Affordable housing not based on new launches alone, says think tank

FREE MALAYSIA TODAY. 5TH JUNE: The Center for Market Education says 80% of transactions happen at the secondary market.

A think tank says Putrajaya should not be measuring affordable housing based on price alone, describing the Price Income Ratio (PIR) method as a limited analytical tool.

The Center for Market Education (CME) said that currently, the PIR is being calculated for new housing development launches instead of looking at the secondary market, where 80% of transactions happen.

“In a nutshell, we measure affordability of a certain housing market, while people buy and sell in a different market,” said its CEO, Carmelo Ferlito.

He was commenting on a recent request by Prime Minister Anwar Ibrahim to the local government development ministry to review the conditions on affordable housing by developers.

In a statement, Ferlito said that while the PIR, which compares the median price of a dwelling with the median household income, is an index that is easy to calculate, it does not apply to rent, location and how much housing can be purchased for the median price.

He said a low PIR does not necessarily indicate a good level of welfare for the home owners, as they could be purchasing the properties due to economic stress or absence of demand.

“Therefore, while PIR might be useful for identifying an affordability problem, it is too simple to be the driving force for a policy solution,” he said.

Ferlito also said CME is developing a new affordability index based on a mix of PIR and social affordability, which takes into account location, connectivity and occasions for social mobility.