, which are more focused on developing luxury property instead of

developing affordable housing (JPN, 2015). This statement is strongly agreed by

4

Wood (2007) who opines that property owners are more interested in projects

that can give them lucrative return and this, of course, do not refer to affordable

housing projects. Hence, prices of existing homes in the low and middle price

segment continue to grow (EPU, 2015). Figure 1.1 shows total of housing unit’s

construction approved from year 2010 until 2014. The figure reaffirms the overview

about the scenario happening in housing supply based on house price category. From

the figure, it is prove that the majority of developers apply approval for high-cost

houses instead of other categories. More troubling issues are approval for the

construction of low-medium cost houses which decreased by 79.2% (4,621 units) in

2014 compared to 2013.

Figure 1.1: Total of Housing Unit’s Construction Approved from Year 2010 until

2014

(JPN, 2015)

The figure illustrates a significant difference and imbalanced proportions

between Malaysian housing supply and needs of what has been constructed and what

Malaysia actually needs. The effects from the surplus of high-cost housing units lead

to a huge total number of squatters by each state across our country including Sabah

and Sarawak (Shuid, 2003; KRI, 2015; JPN, 2015; NAPIC, 2014; MURNInets,

2016). Obviously, the gap supply for lower cost housing is more important than high-

cost housing. Furthermore, a number of people with a monthly income of RM700.00

consist of at least 440,000 people recorded since the year 2011. However, the 10th

Malaysia Plan is only talking about 78,000 affordable units when Malaysia has more

than 1,300,000 people living under the poverty line (Bakhtiar et.al, 2013). High-cost

Yea

r

Unit

5

housing is indicated by prices over RM100,000 while low-cost housing is indicated

by prices less than RM42,000.

Table 1.1 shows the total number of squatters according to each state in

Malaysia during the year 2015. We can say that only Melaka recorded the lowest

total number of squatters since the state provided not only sufficient housing supply

units but also affordable housing prices. From Table 1.1, Sabah has the highest total

number of squatters in Malaysia followed by Johor and Sarawak where each of them

recorded 133059, 31553, 35233 inhabitants respectively. None of the states across

the country had zero squatters recorded for all this time. However, Melaka, Negeri

Sembilan, and Terengganu recorded the lowest total number of squatters in this year.

This sign actually warns responsible agencies to realize that there is still a huge gap

between demand and supply housing due to socioeconomic changes, urbanization

and evolving population structures. Squatters will continue to be widespread among

the low and lower middle-income households in urban areas as long as the issue of

inadequate supply of affordable housing is still unresolved.

Therefore in such situations that already discussed by NAPIC (2014), Wood

(2007), EPU (2014), Sinar Harian (2013) & MoF (2015) the implementation of an

equilibrium price for Malaysian middle-class income in the affordable housing

market among developers should be proposed in order to make sure they set an

equilibrium price on par with total demand. Considering that the private developers

carry out many housing development projects, it is vital for them to know and

implement the framework proposed in this research to ensure an adequate supply of

affordable housing to the middle-income households. According to KRI (2015) and

Osman et al. (2017) Melaka Housing Board is the only board who one step forward

in providing adequate affordable housing where it also indirectly solving the

squatters problem even Johor, Pulau Pinang, Pahang and Selangor were established

at the same time. The board showed that they can manage to oversee the affordable

housing development projects even the other housing board. Melaka Housing Board

is a state government agency that had been organized to oversee the affordable

housing development projects in Melaka. The Board was established in 2002 through

the passing of the Melaka Housing Board Enactment 2002. Secondly, all over the

years, Melaka is one forward step in providing adequate affordable housing where it

also indirectly solving the squatters problem compared to other states such as Johor,

6

Pulau Pinang, Pahang and Selangor by showing the improvement of house price year

by year in Melaka (KRI, 2015; Osman et al.,2017).

Table 1.1: Total Number of Squatters for Each State in Malaysia during 2015

(KRI, 2015)

1.3 Research Questions

This research seeks to answer the following questions based on the research problem

identified:

1. What is the relationship between housing demand determinants with

affordable housing needs in Malaysia?

2. What is the relationship between housing supply determinants with affordable

housing provided in Malaysia?

3. What is the housing equilibrium price for Malaysian middle-class income in

the affordable housing market?

State Family Family Members Building

Johor

11,151

31,553

8,346

Kedah 2,703 13,255 2,703

Kelantan 1,685 7,780 1,649

Melaka 7 19 7

Negeri Sembilan 195 382 233

Pahang 1,134 5,632 935

Perak 1,709 6,836 1,709

Perlis 1,853 8,570 1,853

Pulau Pinang 4,208 18,909 2,875

Sabah 28,087 133,059 26,479

Sarawak 8,431 35,233 7,784

Selangor 2,542 3,299 3,299

Terengganu 469 1,976 450

Wilayah Persekutuan Kuala Lumpur 3,217 12,868 3,217

Wilayah Persekutuan Labuan 970 5,521 970

Total 68,361 284,892 62,509

7

1.4 Research Aim and Objectives

This research is conducted to propose a housing equilibrium price framework for

Malaysian middle-class group to create an affordable housing market. Therefore,

several research objectives need to be achieve to reach the research aim namely,

1. To investigate the relationship between housing demand determinants and

affordable housing needs in Malaysia

2. To investigate the relationship between housing supply determinants and

affordable housing provided in Malaysia.

3. To determine the housing equilibrium price for Malaysian middle-class

income in the affordable housing market.

1.5 Scope of Research

Melaka Tengah was chose as case study in this research to represent Malaysia by

taking considerations that Melaka as UNESCO World Heritage Site. This research

focussed on Melaka Tengah because the district had proven that the district had

improved and maintained the housing affordability among the citizen even it is

surrounded with high population density together with high good potential

development and urbanization (Osman et al., 2017). Population for households for

Melaka Tengah was estimated around 23,540 respondents including who are living at

Ayer Keroh, Ayer Molek, Batu Berendam, Bukit Baru, Bukit Rambai, Kandang,

Klebang, Melaka, Paya Rumput, Sungai Udang, Tangga Batu and Tanjong Kling

(DoS, 2015). However, the research had some limitations since the total number of

respondents only covered for Melaka Tengah instead of all Melaka state.

The first and second research objective is to investigate the relationship

between housing demand and supply determinants and affordable housing market in

Malaysia. For these objectives, the researcher used the questionnaire method and

distributed to two different types of respondents. The first set of questionnaire was

distributed to households between the age group of 25 to 40 years old in Melaka by

taking considerations from KRI (2015) which state that the majority of households

aged from 25 to 40 years old are facing difficulties in homeownership. Meanwhile,

the alternate survey was focused on the housing developers in Melaka because

8

according to DoS (2015), NAPIC (2015) and KRI (2015), Melaka had stood out

providing housing under affordable level compared to other state (KRI, 2015).

Results from both set of questionnaires were analysed using SPSS software to

get the strength of the relationship between the macroeconomic housing demand

determinant factors (current house price, affordable housing physical state, monetary

status, population changes, affordable housing location, infrastructures and amenities

provided) and macroeconomic housing supply determinant factors (interest rate,

construction cost, land availability, population changes, location, government

interventions) toward the affordable housing market need and supply in Malaysia.

On the other hands, third objective aims to determine the equilibrium price

for affordable housing for Malaysian middle-class income. The researcher use

secondary data analysis method to extracted the total housing demand and supply

starting year 2006 until 2015 from the Property Market Status Report from NAPIC

website. According to Riddle (2004), more than 10 years is considered accepted for

the housing demand and supply. This objective was focused on the landed housing

properties include any type of terrace house, any type of detached house, cluster and

town house, priced between RM50,000 until RM300,000 by taking considerations

from MURNInets (2016) which states that RM300,000 is a maximum price in the

affordable market price for middle-class income groups which normally face

dilemmas in homeownership.

The different final process of analyses involved are the cost-benefit analysis

process and linear regression analysis to see the equilibrium price across 10 years

selected. The analysed series data was analysed by using Microsoft Excel for further

explanation and SPSS software to complete the demand and supply equation so that

the housing equilibrium price framework for the affordable housing market can be

developed.

1.6 Significance of Research

The importance of the research is to propose the equilibrium price for the affordable

housing market in Malaysia. As we know, the state of Melaka is already categorised

providing the affordable housing market which the housing price is at three times of

the median multiple DoS (2015), NAPIC (2015) and KRI (2015). Therefore, this

9

research is carried out to create awareness among developers on how to achieve the

equilibrium price in the affordable housing market.

Besides that, the government also can improve their policy to control housing

prices as the research is going to identify factors involved in getting equilibrium

price for affordable housing market. In addition, this research will promote ways to

get equilibrium price for affordable housing so that scholars can improve the

equilibrium price framework proposed in order to make Malaysian housing

affordable not only in Melaka.

1.7 Research Organisation

This research contains seven main chapters. Overall, combination and alterations

from chapter one, two, and three are giving the theoretical framework for the

research. Chapter one generally explains about the background of research and

research problem. From that, research questions and research aim, and research

objectives are developed meanwhile the scope of research is identified.

Chapter two explains about the affordable housing problem market in detail.

Besides that, it also discusses theory related to imbalance between demand and

supply determinants and other determinants that cause the changes in house price.

Issues on affordability toward housing homeownership are also explained in this

chapter.

Research methodology will be discussed in the next chapter which is in

chapter three. Within this chapter, it covers two technique of gathering data including

primary data and secondary data. This chapter is fundamental to the research because

it explains about the research process, framework concept, ways to gather data and

information, and analysis method chosen.

The subsequent chapter covers the process of analysing data from primary

data gathered from respondents. Through this chapter, each research objective will

nearly be achieved because the results obtained are displayed, and analysed

according to the priority based on stages planned in the previous chapter.

Chapter five presents the findings of each research objective. In this chapter,

further discusion will be done in order to form a conclusion for solving the

framework proposed in the starting chapter.

10

Heading to the last chapter which is chapter six. Conclusion and suggestions

to improve the affordable housing market will be stated and recommendations for

future research will be suggested.

1.8 Conclusion

Affordable housing is not a welfare issue but it is a structural issue caused by an

unresponsive housing sector. Choosing the suitable method in doing a research is

essential which may influence in generating good information. Last but not least, this

chapter is actually the beginning of the research process. Identifying the research

background followed by current issues were highlighted in the research problem.

Consequently, research questions will be raised from the problem that are in the

limelight lately.

CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

House is the largest single asset for most people since it is a part of non-pension

wealth in their life. That is why; changes in house prices can greatly affect their total

household wealth indirectly. Every increase and decrease in house price has pros and

cons. However, lower house price can open up many opportunities for young

households to buy houses instead of renting them but at the same time, it could hurt

the entire house owner. Hence, particularly in recent years, housing equilibrium

prices have been in the limelight for various research areas. Relevant theories will be

discussed later in this chapter to shed light on this issue.

2.2 Current Scenario of Housing in Malaysia

Over the past few years, the housing price market in Malaysia had experienced a

huge value development that affected the purchasing power among the home buyers

especially first time home buyers (Mohd Shoed & Subramaniam, 2016). According

to BNM (2016), incomes were rising more than the growth of house prices between

years 2004 to 2007. This sign shows the housing affordability across Malaysia has

progressively declined due to the uneven pace of house prices and income growth

(BNM, 2016). The average of house prices in Malaysia rose by 7.9% in average

annual growth rate over a specified period of time (CAGR), exceeding the growth in

average household income of 7.3% over the same period during the period in 2009

and 2014 (see Figure 2.1).

12

Figure 2.1: Comparison between Growth Average of House Prices and Household

Income

(BNM, 2016)

The gap between actual house prices and the levels that are considered

affordable to the majority of Malaysian households requires comprehensive

resolution. This is why the research is designated especially to focus on the

households between the age group of 25 to 40 years old as a respondent to answer

the first research. Over the next 20 years, this segment of the population will join the

ranks of a growing middle-income group aspiring to home ownership (Utusan

Online, 2016). To give an idea of the current size of demand for housing, Malaysia’s

Household Income and Basic Amenities Survey Report of 2012 indicates that nearly

42% of households fall within the middle-income range of RM3,000-RM6,999 or a

mean monthly income of around RM4,600 (DoS, 2014). This may be translated into

about 3 million middle-income households that have to be housed by the private

sector and another 2.5 million households to be covered by public social housing

programs.

According to the BNM (2016) and Utusan Online (2016) households between

the age group of 25 to 40 years old facing difficulties in homeownership as they tend

to be indebted with existing debt obligations such as car loan and outstanding credit

card repayments. Consequently, housing affordability can use median multiple to

evaluate urban housing markets. The median multiple was first developed in 1988 by

13

UNCHS and the World Bank under the Housing Indicators Program (KRI, 2015).

Basically, median multiple is also known as price to income ratio that gives the

‘global norm’ based on rating housing affordability categories (see Table 2.1) (Angel

et. al., 1993; Angel, 2000; Demographia, 2015).

Table 2.1: Housing Affordability Category

(Demographia, 2015)

Rating Median Multiple

Severely unaffordable 5.1 and above

Seriously unaffordable 4.1 – 5.0

Moderately unaffordable 3.1 – 4.0

Affordable 3.0 and below

House price can be considered as an affordable state if a household can

finance it with less than three times its annual household income. Hence, this

suggests that houses priced up to RM165,060 are considered affordable to general

median Malaysian household (BNM, 2016). House price above RM500,000 is

considered affordable only for households earning at least RM15,000 a month (5.4%

of Malaysia’s total population in 2014). However, level of affordability for each

household for each state of Malaysia are differs. Table 2.2 shows the housing

affordability for Terengganu, Kuala Lumpur, Pulau Pinang, and Sabah that stood out

as severely unaffordable compared to other states in Malaysia. However, only the

state of Melaka stood out as under affordable for housing affordability (EPU, 2015).

Indeed, this research is focused on the private developers in Melaka to investigate on

how they determine the house price in the affordable condition.

14

Table 2.2: Comparison of housing affordability across states in Malaysia, 2014

(DoS, 2015, NAPIC, 2015 & KRI , 2015)

No. Area Monthly

median

income

Annual

median

income

Market

median-3

price

Median

all house

price

Median

multiple

affordability

Affordability

1.

2.

3.

4.

Terengganu

K. Lumpur

P. Pinang

Sabah

3,777

7,620

4,702

3,745

45,324

91,440

56,424

44,940

135,972

274,320

169,272

134,820

250,000

490,000

295,000

230,000

5.5

5.4

5.2

5.1

Severely

unaffordable

5.

6.

7.

8.

9.

Pahang

Kelantan

Perak

Perlis

Johor

3,389

2,716

3,451

3,500

5,197

40,668

32,592

41,412

42,000

62,364

122,004

97,776

124,236

126,000

187,092

200,000

157,740

180,000

181,000

260,000

4.9

4.8

4.3

4.3

4.2

Seriously

unaffordable

10.

11.

12.

13.

Selangor

Negeri

Sembilan

Sarawak

Kedah

6,214

4,128

3,778

3,451

74,568

49,536

45,336

41,412

223,704

148,608

136,008

124,236

300,000

188,888

164,667

140,000

4.0

3.8

3.6

3.4

Moderately

unaffordable

14. Melaka 5,029 60,348 181,044 180,000 3.0 Affordable

The changes in population in Malaysia happen in many ways such as

migration of people from rural to urban areas, job transfers, maternity, marriage, and

urbanisation will increase the demand for housing property (Vermeulen & Ommeran,

2006). Rapid development in a city due to the economic activities had attracted the

rural communities to migrate and experience urban life (Agus, 2005). Apart from

that, the city is forced to face the housing shortages because of the increased

population from the migration activities (Abdullah et al., 2017. The existence

shortage of housing supply linked with the process of urbanisation and urban growth

encourage residents flocking to the city to get a chance offered by the city.

However, this research is not discussing this matter with further, it is

sufficient to declare the existence of such relationships in order. Figure 2.2 shows the

comparison of new housing supply and the household’s density starting the year

2005 until 2015. Between 2005 and 2008, the number of new houses completed

averaged 166,876 units annually, while the number of households increased by about

117,250, implying a surplus supply of housing units of about 49,626 units per year.

15

Over the past five years, however, the annual completion of houses has declined

considerably to 80,089 units, far below the 166,000 average net increases in the

number of households’ annually. This suggests an average shortage of 85,911

housing units per year between 2011 and 2015.

Figure 2.2: Comparison of New Housing Supply and Households Density

(BNM, 2016)

Besides that, based on property market status reports, reviews reveal that

many new units have been developed but the review also highlights that many

existing units are unsold. The growing housing sector encourages developers to build

new housing units more. As indicated by the NAPIC, there were approximately

7,538 new residential units launched in Malaysia in 2015, while there was a current

stock around 4.8 million units in the market recorded in Q1 2015 (NAPIC, 2015).

The huge numbers of unsold units suggest the issue of difficulty in selling and

affordability. The effects of ‘overhang’ are not limited to only developers, but buyers

of low-cost houses have also suffered (Bajunid & Ghazali, 2012).

Based on the Hung Up On Residential Property (2006), overhang refers to

completed properties issued with Certificate of Fitness for Occupation and unsold for

more than nine months. The mass media also highlighted that majority of the housing

supply has been concentrated in the higher-price housing which is more than

RM250,000. Impact from that situation, the house price has outstripped the rise in

income level and cause the median house prices are beyond the reach of most

Malaysians. BNM (2015) also added the housing market has not provided an

Net increase in

number of

households, 2005-

2008 avg, 117

Net increase in

number of

households, 2011-

2015 avg, 166

Completion of

new houses, 2005-

2008 avg, 167

Completion of

new houses, 2011-

2015 avg, 80 Housing supply

gap , 2005-2008

avg, 50

Housing supply

gap , 2011-2015

avg, -86

Net increase in

number of

householdsCompletion of new

houses

16

adequate supply of affordable housing especially for middle-class income group. The

gap between demand and supply during year 2014 was estimated around 960,000

units across Malaysia which recorded about 50% of the shortage is faced by Sabah

and Sarawak. The rest half percent recorded are Kuala Lumpur, followed by Pulau

Pinang and Johor having the highest shortage of affordable housing units (BNM,

2015). Contradict, Selangor is the only state found to have a surplus of affordable

housing units (BNM, 2015).

Table 2.3 shows the Gap between Housing Needs and Housing Provided for

Low Starting Year 1971 until 2010. Unfortunately, the government has not

documented the statistics for the targets in the Tenth Malaysia Plan (2011–2015) and

for the housing erected by the public and private sectors. In the Second Malaysia

Plan (from 1971 to 1975), the private sector increased its influence when the

government sought the cooperation of private developers in the provision of low-cost

houses. As per this plan, at least 30% of the houses in each private housing project

must be low cost. To sum up from all Malaysian plans, the private sector has

exceeded this set target by providing a surplus of 41%, 29.4%, and 116% of houses

over the past three consecutive Malaysia Plan periods (1991–1995, 1996–2000, and

2000–2005, respectively.

From the table, we can see that the housing provided by public sector and

government still cannot fill the gap for housing needs. Every five years Malaysian

plan is not be able to achieve their target in providing a sufficient unit of housing

especially for medium-cost housing. Seventh Malaysian Plan recorded that only 1/3

medium-cost housing of the market needs constructed by public sector meanwhile

the private sector constructed more than the market needs. The fall in supply is not

new. National housing production has been on a declining trend since the late

1970’s, notably for social housing, which once accounted for over 50% of total

housing output. A shortage of housing is likely to worsen as population growth

continues and the supply response remains sluggish. Latest household projection

suggest that housing supply would have to rise very significantly from its levels over

the past twenty years in order to meet rising demand. The shortfall between the

demand for housing each year and the number of housing completions is often

referred to as the ‘demand gap’. There has been a long-term gap between the

estimated annual demand for housing in the regions and the numbers of houses

constructed each year in each region as well as nationally

http://www.opentextbooks.org.hk/ditatopic/17546#table_d41e11

Table 2.3: Gap between Housing Needs and Housing Provided for Low Starting Year 1971 until 2010

(Various Five Years Malaysia Plan)

Sector 2nd Malaysia Plan

(1971-1975)

3rd Malaysia Plan

(1976-1980)

4th Malaysia Plan

(1981-1985)

5th Malaysia Plan

(1986-1990)

6th Malaysia Plan

(1991-1995)

7th Malaysia Plan

(1996-2000)

8th Malaysia Plan

(2001-2005)

9th Malaysia Plan

(2006-2010)

Total Housing (Unit)

Need Provided Need Provided Need Provided Need Provided Need Provided Need Provided Need Provided Need Provided

Public Sector

Low-cost Housing - 13,244 62,200 26,250 176,500 72,302 45,800 26,172 40,000 15,376 64,000 62,812 15,000 9,536 20,000 31,700

Low/medium-cost housing - 41,965 60,000 36,770 110,010 36,112 57,500 32,056 56,100 8,075 9,300 7,188 175,000 81,108 67,000 42,300

Medium cost housing - 24,240 41,300 20,560 58,500 23,258 27,000 11,284 32,600 18,776 102,700 12,015 56,000 47,505 48,400 27,200

Medium/high-cost housing - 6,627 57,300 37,930 53,560 58,373 18,7000 27,614 45,300 42,315 54,000 39,609 65,000 50,040 62,405 9,600

Subtotal - 86,076 220,800 121,510 398,570 190,045 149,000 97,126 174,000 84,452 230,000 121,624 311,000 188,189 197,805 110,800

Private Sector

Private Developers - 64,862 100,000 199,490 - - - - - - - - - - - -

Low–cost housing - - - - 90,000 22,794 370,400 88,877 215,700 212,003 137,000 127,514 39,000 94,029 77,700 53,500

Medium/high-cost housing - - - - 259,470 79,005 169,600 107,442 170,700 339.610 418,00 596,639 90,000 53,607 42,400 25,000

High-cost housing - 12,000 4,120 25,260 5,474 12,500 7,483 12,600 11,305 15,000 13,703 160,000 484,587 372,495 369,700

Private housing - 108,872 150,000 159,070 150,000 94,660 - - - - - - 14,000 23,151 19,000 0

Sub-total - 173,734 162,000 362,680 524,730 201,993 552,500 203,802 399,000 562,918 570,000 737,856 303,000 655,374 511,595 448,200

Total - 259,810 382,800 484,190 923,300 391,978 701,500 300,928 573,000 647,460 800,000 859,480 614,000 843,563 709,400 559,000

Note:

1. Low cost housing price below RM42,000 per unit

2. Low medium cost housing price RM42,001–RM80,000 per unit

3. Medium cost housing price RM80,001–RM150,000 per unit

4. High cost housing price RM150,000 and above per unit

18

2.3 General Attributes and Operational Definitions

2.3.1 Affordable Housing

Before framing the housing affordability, it is important to delineate the contours of

this term by defining the term affordable housing. According to Gopalan &

Venkataraman (2015), affordable housing refers to any housing that meets some

form of affordability criterion such as income level of the family and the

affordability (High Level Task Force on Affordable Housing for All, 2008).

However, UN-HABITAT, 2011 defined the affordable housing as the housing which

is adequate in quality and location, and is not so costly that it prevents its occupants

from meeting other basic living needs.

Meanwhile, MURNInets (2013) summarised that the definition of affordable

housing in Malaysia are includes houses built for low-income households, low-

medium households and medium households. Besides that, the definition also related

to the ability of the households to pay at least 1/3 of the total household income for

the purpose of payment either own ownership or lease. However, MURNInets (2013)

added that the concept of affordable housing does not have a fixed and uniformed

definition according to the type of scheme introduced by the government. This is

because all the housing scheme introduced are targeting different class income group

according to their target applicants which based on the eligibility criteria that had

been set.

Therefore, Table 2.4 shows the definition of affordable housing according to

the scheme introduced by the government. There are about seven types of affordable

housing projects in Malaysia namely Skim Perumahan Rakyat 1Malaysia (PR1MA),

Skim Perumahan Mampu Milik Swasta (MyHome), Perumahan Penjabat Awam

1Malaysia (PPA1M), Program Perumahan Rakyat (PPR), Rumah Mesra Rakyat

1Malaysia (RMR1M), Rumah Mampu Milik Wilayah Persekutuan (RUMAWIP) and

Rumah Selangorku (Starproperty, 2016).

19

Table 2.4: Definition of Affordable Housing According to the Type of Scheme

(Adaptation from Starproperty, 2016)

No. Type of Scheme Definition

1. 1Malaysia People’s

Housing

Includes houses built in price range starting from RM100,000

until RM400,000 for households income between RM2,500

until RM10,000

2. Private Affordable

Ownership Housing

Scheme (MyHome)

MyHome1


until RM90,000 at Peninsular for the first time buyer

households income between RM3,000 until RM4,000

MyHome2


until RM170,000 for the first time buyer households income

between RM4,001 until RM6,000

3. Program Perumahan

Penjawat Awam

1Malaysia (PPA1M)


until RM300,000 for the first time buyer government servants

income below RM10,000

4. Projek Perumahan

Rakyat (PPR)


until RM35,000 for the first time buyer households income

below RM2,500

5. Rumah Mesra Rakyat

1Malaysia (RMR1M)


until RM65,000 for households income between RM750 until

RM3,000

6. Rumah Mampu Milik

Wilayah Persekutuan

(RUMAWIP)


until RM300,000 for households income below RM15,000

(only for who stays and work in Wilayah Persekutuan)

7. Rumah Selangorku Includes houses built in price range starting from RM42,000

until RM250,000 for households income between RM3,000

until RM10,000 (only for who within vicinity of the Selangor

region)

8. Rumah Idaman

Rakyat (RIR)

Includes houses built in price range starting from below

RM300,000 for first time buyers/disable persons (OKU) or

single mother having personal income under RM7,500 or

households income under RM10,000

20

2.3.2 Malaysian Middle Class Income Group

Since 2014, economists and academics have believed the term “middle class” did not

have the same meaning it had more than 10 years ago when considering the

challenges faced by this group in coping with the demands of life today (Surendra,

2017). As indicated in the Routledge Handbook of World Englishes, the middle class

basically a class of salaried workers. Again according to the book, the middle class

income group is depending on their salary and upon increment salaries as their main

income sources. Kirkpatrick (2010) also highlighted that the purchasing power

among the middle-income group are depends upon the value of the currency.

A survey conducted by Malaysian Department of Statistics once in every five

years give an indicator for the supplied income of employees. According to Table

2.5, the lower middle class consist of several support workers such as clerical which

earn on average RM1,718 per month. The rest are those in the sales and service

category only earn RM1,299 per month. In accordance with that, Malaysia (2012b)

already highlighted that about two-thirds of households in Malaysia have less than

RM5,000 per month meanwhile almost 40 percent earn less than RM3,000. This sign

proved that the middle class income group having relatively weak financial position.

Table 2.5: Mean and Median Monthly Salary and Wages by Occupation

(Malaysia, 2012a)

No. Occupation Number (‘000) Mean

income

(RM)

Median

income

(RM)

1. Managerial and administrative 302.0 (3.3%) 5,213.00 4,000.00

2. Professional 1134.7 (12.5%) 3,807.00 3,440.00

3. Technicians and associate professionals 1,188.6 (13.1%) 2,435.00 2,200.00

4. Clerical support workers 1,136.5 (12.5%) 1,718.00 1,500.00

5. Services and sales workers 1,685.3 (18.5) 1,299.00 1,000.00

6. Craft and related trades workers 133.6 (1.5%) 1,283.00 1,100.00

7. Plant and machine operators 950.0 10.4% 1,216.00 1,000.00

8. Skilled agricultural, forestry, and fishery 1,389.9 15.3% 1,065.00 860.00

9. Elementary occupations 1,167.9 12.8% 959.00 810.00

10. Total 9,088.6 100.0% 1,881.00 1,400.00

21

On the other hands, those group in the administrative, managerial and

professional categories earn as much as RM10,000 until RM30,000 per month,

meanwhile those in other category earn RM2,000 until RM4,000 per month. In this

case, Kirkpatrick (2010) had mentioned that group is categorized as new middle class

income as the group enjoy a higher income level. To address this, the government

had set up several housing programmes especially for the middle class income group

since the demand for housing is not strong among those do not own houses but also

among house owners who want to improve their quality of life (Abdul Rahman,

2013).

2.3.3 Housing Market

Previous research (Oberlink, 2008) specifies housing is such a fundamental necessity

that people often question about where to live largely on the basis of what kind of

housing options are available and whether these options meet their current budget

and requirement. Pettinger (2012) defined the housing market as medium that consist

of supply and demand for houses, usually in a particular country or region. A key

element of the housing market is the average house prices and trend in house prices.

However, according to Olanwareju et al. (2016) housing market is a major industry

of the arrangement that brings buyers and sellers into a close contact to exchange

goods or services where price mechanisms or market regulations are applied for

efficiency.

Pettinger (2012) highlighted that a housing market usually involve five main

element namely, supply for housing, demand for housing, house prices, rented sector

and government intervention. Olanwareju (2016) explained in his paper that the price

paid for a good or service in the market is determined by the supply and demand

forces. Specifically, a market aims to allocate resources and to maximize the surplus

of buyers and sellers. Sullivan et al. (2013) added, with the market structure, a buyer

will not pay more than the value of the good or service earned. On the other hand, the

market allows sellers to maximize their surplus. However, the market also can be

imperfect because of factors like price, income distribution and quantity regulation,

taxes, subsidies, social interests, common resources, monopoly, and high costs of the

transaction that could also lead to inefficiency (Parkin, 2013).

22

2.3.4 Medium-Cost Housing Needs

Housing needs and housing demand are two different terms. According to Health

(2014), housing need is refers to shortfalls from certain normative standards of

adequate accommodation. This measure mainly refers to the level of need for more

or improved social housing. Housing need drivers include demographic trends such

as migration rates, population age structures and household headship rates Health,

2014). Besides that, economic factors are also involved directly and indirectly in

terms of their influence over demographic outcomes such as household formation.

Hence, any comprehensive housing needs framework must include both

demographic and economic variables (Health, 2014).

Housing need has always been seen as strongly related to demographic

trends in population and household numbers, and any housing need framework must

take account of demographics including age structures (Bramley, 2010). On the other

hands, housing demand is a market driven concept and relates to the type and number

of houses that households will choose to occupy based on preference and ability to

pay. Usually, the term housing requirement is sometimes used to combine these two

measures to generate an overall picture of the housing market (Health, 2014).

According to (Health, 2014), governments may require estimates of housing need for

a variety of purposes. If regularly refreshed they should provide a way of monitoring

the state of the housing system, analogous to government’s monitoring of poverty or

the state of the labour market.

Bramley et al. (2010) reported the main factors identified behind housing

need, as distinct from housing demand. As the report notes, housing need may refer

to such as insecurity of tenure or lack of affordability, or housing that is unsuitable

due to its type or condition. As there is no universal set of measures to determine

either need or demand, estimates of how many homes and of what type are

required are likely to vary (Bramley et al., 2010). However, a determination of need,

for the provision of social housing, will be affected by certain policy

judgements as well as the measures used. Statements about the numbers of

houses that need to be built as opposed to the existing ‘need’ and projected

demand for housing will therefore be influenced by certain value judgments and

factors such as the availability of resources (Schmuecker, 2011).

23

Despite efforts by the public and private sectors to promote

homeownership, there still exist an enormous number of issues which need to

be urgently addressed to ensure that housing needs of all Malaysian could be

met. Table 2.6 shows the total housing needs during year 1971 until 2010. As seen

in Table 2.6, it is noticeable that the total housing needs for low and medium-

cost housing units during eighth Malaysian plan is the highest compared to the other

year. However, even the housing needs for low and medium-cost housing units

decreased to from 175,000 to 67,000 during the next five years, but it still recorded

the highest total housing needs during that year. From the private sector side, high-

cost housing shows the highest record across the year 2001 until 2010 compared to

the others housing type. On the other sides, the low-cost housing for year 2001 until

2005 recorded the lowest unit housing needs while the medium-cost housing for year

2006 until 2010 recorded the lowest unit housing needs.

Table 2.6: Housing Needs under Five Year Malaysian Housing Plans

(Various Five Years Malaysia Plan)

Sector 2nd

Malaysia

Plan

(1971-

1975)

3rd

Malaysia

Plan

(1976-

1980)

4th

Malaysia

Plan

(1981-

1985)

5th

Malaysia

Plan

(1986-

1990)

6th

Malaysia

Plan

(1991-

1995)

7th

Malaysia

Plan

(1996-

2000)

8th

Malaysia

Plan

(2001-

2005)

9th

Malaysia

Plan

(2006-

2010)

Housing Need (Unit)

Public Sector

Low-cost Housing - 62,200 176,500 45,800 40,000 64,000 15,000 20,000

Low/medium-cost housing - 60,000 110,010 57,500 56,100 9,300 175,000 67,000

Medium cost housing - 41,300 58,500 27,000 32,600 102,700 56,000 48,400

Medium/high-cost housing - 57,300 53,560 18,7000 45,300 54,000 65,000 62,405

Subtotal - 220,800 398,570 149,000 174,000 230,000 311,000 197,805

Private Sector

Private Developers - 100,000 - - - - - -

Low–cost housing - - 90,000 370,400 215,700 137,000 39,000 53,500

Medium-cost housing - - 259,470 169,600 170,700 418,000 90,000 25,000

High-cost housing - 12,000 25,260 12,500 12,600 15,000 160,000 369,700

Private housing - 150,000 150,000 - - - 14,000 0

Sub-total - 162,000 524,730 552,500 399,000 570,000 303,000 448,200

Total - 382,800 923,300 701,500 573,000 800,000 614,000 559,000

Note:

1. Low-cost housing price below RM42,000 per unit

2. Low-medium cost housing price RM42,001–RM80,000 per unit

3. Medium cost-housing price RM80,001–RM150,000 per unit

4. High-cost housing price RM150,000 and above per unit

24

2.3.5 Medium-Cost Housing Provided

As Dispaquale (1999) points out that housing provided is unlike other markets where

we observe price per standard unit (such as price per pound of apples), we

observe housing expenditures (price times quantity) since there is no standard

housing quantity since each unit can vary considerably on many quality

dimensions in the housing market. This is because, housing provided is the outcome

of complicated decision making by builders and the owners of existing housing.

However, we have little direct evidence that permits us to observe the behavior of

housing providers. In order to understand the micro foundations of housing

provided, developers should come with information on the quality and quantity

of housing services provided, maintenance and capital improvement decisions,

rents, and asset values (Dispaquale, 1999).

First, housing provided by the for the poor under Eight Year Malaysian

Plans has not been satisfactory. The housing provided for medium-cost housing

and high –cost housing by the private sector is about 496, 996 units. On the other

hand, the low achievement levels for the low-cost housing provided which is only

9,536 units are due to a complicated and ambiguous relationship between

federal, state and local levels. Such relationship has caused the overlapping in the

distribution of work which may retard the performance of the public sector (Shuid,

2011). In the Seventh Malaysian Plan (1996 – 2000), 737, 856 units of houses were

built by the private sector in which 206, 208 units were medium-cost and 348, 250

units were high-cost units (see Table 2.7).

Meanwhile, housing provided by the public sector in the medium-and high-

cost housing is high as clearly indicated in the Sixth Malaysian Plan. However, in

the case of private sector, housing provided for low-cost housing type by private

developers fell below the targeted level as they are not keen in building low-cost

houses due to a low level of profitability. It is not surprising to learn that the

construction of medium and high-cost housing by private sector has exceeded

targeted level with a 158.6% for medium cost and a 386.2% for high cost

housing during the Sixth Malaysia Plan. The level of achievement for medium

and high- cost housing has further increased to 187.5% and 435.3% respectively for

the period 1996 through 2000.

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