Home affordability is a perennial issue affecting Malaysians, particularly young Malaysians. Aspects of the affordability issue have been frequently highlighted, including by The Centre in a primer published last year. One key fact worth reiterating here is the yawning chasm between median house prices and annual median household income – this disparity has nearly tripled from 2002 to 2019.

Even so, every consecutive Malaysian administration has continued to encourage home ownership. Most housing-related policies – ranging from subsidised home loans to large-scale government-subsidised projects like PR1MA – have focused on supplying homes for purchase and reducing obstacles to home ownership, especially for the younger generation.

However, given long-standing stagnant wages and rising household debt levels, should home ownership continue to be the overwhelming focus of government housing policy? Or should greater policy attention be directed towards those who cannot afford to buy a house and have resorted to renting, such as the proposed Residential Tenancy Act? And finally, might there be shifts in housing preferences towards long-term renting, especially by the young, if there were greater protections and incentives?

These are the questions we ask in our new research series which delves into Malaysian youths’ housing aspirations. We seek to understand the push and pull factors associated with home renting versus home owning. We also aim to recommend policies befitting a fair society comprising both renters and owners.

In this first instalment of the research series, we first look into the ownership versus renting landscape in Malaysia, and present findings from a preliminary poll on housing aspirations.

Home ownership and housing policy in Malaysia

Like many countries around the world, home ownership is the predominant mode of housing¹ in Malaysia. The 2019 Household Income and Basic Amenities Survey shows that home ownership in Malaysia is high and has continued to rise since 2010, albeit slowly: from 72.5% in 2010, to 76.3% in 2016, and most recently to 76.9% in 2019².

Within the context of Southeast Asia, the rate of home ownership in Malaysia is not unusual; only the Philippines has a lower home ownership rate at 64.1% (2019). Other ASEAN neighbours have comparably high rates of home ownership such as Thailand (77.4%, 2010), Indonesia (81.1%, 2021), Myanmar (85.5%, 2014), Vietnam (88.1%, 2019) and Singapore (88.9%, 2020)³.

Malaysia’s and these ASEAN countries’ home ownership rates are quite high in comparison to developed countries such as the United States (65.5%, 2021), the United Kingdom (65.2%, 2018), Japan (61.2%, 2018), Germany (50.4%, 2020), and France (64.0%, 2020). Switzerland, interestingly, only has a 42.3% home ownership rate (2020)!⁴

In the 1960s, the Malaysian government’s housing priority had largely focused on providing shelter for low-income households especially in urban areas. Public-funded low-cost housing, such as the Projek Perumahan Rakyat (PPR), allowed low-income households to rent or own a property at a subsidised cost.⁵ After the New Economic Policy was introduced in 1970, a 30% Bumiputera quota for the sale of new housing stock, as well as a 5 percent discount, were introduced to facilitate the community’s urbanisation and home ownership.

As the Malaysian middle class continued to grow in number, the demand for better affordable housing continued to rise in tandem, driven by an environment of rising house prices and cost of living. This has led to a significant shift in government policy over the past two decades – ensuring supply and ownership of homes not only among low-income households, but also among middle-income families.

Apart from increasing the supply of ‘affordable’ housing via new programs such as PR1MA, various financing incentives were introduced to facilitate ownership such as the My First Home Scheme⁶, Youth Housing Scheme, the Home Ownership Campaign⁷, the Private Affordable Ownership Housing Scheme (MyHome)⁸ and MyDeposit.

However, Malaysia’s household debt has risen to levels unseen before, from only 47% of GDP in 2000 to 93% in 2020. Given these high levels of household debt – which are likely an understatement of total household borrowings⁹ – it is questionable whether further policy support towards home ownership via easier financing is a good idea.

The ‘hidden’ renter-households

Malaysia’s relatively high home ownership rate masks an important fact: there is a significant proportion of households that do not own homes in the Klang Valley. As of 2019, home ownership rates in Selangor and Kuala Lumpur are 69.7% and 63.3% respectively, which are considerably lower than the national average of 76.9% (Figure 1).

Breaking down the data according to household income reveals a more stark reality. Only 52.5% and 45.3% of B40 households in Selangor and Kuala Lumpur own their own homes, which is much lower than the average home ownership rate for B40 households nationally which stands at 73.1% (Figure 2).¹⁰

The picture is similar for M40 Klang Valley households; only 65.4% and 51.2% M40 households in Selangor and Kuala Lumpur respectively own the homes that they live in. In comparison, the home ownership rate for M40 households nationally is 75.5%.

At higher incomes however, the home ownership gap between Klang Valley households and Malaysia overall closes. Overall, 87.0% of Malaysia’s T20 households own homes compared to 86.6% of T20 households in Selangor and 77.9% in Kuala Lumpur.

Thus, the data shows that a sizable proportion of B40 and M40 households in Klang Valley are renting relative to the rest of the country. Renting is likely driven by the lack of affordability in particular locations but are there other factors at play? To get a fuller picture of renting patterns and its determinants, we collaborated with market research firm Dattel on a short poll in January 2022 comprising an urban sample of 809 respondents.

Who rents?

Geography

Our short January 2022 poll presented a pattern similar to DOSM’s 2019 home ownership data, though because our sample is mainly concentrated in urban centres, it resulted in smaller differences between regions. The poll results showed that renting is more prevalent in Klang Valley (41.0%), the South Peninsular states (38.4%) and East Malaysia (35.1%). This is followed by those living in East Peninsular states (27.3%) and North Peninsular states (26.6%) (Figure 3). In all regions, except for North Peninsular and East Peninsular, the percentage of respondents who are renting is higher than those living in their own homes.

In terms of home ownership, the highest percentage is among respondents from North Peninsular states at 37.3%. This is followed by East Peninsular states (34.9%), South Peninsular states (31.7%), Klang Valley (29.3%) and East Malaysia (24.0%).

Respondents who are staying with their parents or relatives are quite substantial in all regions, ranging from 26.3% in South Peninsular to 36.6% in East Malaysia.

Age

Unsurprisingly, renting is higher among younger respondents compared to older respondents. 38.9% of respondents aged 20-29 are currently renting, followed by those aged 30-39 at 35.4% (Figure 4). It is interesting to note that a quite significant proportion of older respondents, i.e. those aged between 40 and 59, are also renting. The survey found that 34.1% and 25.9% of respondents aged 40-49 and 50-59 respectively are currently renting their homes.

A substantial percentage of younger respondents are staying with their parents or relatives. 45.8% and 31.2% of respondents aged 20-29 and 30-39 respectively do so compared to much lower rates among respondents aged 40-49 (20.2%) and 50-59 (5.8%). Staying with relatives become more common again among the oldest respondent band, those aged 60-69 (18.6%), perhaps due to ageing and caregiving needs.

Unsurprisingly, home ownership increases with age. The percentage of respondents who live in their own property is 42.8% for 40-49 age group, 60.7% for 50-59, and 67.6% for 60-69 compared to 12.2% and 30.5% among the 20-29 and 30-39 age groups respectively.

Top Reasons for Renting

The biggest reason for renting is the unaffordability of down payment, cited by 44.5% of respondents who are currently renting (Figure 5). However, preferring to live in a particular location is also a relatively big reason, chosen by 23.9% of renting respondents. 17.2% of renting respondents said that they were unable to qualify for a home loan. And lastly, 7.2% of renting respondents said they chose to rent due to the flexibility it offers.

Unaffordability of down payment is the clearest reason for renting across all age groups, except for the 40-49 age band (Figure 6). Location preference is a relatively important reason for the 30-39 age band as well as the 40-49 age band compared to other age groups. Inability to qualify for home loans is not a top reason across all age groups, which runs counter to many policy prescriptions on loosening loan qualifying criteria. Flexibility is the least chosen reason among most age groups though curiously, it is quite an important reason for the 50-59 age group (the small sample size of renters within this age group may be one reason for this result).

While down payment unaffordability is the most cited reason in all regions (36.2% to 48.4%), location preferences is quite an important reason for renting in Klang Valley (30.7%) and East Malaysia (25.1%) (Figure 7). Meanwhile, inability to qualify for a home loan is a relatively strong reason in South Peninsular (25.2%) and East Peninsular states (28.5%), compared to other regions.

Flexibility, curiously, is quite a significant reason for renting in the North Peninsular (14.2%) and East Malaysia (14.1%). One possible reason could be that respondents in those regions do not have a long-term residence expectation and plan to relocate to other, perhaps more urbanised, regions in the future.

Future Housing Aspirations

Overall, 44.3% of respondents aspire to buy their own home while 27.4% intend to continue living in their own home. 12.7% of respondents plan to stay indefinitely with their parents or relatives, while 12.0% look to rent long-term as a housing option.

Aspiration towards home ownership is higher among younger respondents at 59.7% and 46.0% among the 20-29 and 30-39 age groups followed by 38.0% of 40-49 years old respondents (Figure 8). The proportion drops drastically for respondents aged 50 and above, at 13.5% and 8.3% for the 50-59 and 60-69 age groups – unsurprisingly, given higher rates of home ownership amongst older respondents.

Therefore, it is also not surprising that the percentage of respondents who want to continue living in their own home is higher in older age groups. 70.6% and 65.6% of 60-69 and 50-59 years old respondents want to continue living in their own home. The figure drops to 38.5% among 40-49 years old respondents, followed by 24.8% among the 30-39 age group and 6.7% among the 20-29 age group.

Renting long-term is not a popular choice among younger respondents compared to older respondents, which we found surprising. Long-term renting as an option makes up only 12.4% and 13.7% respectively for the 20-29 and 30-39 age groups. A relatively high proportion of respondents aged 50-59, however, do intend to rent long-term (18.3%).

The preference for home ownership holds when we look at the responses from the perspective of regional location. Respondents with plans to buy a home or continue living in one’s property range from 69.1% to 78.2% across all regions (Figure 9).

The same predominance in preference for home ownership holds when we look at the pattern across gender categories. It is interesting to note that the percentage of male respondents (14.9%) who intend to rent long-term is higher than the percentage of female respondents (9.0%) (Figure 10).

Conclusion

The policy bias towards home ownership is a common one, particularly amongst Asian countries. One reason is home ownership’s tangible wealth effect, as property prices tend to appreciate in the long-run. Asian societies also traditionally view home ownership as a positional good which provides respectable social standing. From the policymakers’ perspective, home ownership contributes to social stability and rootedness in a state or country.

And yet, this policy bias is not without problems. Societal pressures towards home ownership, in a situation of relatively high house prices and stagnant wages, would likely result in even more unsustainable levels of household debt and stress. The bias towards home ownership also arguably takes away policy attention on making rents affordable and fair.

Based on DOSM data and our short preliminary poll, there is a significant segment of Malaysians who do not own homes, mostly out of necessity, but some also out of choice. Overzealousness in promoting home ownership will neglect the needs of citizens who are currently renting, and may ignore the needs of changing values around long-term renting in future.

Policy attention should not be confined to ‘upgrading’ tenants to homeowners, particularly when renting disproportionately affects low-income families in the cities; half of B40 families in Klang Valley are renting, perhaps for the foreseeable future, and thus require greater renter protection. Attention must be directed towards strengthening the legal and institutional frameworks underlying the rental market, which was also pointed out by Bank Negara Malaysia back in 2017.

The government is beginning to make this a priority. The Ministry of Housing and Local Government is proposing an enactment of the Residential Tenancy Act to prepare legal provisions to protect homeowners’ and tenants’ rights, prepare a uniform template for residential tenancy agreements, and to resolve disputes between parties involved in residential-tenancy transactions. Interestingly, it includes a proposal to create a new government entity to handle security deposits. While the enactment is in its early consultative phase (and has received pushback from developers and landlords amongst others), it is a timely intervention to regulate this long-neglected area.

In Part 2 of this research series, we will look into policies adopted by other countries and cities to make renting a viable long-term practice. Stay tuned.

1. It must be noted that in Malaysia, the official home ownership rate includes informal housing, which is defined as houses built without development orders (i.e. this includes houses illegally built on non-private lands or on river bank reserves, or “kampung” houses built by the local community.) Such houses are common in rural areas, and are usually built haphazardly without complying to approved housing standards and regulations. Nevertheless, they are still considered as part of the stock of household-owned homes in the official data. This may not be the case for other countries.
2. Source: 2010 figure, Khazanah Research Institute (2015); 2016 figure, Department of Statistics Malaysia’s Household Income and Basic Amenities 2016 Survey.
3. Source: respective countries’ statistics departments.
4. Source: Trading Economics.
5. Projek Perumahan Rakyat (PPR) flats can be rented for RM128 per month, or bought for RM35,000 in Peninsular Malaysia and RM42,000 in West Malaysia. Prospective tenants or owners must meet certain eligibility criteria such as a household income not exceeding RM3,000 per month.
6. The My First Home Scheme, introduced in the 2011 Budget, allowed first-time buyers to obtain loan financing up to 110% of the purchase price without needing to pay any down payment. This scheme was guaranteed by Cagamas, the National Mortgage Corporation.
7. The Home Ownership Campaign, first introduced in 2019, and eventually extended to December 2021, was introduced to encourage home ownership by reducing cost of property purchase. Qualified participants would enjoy full exemption on stamp duty for properties up to RM1 million, partial exemption on stamp duty for properties up to RM2.5 million, and Instrument of Securing Loan stamp duty exemption for properties of up to RM2.5 million. On top of that, buyers can enjoy a 10% discount for properties listed under the scheme.
8. The MyHome scheme, introduced in the 2014 Budget and lasted until November 2020, allowed eligible homebuyers to have their down payment paid by the government. The MyDeposit scheme, introduced in 2016 and which lasted until October 2021, offered a rebate of 10% of the house price or RM30,000, whichever was lower, to first-house buyers of properties priced below RM500,000.
9. Unclassified borrowings such as ‘buy now pay later’ schemes are not yet included in household borrowing statistics
10. B40, M40, and T20 Malaysia refer to the household income classification in Malaysia. B40 represents the Bottom 40%, M40 represents the middle 40%, whereas T20 represents the top 20% of Malaysian household income.