Measuring Housing Affordability in an Emerging Market: The Lifetime Income Approach

23 Pages Posted: 5 Dec 2017

See all articles by Gary J. Rangel

Gary J. Rangel

Universiti Sains Malaysia

Jason Ng

Monash University Malaysia

Thiagu Murugasu

Monash University, Malaysia

Wai Ching Poon

Monash University Malaysia

Date Written: November 30, 2017


The problem of housing affordability is a phenomenon that affects both developed and developing countries across the world. Researchers have tried to operationalize measures of housing affordability, resulting in short-run measures such as the median multiple approach, the expenditure-to-income ratio and the residual income approach. Using the lifetime income approach developed by Abeysinghe and Gu (2011), we track and analyze long-run housing affordability in Malaysia at various household income percentiles from 1995 to 2014. We do this via the computation of the Housing Affordability Index and the Mortgage Affordability Index, with the latter based on the intergenerational transfers literature relevant in the Malaysian context. The results show that households at the 25th income percentile cannot afford any of the four dwelling types in Malaysia. For the 40th income percentile and those households at median income levels, high-rise and terrace housing are affordable. However, we document significant downward trends in the housing affordability index and the mortgage affordability index starting in 2009, which indicates increasing housing stress for households at or below the median income. We also demonstrate how contradicting conclusions on housing affordability are reached if a median multiple approach had been used. Based on the results, we contribute to the literature on housing affordability by suggesting general proposals to ameliorate the housing affordability problem in the context of a developing country such as Malaysia.

Keywords: Housing Affordability, Lifetime Income, Malaysia Real Estate, Intergenerational Transfers

JEL Classification: R21, R31, R38, R51

Suggested Citation

Rangel, Gary J. and Ng, Jason and Murugasu, Thangarajah Thiayagarajan and Poon, Wai Ching, Measuring Housing Affordability in an Emerging Market: The Lifetime Income Approach (November 30, 2017). Available at SSRN: or

Gary J. Rangel (Contact Author)

Universiti Sains Malaysia ( email )

Minden, Penang

Jason Ng

Monash University Malaysia ( email )

Level 5, Building 6
Jalan Lagoon Selatan
Selangor Darul Ehsan 46150
+603-55145850 (Phone)
+603-55146192 (Fax)


Thangarajah Thiayagarajan Murugasu

Monash University, Malaysia ( email )


Wai Ching Poon

Monash University Malaysia ( email )

Jalan Lagoon Selatan
Bandar Sunway, Selangor 46150

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