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

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.

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 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.

• 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.

• 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.

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.

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:

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.

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.

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.