Affordable Home Ownership Is Key to Nation Building

The importance of adequate affordable homes facilitates labour mobility within a country making it a critical factor to the overall health of the economy

The right to adequate, affordable housing has been recognised internationally as a basic human need and a central dimension of well-being. In Malaysia as well, the ongoing full stamp duty exemption on first residential homes below RM500,000 as well as the approval for the construction of 67,944 affordable units this year, just in the Federal Territories alone, reflect first time home buyers’ need for support, the government’s commitment to the lower income group and recognition of the importance affordable housing in nation building. However, despite the obvious demand for affordable housing, market forces including rising living costs, interest rates, as well as spikes in material and commodity costs, are hampering the ability to supply affordable homes.

In addition to factors such as access to leisure, environmental quality, levels of health and education, GDP is often used as an indicator of a society’s standard of living and successful nation building. Studies across the world reveal that median home prices correlate by as much as 60% to 95% with GDP per capita, as real estate capital returns reflect income which must be accumulated to buy a home. However, the high correlation between GDP and real estate prices do not always mirror GDP cycles. In the short and medium-term, real estate dynamics are not just driven by a country's prosperity but depend on other determinants including urbanisation rates, construction activity and demographic changes which all influence supply and demand temporarily.

In 2021, 58% or about RM797 billion of the nation’s household debt was from housing, while recent hikes in overnight policy rates, aimed at reducing inflation from increased spending and borrowing, are having an inevitable influence on banks’ base rates, and consequently on home loans. Home buyers tend to be more sensitive to rate hikes amid an inflationary environment as every 25bps hike in the OPR will lead to a 3.2%-3.5% rise in monthly mortgage repayments.

Thus, many in the upper B40 and the M40 groups who do not qualify or were not selected for government housing schemes such as People’s Housing Project flats and PR1MA homes are being forced into an increasingly expensive private market. The negative social impact this dearth of affordable housing is having cannot be ignored.

For example, unfulfilled housing needs and poor liveability from a lack of basic communal facilities cause negative health outcomes and an increased financial burden on the healthcare system. Poor housing conditions can also result in significantly reduced educational opportunities while recreational and leisure activities are suppressed, and the consequent impact on educational institutions will affect their access the underserved community. In addition, affordable housing contributes to nation building by creating new residential hubs and satellite cities, opening up improved economic opportunities to the local community. The knock-on effects of a lack of access to quality, affordable homes in a community are chronic and impactful to nation building.

To exacerbate matters, the Household Income Estimates and Incidence of Poverty Report reports that the pandemic-induced recession has “downgraded” some M40 households. Since 20% of the M40 households have shifted down to the B40, their housing affordability level is degraded as well. Consequently, the demand for housing products mainly targeting these M40 households is likely to be impaired too.

The National Property Information Centre reports that the average property price has nearly doubled since 2010, increasing by 99.3%, with 51% of Malaysians unable to afford a home. Yet, on the upside, construction holds much potential to stimulate pandemic recovery and contribute to nation building due to its potential to create jobs and communities; and in turn, recovery measures will support the sector’s transformation.

The housing development industry also plays a role in the government’s roadmap namely, the 12th Malaysia Plan 2021-2025 to rejuvenate Malaysia’s socioeconomic development for long-term sustainability and prosperity. The government’s resolve to stimulate economic reconstruction post pandemic is helping reset the industry by ensuring inclusive housing and simultaneously narrowing socioeconomic gaps.

In line with the Wawasan Kemakmuran Bersama 2030 aspiration to provide greater access to adequate, safe housing for Malaysians, the advancement of the 12th Malaysia Plan’s strategies has seen support by private developers, as evidenced by steadily growing market share. In the first quarter of 2022, according to the Department of Statistics, the private construction sector grew 3.2 percent with 60.7 percent share (RM17.9 billion) of total value of construction work done compared to the public sector.

This support from private sector in addressing housing demands has been strongly trending over the last decade. However, when Malaysia’s GDP shrank by 5.6% in 2020 during the Covid-19 pandemic, house prices increased by 0.3% leaving a high volume of overhang units, adding further hurdles to home ownership.

The availability of low-cost housing is also growing at an underwhelming pace in the property market. Out of 117,766 total of new housing units built in 2020, only 14,094 units or 12% were low cost, or priced below RM400,000, failing to meet the National Affordable Housing Council’s target of building 100,000 units of low-cost housing annually.

While the Malaysian government and companies are attempting to respond to this affordable home ownership demand, much remains to be done as inflation rates rise post-pandemic and Malaysians are forced to navigate between the mismatch between average housing prices and household incomes.

In recent years, developers have started to implement smaller, phased launches to ensure that units on offer can be absorbed by the market. Nonetheless, according to leading specialists in developing and regenerating land for affordable housing, Lagenda Properties, most houses built under the affordable home schemes for the B40 population are still deemed to be ‘unaffordable’.

The developer reported that the B40 maximum affordability in Malaysia is RM230,000, while the average home price is more than RM380,000​, indicating a huge price mis-match between affordability and home prices for this group. These findings are supported by the National Housing Department which reported that just one in five houses approved for construction in the last five years was priced below the government’s affordable housing price ceiling of RM300,000. This disparity in housing cost versus income is mainly driven by developers being unable to absorb shrinking margins given the rising costs of building, land and compliance amid inflation and labour shortage.

To mitigate this, Lagenda has been improving the efficiency and productivity of its construction segment by harnessing technologies such as the industrialised building system (IBS) in order to reduce reliance on labour, as well as in-source construction and material to improve construction cost efficiency. Lagenda also capitalises on its expanded capabilities in building construction and land acquisition business strategies; diversifying its landbank to maintain a correct footing in the market, subsequently contributing to the economic growth of the industry; all to support the nation’s socioeconomic development.

Given that both the public and private sectors are struggling to provide urgently required access to sustainable, liveable and accessible developments at affordable prices, Lagenda Properties is leading the private sector in collaborations with the government by example. These collaborations seek to bridge the gap between the two sectors and implement solutions to make housing available to individuals and families who need it, while still affording them the dignity of well-designed and distinctive homes.

“We are currently exploring collaborations with various state-owned companies, enabling them to participate in the supply of affordable privately developed homes. For example, our most recent joint venture with Kumpulan Hartanah Selangor Bhd (KHSB) will allow us to develop underutilised land owned by the state government into an affordable township with over 2,000 units of affordable landed homes that are priced at below RM250,000,” commented Dato’ Jimmy Doh, Managing Director of Lagenda Properties Berhad. “Apart from that, developers can also further participate in nation building by exploring cheaper, faster and more efficient construction processes such as the industrialised building systems Lagenda uses to manage sustainable manufacturing practices.”

Lagenda Properties is actively facilitating affordable home ownership by reverse engineering home pricing based on construction cost and average household income in the states where its townships cater to B40 and M40 income group. Housing units in these townships do not exceed RM250,000 for single-storey terrace houses as per guidelines established in the National Affordable Housing Policy in 2019. In addition to making landed homes economical and turning home ownership dreams into a reality, the developer also emphasises a wholesome quality of life with multiple facilities and tranquil green spaces to facilitate a communal and holistic living experience.

“At Lagenda, our vision is for every Malaysian to own a home. Toward that goal and in support of the government’s affordable housing campaign, we understand that our core operating principles must align with social responsibility. We strongly believe in empowering every Malaysian family to own a home regardless of income level and this social cause is what drives us as a Group. From a macro perspective, homeowners are the cornerstone of community building, they are economic drivers in an area, and homes are a constantly appreciating retirement plan. Home affordability is important because all other overarching nation building efforts are built on this foundation of homeownership and putting down roots in a community.” added Doh.