Bank Negara Malaysia (the Bank) held its fourth Economics Research Workshop yesterday at Sasana Kijang, Kuala Lumpur. This year’s workshop is themed “The Housing Market: Issues and Policy Options”.

The conference was attended by representatives from financial institutions, government agencies, property developers, academia and think-tanks. Its purpose is to examine key issues in Malaysia’s housing market, drawing on current research conducted on housing affordability, demand and supply mismatches and the drivers of property prices.

Six research papers were presented at the conference, concluding with a policy dialogue on priorities and strategies to provide affordable housing to Malaysia’s households.

Several key findings emerged from the presentations and discussions. First, income and credit are key determinants of house prices. Both variables are closely linked as income is the main criteria for access to financing. Second, during the period 2013-2014, aggregate house prices in Malaysia had risen beyond levels that were consistent with macroeconomic stability and the country’s economic fundamentals. The targeted policy measures, including the increase in the Real Property Gains Tax and measures to rein in imprudent lending and interest capitalization schemes, were effective in stabilising prices in the housing market by 2015. Third, housing imbalances feature more prominently in selected locations and price segments. This worsens housing affordability and drives higher household debt in these segments.

There was a broad consensus that policy considerations for housing the nation will need to balance the objectives of providing a minimum quality standard of housing for all Malaysians, while preventing the buildup of imbalances in the housing market.

Several participants cautioned that the 2007 global financial crisis that had its origins in sub-prime mortgage lending should serve as an important lesson on factors that can increase risks in housing markets, with far reaching consequences for financial and macroeconomic stability. While households require access to credit to own a home, it is not in their own interest to incur an unsustainable level of debt to do so. Policy measures to ensure access to credit must therefore be pursued with concern for the protection of homebuyers from financial hardship leading to foreclosure and poorer welfare.  

A number of policy options were discussed. It was suggested that developing broader alternatives to home ownership, including a well-functioning rental market, should be pursued as a policy priority. The suggested need for alternatives highlights the adverse consequences that poorly designed incentives to increase home ownership can have on housing affordability over the longer term. It also provides a viable route to help low income and early career individuals onto a path towards eventual home ownership. Better enforcement is also critical to prevent the abuse of schemes intended to assist specific household segments to own or rent homes. Factors that influenced the efficiency with which house prices were adjusted were also examined. Discussions noted that incentives for increasing home ownership should be carefully considered so as not to blunt the effectiveness of market mechanisms which work to correct housing imbalances. The need to ensure that price thresholds adopted for affordable houses are appropriate was also highlighted, noting that house prices remain out of the affordable reach for many low- and middle-income households.

The Bank encourages additional research in this area and welcomes feedback from the public. The agenda of the event is attached here.