How rising housing costs in Malaysia are pushing families into poverty

A Sivarajan

During a recent event on poverty, economist Dr Muhammed Abdul Khalid, author of The Colour of Inequality, remarked that many people in Malaysia who are not identified as poor were in fact economically vulnerable.

He explained that any unforeseen expenses could easily set them back by a few hundred ringgit, pushing them below the national poverty line.

Beyond unforeseen expenses, the possibility of falling into poverty extends to fixed expenses such as housing costs. Unfortunately, data examining the financial constraints faced by households in Malaysia after paying for housing costs is limited. With property prices soaring since the year 2000, the impact of housing costs on households – especially those below the median income – deserves closer study.

House prices in Malaysia have risen consistently over the last two decades, with significant rises in 2005 (4.5%), 2007 (4.9%), 2011 (4.2%) and a leap after the pandemic in 2022 (18.6%) (Norazmawati, 2025).

However, there is little discussion in Malaysia on data tabulating the number of households falling below the poverty line after paying for housing. In developed countries such as the UK and Australia, poverty identification based on residual incomes – the income left after housing costs – is considered a better indicator for directing anti-poverty interventions.

Studies have shown conclusively that poverty rates increase after accounting for housing costs (Jenkins et al, 2015; Whitehead et al, 2008). The Joseph Rowntree Foundation reported that in 2010-11 in the UK, an additional 3.1 million people fell into poverty after accounting for housing costs. Ten years later, in 2022-23, over 44% of social renters and 35% of private renters were in poverty after deducting housing costs. Rising housing costs also wipe out gains from income growth among poor households, keeping them in a cycle of poverty (Johnson et al, 1992).

The significance of housing costs on poor households’ ability to meet non-housing expenditures should not be underestimated. This is because housing payments take precedence over other expenses due to the legal nature of rents and mortgages, which are commonly governed by binding contracts (Saunders, 2017). As a result, all other spending is adjusted to fit within the remaining residual income (Stone, 2004).

Moreover, housing cost is ‘lumpy’ – it cannot be divided or consumed in smaller portions like food (Whitehead et al, 2008).  

So it is not enough to determine housing affordability using the conventional housing cost-to-income ratio (also known as the rent-to-income ratio). This rule of thumb suggests a property is affordable if housing costs do not exceed one-third – or 25–30% – of household income.

This general rule has multiple flaws due to its broad assumptions about a household’s ability to pay. It implies what households should pay, rather than what they can afford. Moreover, it does not take into account household size and differing needs or behavioural preferences (Hulchanski, 1995; Hui, 2001; Yip et al., 2002; Bogdon et al, 1997).

Alternatively, the residual income approach – which measures affordability based on income left after paying for housing – offers deeper insight into whether households have sufficient resources to meet other essential expenses. Micheal Stone introduced the term “shelter poor” to describe those unable to meet basic non-housing needs because housing consumes too much of their income (Stone, 2004).

Similarly, Kutty discusses “housing-induced poverty” as the situation where households have a residual income of less than two-thirds of the official poverty line after paying for housing (Kutty, 2005). When poor households are pressed to meet their housing obligations and avoid defaulting on mortgage or rent, they usually cut back on other essential expenses.  

This is well illustrated by the concept of opportunity cost – the cost of giving up other necessities to meet housing payments (Whitehead, 1991; Hancock, 1993). Housing affordability would then be more accurately assessed by determining whether the trade-offs made are manageable or so excessive that they deprive households of minimum needs.

If households struggle to pay monthly housing instalments and have insufficient residual income for other household needs, they should be considered unable to afford home ownership. Studies show that low-income households spend nearly all their income on non-housing needs (Norazmawati, 2008). Therefore, any increase in housing costs that reduces residual income will force household to cut spending or go without basic goods and services.

The burden of housing costs may drive poor households into multiple forms sof deprivation, similar to those experienced by income-poor households. Some may delay necessary medical care due to the competing demands of paying rent or mortgages (Kushel et al., 2006; Pollack et al, 2010). In the worst scenarios, households skip meals or pawn valuables for cash (Bray, 2001; Kirkpatrick et al, 2011).

Although there is limited scholarship linking housing costs to the deepening of poverty among those earning below the median income, existing studies on housing affordability suggest such outcomes are plausible. All types of housing available in the current property market have become unaffordable to households in the 25th income percentile, especially after 2010 (Rangel et al, 2019). With few properties priced below RM200,000, one must ask whether such households can still meet their families’ needs after taking on a mortgage.

There remains a persistent mismatch between market prices and buyers’ affordability using the median multiple method (where affordable housing should cost no more than three times annual income). Only 21% of houses were priced below RM250,000 in 2014, when the affordability threshold for the median household was RM165,060 (Azuddin et al, 2021).

Loan repayment calculators typically show that buying a RM300,000 property with a 10% downpayment (RM30,000) and a bank loan of RM270,000 would require monthly repayments of RM1,138 for 30 years.

The Department of Statistics recently reported that while the national median household income was RM7,017, the median income for the lowest decile was only RM3,815, with 21.8% of households earning below RM3,999. A monthly housing cost of RM1,138 would reduce disposable income to RM2,677 – barely a few hundred ringgit above the national poverty line of RM2,208.

The report also noted that households in the lowest income decile spend up to 29.3% of their expenditure on housing and utilities (Department of Statistics Malaysia, 2025a & b).

Although not conclusive, this data point to troubling circumstances that require urgent investigation. As house prices continue to rise, households in the lowest income group are likely to be struggling with mortgage repayments – while cutting back on food, clothing and healthcare – to avoid losing their homes.

This housing cost-induced poverty in Malaysia needs to be studied urgently so that policymakers can take timely action to prevent deeper poverty among low-income households.

Sivarajan Arumugam is a central committee member of the socialist party PSM.

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