INCOME and house price are often used to determine the financial affordability level of housing. According to Bank Negara Malaysia’s recent statement, houses nationwide are “seriously unaffordable” as it is 4.8 times the annual income of the median household, which is more than the house price to-income ratio of 3.0 as set by the international standard based on the Median Multiple approach.
While the Median Multiple approach allows for the comparison of housing affordability across countries and within a country over time, it tends to ignore the factor of locality such as the spatial and socioeconomic characteristics of an area.
For example, based on the 2016 Household Income and Basic Amenities Survey Report, the multiplier 3 of Malaysia’s median annual income of RM62,736 is RM188,208, indicating the nationwide ideal affordable house price (Table 1). However, at the state level, both the ideal affordable house prices in Kuala Lumpur and Selangor are higher than the one at the country level, at RM326,628 and RM260,100, respectively.
