Forum Institutional

Why is building affordable housing actually failing to make housing more affordable in Malaysia?

The centre of Kuala Lumpur, illustrating its affordable housing challenge

Providing affordable housing is a challenge in Kuala Lumpur. Image: Meriç Dağlı on Unsplash

Koh Cha-Ly
Chief Executive Officer, Urbanmetry
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Forum Institutional?
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Society and Equity

This article is part of: Annual Meeting of the New Champions

Listen to the article

  • The issue of affordable housing has gained global attention as cities grapple with the challenge of providing affordable homes to their residents.
  • However, the focus on increasing the supply of affordable housing as the solution may not be the silver bullet many believe it to be.
  • It is crucial to explore alternative remedies and adopt a more comprehensive and nuanced approach to address the housing woes in developing cities, doing so can ensure that affordable housing truly becomes accessible and sustainable for all.

The issue of affordable housing has gained global attention as cities grapple with the challenge of providing affordable homes to their residents. However, the focus on increasing the supply of affordable housing as the solution may not be the silver bullet many believe it to be. This article examines the case of Greater Kuala Lumpur (KL) in Malaysia to shed light on why building affordable housing alone is not making housing more affordable. The unique political dynamics and contrasting approaches to affordable housing employed by the Selangor state government and the Federal Government in Kuala Lumpur have produced unintended consequences and highlighted the need for alternative approaches.

The sunny-side-up city

Like most cities, its physical shape and health is as much affected by its geography as its politics. Greater KL has a political form in the shape of a sunny-side-up egg, with a rich yolk in the form of Kuala Lumpur, governed by the Federal Government, and its egg white under the jurisdiction of the Selangor state government. Despite political boundaries, the city functions largely as a single organism and the two areas survive on co-dependence. In 2008, political boundaries intensified when rival political parties assumed control over Kuala Lumpur and Selangor, leading to opposing policies to tackle the affordable housing issue.

The price-control strategy

The Selangor government adopted a Price Control Strategy in 2013, mandating housing developers to build a percentage of units priced under RM250,000, a policy known as Rumah Selangorku. While the intention was to increase the number of affordable housing units, this policy posed challenges for housing developers. The business case for housing development relies on meeting minimum Gross Development Values (GDVs) to ensure viability. With the price control policy dictating a significant portion of units to be priced under RM250,000, developers had to inflate the prices of the remaining units to meet the GDV targets. This resulted in:

• A decrease in overall housing supply in the Selangor housing market since the launch of this policy, as shown in Figure 1 below.

Figure 1. Units of new residential homes under construction Image: Ministry of Housing

• Lack of new launches in Selangor and an intense concentration of housing supply within the Kuala Lumpur side of the border, as shown in Figure 2 below.

Figure 2. New buildings in the Selangor and Kuala Lumpur border Image: UrbanMetry Database

• A drop in new housing supply priced under RM250,000 in Selangor from 57% to 31% in the periods between 2005-2009 and 2010-2014, as shown in Figure 3 below.

The unintended consequences of this price control strategy constrained both the affordable housing market and the overall market.

The curious case of doubling densities

In contrast to Selangor's approach, the Federal Government in Kuala Lumpur focused on increasing the affordable housing supply by doubling development densities. Various schemes, such as RUMAWIP, PR1MA, and PPA1M, were implemented to incentivise developers to supply affordable housing. However, this led to an oversupply of both affordable and free-market units, without a clear alignment with demand. Population growth was stronger in Selangor compared to Kuala Lumpur, indicating a potential mismatch between supply and demand. The high-rise home price index for both states also showed divergent trends, with Selangor experiencing continued price growth, while Kuala Lumpur remained relatively flat.

Density of housing (unit per acre) based on completion year Image: UrbanMetry Database
Image: Ministry of Housing
Image: Department of Statistics Malaysia

Challenges and alternative approaches

Merely building more affordable housing units without considering other factors does not address the underlying issues of affordability. Malaysia now faces the issue of vacant homes, with 1.9 million unoccupied homes, representing 20% of all homes in the country. To tackle the affordable housing challenge effectively, cities should consider:

Micro supply and demand analysis

Localised supply and demand analysis at the neighbourhood level helps regulators incentivise and control the supply of the right housing in specific areas. This approach requires localised pricing analysis to ensure affordability is determined based on the local context, rather than standardised across the board.

Discard the disposable housing mentality

Instead of solely focusing on constructing new affordable housing units, the government should consider the existing housing stock and opportunities for refurbishment and reuse. Many neighbourhoods have underutilised low and medium-cost housing that can be revitalised through comprehensive urban redevelopment. Financing the refurbishment of homes in the secondary market could be a more efficient use of subsidies compared to subsidising new constructions.

Maintenance to preserve wealth

Sustainable quality maintenance is often overlooked in new housing projects. Neglected low and medium-cost housing depreciates over time, trapping lower-income groups in the cycle of poverty. Governments should prioritise the long-term value and sustainability of affordable housing investments by subsidising the cost of engaging professional building managers to ensure quality services and protect the interests of communities.

Merely building more affordable housing units without considering localised supply and demand dynamics, refurbishment of existing stock and long-term maintenance will not solve the affordability challenge. It is crucial to explore alternative remedies and adopt a more comprehensive and nuanced approach to address the infernal housing woes in developing cities such as Greater KL. By doing so, cities can ensure that affordable housing truly becomes accessible and sustainable for all.

Loading...
Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

Institutional update

World Economic Forum

May 21, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum