Think tank proposes new way to measure housing affordability, saying current method overlooks critical elements

• “While financial affordability measures the monetary burden of owning a home, social affordability focuses on its appeal based on proximity to efficient transportation systems and the availability of job opportunities.”

KUALA LUMPUR (Jan 7): The Centre for Market Education (CME), a think tank, is arguing that Malaysia’s housing market may be mispriced, as homes deemed “affordable” based on conventional metrics might actually be deemed “expensive” when assessed from a social affordability perspective.

CME said current housing affordability measurements rely heavily on financial aspects — essentially a comparison of income to prices — while overlooking critical factors such as connectivity, property size, and access to job opportunities.

These factors, the think tank contends, are vital in addressing affordability as part of the broader challenge of poverty alleviation and social mobility. “While financial affordability measures the monetary burden of owning a home, social affordability focuses on its appeal based on proximity to efficient transportation systems and the availability of job opportunities,” CME said in a statement on Monday.

Hence, it has developed a new way to measure home affordability, called the Financial and Social Affordability Index (FSAI). The index was developed by Dr Consilz Tan, a research fellow at CME, and Dr Carmelo Ferlito, CME's chief executive officer and a faculty member at Universitas Prasetiya Mulia, and presented it in a chapter on the challenges and forward direction for affordable housing in the book, Malaysian Housing Affordability: Deciphering the Black Box, which was recently published by German publisher De Gruyter.

Tan and Ferlito tried to fill the gap by developing a novel home affordability index that extends beyond traditional metrics that solely consider income and housing prices, CME said.

While the measure of financial affordability (FA) resembles the traditional price-to-income ratio, CME said its method makes sure that the median price also takes into account transactions in the secondary market and not just the primary one. The real novelty of the FSAI is in the social affordability (SA) evaluation.

To measure SA, the authors combine two elements crucial for social mobility: labour market conditions in the area, which evaluate employment prospects in a given area, and transport connectivity, which assesses the strength and efficiency of the local transport system.

Its proposed new index comes amid ongoing concerns about housing affordability in Malaysia and a persistent mismatch between housing supply and demand. As of June 2024, the number of completed but unsold residential properties stood at 22,642 units worth RM14.24 billion, according to the National Property Information Centre or Napic.

By state, Perak recorded the highest number of overhang residential units at 4,161, followed by Johor with 3,219 units, and Kuala Lumpur with 3,051 units. The majority of these overhang properties were priced below RM300,000.

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