The Challenges For Millennials In Housing Market
Construction industry has always play a significant role to the development of the country. Infrastructure like roads, bridges and railways help in increasing the efficiency for transporting goods and materials used for construction. Infrastructure also has help in reducing the gap in information and communication between urban and rural areas thus provide opportunity for every citizen to obtain the benefits of the country’s own growth. Since independence, Malaysia has continue to expand in multiple industries and provide thousand of job opportunities to its citizen and even attract foreign workers into Malaysia. Based on the progress, things look bright for the people and even the future generation to thrive in this country. However, the housing market in Malaysia proved to be an obstacle when more people are now unable to obtain their own home. As claimed by Ling, Almeida and Wei (2017), “in 2016, houses in Malaysia remain seriously unaffordable by international standards with a median multiple of 5. 0. The maximum affordable house price in Malaysia is estimated to be RM282,0003.
However, actual median house price was RM313,000…” (p. 19). Therefore, it can be understood that from the figures given, while affordable house is available in Malaysia, the price currently available in the market exceed even the maximum affordable house price estimated. This has now become a cruel irony where even the affordable houses available in the market is now considered as unaffordable. Multiple action had been taken by the government to tackle the issue, but the condition persist. Rangel, Ng, Murugasu and Poon (2017) has cited Gho and Willy from 2016 that “Government initiatives such as PR1MA have been criticized for a “lack of focus” and have even allowed “second-time house buyers" the opportunity to participate in balloting for PR1MA-developed housing despite a waiting list of 1. 3 million first-time applicants”(p. 3).
This shows that even with government intervention and policies in providing affordable housing, most people has yet able to afford the houses. This is worsen with the fact that people whom had already own houses also given the similar benefits to own house from the government initiatives. Now, the question that arises is where does the millennials come into the equation? The term millennial as defined by Merriam-Webster is ‘a person born in the 1980s or 1990s’ and further defined by Neil Howe and William Strauss, the authors of Millennials Rising: The Next Generation published in 2000 as those born between 1982 and 2004. From the definition alone, millennials are currently age from 14 to 36 years old, where most of the people in the range is within their first decade of service in their job. Millennials also include graduates and students currently enrolled in higher learning institute. The only way for the young people who had just entered the working field with a decent salary to get a comfortable shelter as their home is when the house is affordable (Zairul,2013). Hence, this paper aims to highlight the challenges faced by millennials in housing market especially in terms of financial aspect, housing choice and the developer’s interest.
Challenges from Their Financial Aspect
The main challenge that millennial will face when buying their own house is from their financial aspect. When talking about affordability, the price of the house will always be a concern especially for millennial. According to Zyed, Aziz and Hanif (2016) who cited Yates(2008) that “housing affordability problem as the result of housing costs for both purchasers and renters increasing faster than household income”. This is when they have to bear the pressure of having a low income since they are new in the work force but at the same time they have to pay high prices for their house especially if it is in the urban area, owning a house is considered a requirement if you want to be called successful in life, as it has been embroiled in Malaysian’s mindset since the early days (Zairul, 2013). Sourcing from Bank Negara Financial Stability and Payments System Report, 2015, Azira, Juhaida and Hanita (2017) found that the household debt to gross domestic product (GDP) for Malaysia is as high as 89. 1% in 2015 which is an increase from 60% in 2008 and they also cited from The Star newspaper dated 22 June 2015 which reported that close to 25,000 Malaysians below age 35 have become bankrupt since 2010. Thus, it is not surprising that a lot of young adult falls into bankruptcy with so many financial burden that they have to bear such as study loan, car loan, house loan, personal loan, insurance and many more. They have to pay all of those with their low income giving them little balance for their selves, saving and investment.
According to Zairul (2013), “In general, the minimum percentage that acceptable for debt service ratio is at 30%” (p. 14924). In an ideal situation it can be said millennial should debt only 30% out of their household income while the other 70% should be used for daily necessity expenditure, various saving and investment but the reality is far from ideal. Let’s take young graduates with a few years of experience for example, their monthly income should be around RM 3,000 and after deduction from EPF, TAX & SOCSO it became RM 2,610. Ideally they should cater 30% of it for debt payment which is RM 783. Let’s say they accommodate RM 100 for student loan, RM 600 for car loan and RM 1,000 for house loan which total up to RM 1,700 far exceeding the recommended amount and they still need to consider car insurance, life insurance, road tax, service, emergency saving and many more. Considering all of those, they are left with small amount of money for food and gas. These financial constraints placed a huge pressure on millennial when considering buying a house especially since most of the house that is available in the market are out of their budget range and its price increases in each passing year. As with any other market, the demand and supply for housing reflect greatly on the price of houses as it increases with high demand and low supply. The imbalance of demand and supply of affordable house become evident in 2012-2014 when the supply of new housing does not catch up with the increase in demand where an average 85,000 new units supplied compared to the formation of 118,000 new household (Cheah and Stefanie, 2016) and from 2014-2016 an average of 114,000 new houses is supplied significantly lower than the 154,000 newly formed household (Cheah, Stefanie and Ho, 2017).
The mismatch in demand and supply raises the price of houses and it greatly affect the middle income group which most millennial resides in. The affordable housing market situation in Malaysia makes the middle income group felt abandon, the free market is leaned towards higher-priced properties and the government housing programmes focus only on the low-income group. Khazanah Research Institute (2015) reported that in 2014, all of the newly launch properties in Kuala Lumpur falls in the RM 500,000 – RM 1mil bracket while none in the RM 250,000 – RM 1 mil bracket. Millennial that having a monthly household income of between RM 2,500 and RM 6,000 can do nothing toward this situation as they are not qualified for government housing programmes and cannot afford the houses in the market. Zarifah, Wan and Noor (2016) found out that, citing from Bramley (2012), the victims of unaffordable houses are more apparent with millennial as they have a low-middle income due to them being new to the work careers, limited asset accumulation also their greater reliance on the private rented sector.
Challenges from Their Housing Choice
Making the decision of buying a house is a major task especially to millennial as it is one of the most important decisions that they will make in their entire life, choosing the right house is one of the challenges that they will face in the housing market. The type of house; whether it is a high rise apartment or a semi-detached house or a terrace, the design; whether its design satisfied their aesthetics value and the environment; whether they want a peaceful neighborhood or a hectic urban lifestyle are some of criteria that they need to decide when buying a house. That is why they are advised to rent a house first before buying one. After renting a house in the first few years of their work career they can then confidently determine their choices whether it is better to rent a house or to buy a house. It can also be an indication of their financial standing in the house affordability market.
House affordability has always be an issue in recent years, the situation has not improve but rather worsen that is why renting is a mechanism that can help to improve it. Cheah, Stefanie and Ho (2017) state that by renting it can help reduce the demand and supply mismatch of affordable houses, although it came with a social stigma in Malaysia as it is seen as the last resort of a household in securing their property.
Bujang, Shapee, Abu and Ismail (2017) quoted that according to Canadian Housing Observer (2014)” Housing needs is influenced by socio economic driven such as demography and social, household income, residential cost, household size and economic growth” (p. 127). It can be interpreted that when choosing a house factors such as demography and social, household income, residential cost, household size and economic growth must be considered. They also must consider the cost to maintain their house if they were to buy one, for example; utility services and management fees. Young household tend to choose a house which have a similar environment settings to their childhood neighborhood as they are familiar with it and they would feel safe and secure (Zafirah et al, 2016).
It cannot be denied that when thinking of buying a house the first thing that comes to mind is its location. Different location comes with different prices. Zairul (2013) explained that: According to the statistics made by the Malaysian House Price Index (2011), the price of the average house for all states in Malaysia reached to RM 206,513 and the highest was recorded in Kuala Lumpur at RM 438,150, while the lowest was recorded in Perlis at RM 115,072 (p. 14925)
The text above proved that the houses at Kuala Lumpur far higher than the houses in other states. The difference in prices is due to the urbanization of the states. Selangor, Sabah and Penang follows Kuala Lumpur as the second, third and fourth state that are expensive with a price of RM 317,383, RM 281,740 and RM 281,589 respectively as the buyers of this houses are usually city dwellers which mostly a high income earner (Zairul, 2013).
Houses that are near work place, school, hospital, regular public transportation and infrastructural facilities are preferable and the most searched in the market. Survey by Zainon et al (2017) found that most of the respondents choose to live near the city rather that in it due to its cost lower than the later, only a fraction prefer to live in a rural area as they want to be free from the busy and noisy urban life. Although the houses that are far from the city can be considered cheap but it is not preferable because of its low frequency of public transport, far from fundamental facilities and amenities it is also sometimes bring about the issue of security.
Security factor also play a big role in determining the choice of their house. Houses that are too far from the city is often a low cost housing and it is usually lack regular and planned maintenance because of its distance, police hard to patrols it hence its security is an issue. The survey by Zainon et al (2017) showed that safety and security is the second important factor in choosing a house, gated neighborhood with restrict entry to the public and the area is surrounded by walls, security gates and the installation of CCTV are highly desired.
When choosing a house, there is always an inter relation between the price of the house, the financial capability of the buyers and the preferred environment that they want to live in. They not only have to think on how to choose and buy a house, they also must consider on what happen after they buy it whether they can to maintain it or not.
Challenges from Developer’s Interest
The final challenge for millennials in the housing market is in the form of developer’s interest. According to Zyed, Aziz and Hanif (2016) who cited Phang (2009) states that “housing regulation has a housing market implication that includes expansion of the targeted housing sector over time,the relative constancy of actual housing expenditure to income ratios for targeted household groups, income inelastic housing demand and price inelastic housing supply”(p. 10). Thus, it can be argued from the statement made that, a good housing regulation made by the government will have a good impact to the varieties of factors that will enable more affordable houses. However, developer are still not fully interested in supporting the idea of providing more of their resources on affordable housing segment. This can be deduced that developers are more profit-oriented where building a high class houses with a high price will enable them to obtain more revenue compared to building more affordable housing.
A study by Samad,Zainon, Rahim and Lou highlight that “Although many private developers were involved to offset the housing need, nonetheless, these developers constructed the low-cost houses merely due to quota requirements as they are non-lucrative projects”(2017). This proves that developers are not providing more affordable housing because of the small amount of benefit for them to do so. Most of the blame cannot be placed solely on the developer. Ramli,Zainal and Ali (2016) cited a thesis made by Akhirudin (2013) that “This is happen because the developers are forced to pay high amounts of constructions premium to the state government besides the soft cost, which act as a hidden cost in the housing development projects”. In determining the house price, many other cost are considered by the developer before the final price for the house is obtain.
When the cost of land itself is high, to build a affordable house on the land is unreasonable because the profit is small. From the developer’s perspective, most of the schemes made by the government are buyers-oriented where the government wanted to provide more houses for the middle class group or the millennials which is mostly first-time house buyers. Several housing scheme like Perumahan Rakyat 1Malaysia (PR1MA), MyHome, Skim Rumah Pertamaku (SRP) and Program Perumahan Rakyat (PPR) as well as financial scheme such as Mydeposit, and stamp duty deduction of about 20% for first-time house buyers are introduced by the government to help the people (Ang,Olanrewaju,Chia and Tan, 2017, p. 2). In this context, the developers are forced to provide rather than willing to provide home for millennials or first-time house buyers. The lack of incentives for developers by the government reduce their interest in building more affordable home. Therefore, developer’s interest is also a challenge for millennials in housing market.
In conclusion, through this research, it is clear that financial aspect, housing choice and the interest of developer are the test for the millennials in the housing market. Every generation since our independence through the formation of Malaysia till now faced different form of challenges in the housing market. With a vast amount of information and knowledge ready to be access by a few clicks on the keyboard, millennials are more ready than ever to faced the challenges in the market. The challenges in the form of financial aspect which is the household income, the house choice factor like location and security, and the developer’s interest which influence house price. The millennials or the first-time house buyers are the most affected by the affordable housing issues.
As stated by Zyed, Aziz and Hanif (2016), “The problem of insufficient income to purchase a house relates to house price that is not affordable for young households. Even more, there is limited housing choice in the supply of affordable housing in the housing market”. Thus, it is important that state intervention regarding this issue is increase significantly. A home is important for every living being. From the perspective of Islam, the concept of good housing is addressed in the sura alNahl: 80. "It is Allah Who made your habitations homes of rest and quite for you. . . ". Millennials or the first-time house buyers deserves the opportunity to obtain a house suitable with their needs.
Implementation like centralisation of affordable housing initiatives should be considered by the government to better mitigate the process of providing more affordable home in this country. Ling, Almeida and Wei (2017) highlight that nearly 20 national and state-level agencies provide the initiatives for affordable housing. The lack of coordination between the initiatives by these agencies provide opportunities for the housing market to increase the price between these affordable houses. Thus with an establishment of single entities to coordinate the initiatives by these agencies will reduce the gap for housing market to interfere in the house price. This result in a consistent flow of affordable house for the millennials and future generations.