encik abdul rasheed ghaffour : sustainable development of affordable housing keynote address by mr encik abdul rasheed ghaffour, deputy governor of the central bank of malaysia ( bank negara malaysia ), at the dialogue on “ sustainable development of affordable housing ”, kuala lumpur, 4 july 2017. * * * i am sure many of us here can still remember when we set out to buy our first house, which may be between 20 to 30 years ago. back then, a typical terrace house or a 3 - bedroom apartment came at a price tag of between rm200, 000 to rm300, 000. the monthly repayment would be around rm1, 200 to rm1, 600. it was a big commitment. but it was manageable ; it made financial sense, and it was affordable. that was many years ago. those who are starting out today face much higher barriers to buying a house. the numbers speak for themselves. lets take a widely used measure – the median multiple, for example. under this measure, a house is considered affordable if the median house price is less than three times the median annual household income. for malaysia, this ratio has consistently been above four since more than 10 years ago. in our major cities, the ratio can be as high as ten. even if we look at other measures, the broad conclusion remains : housing in malaysia is becoming less affordable. this dialogue on “ sustainable development of affordable housing ” is therefore very timely. confucius once famously said that the strength of a nation derives from the integrity of the home. this underscores an important truth. housing is not just about putting a roof over our heads, nor is it only a personal or financial issue. assuring housing stability helps ensure that households can meet other basic needs and establish roots that build stronger communities. the challenges facing affordable housing are also complex and call for multiple stakeholders to work together to find solutions that will deliver desirable outcomes over the long term. it therefore has much broader socio - economic dimensions that concerns all of us. it is firstly crucial to frame the issue of affordable housing correctly. fundamentally, the issue is one of a large and growing mismatch between demand and supply, owing to significant changes in our housing markets and demographic shifts. prior to 2012, investor purchases of multiple homes increased very sharply, crowding out first - time homebuyers and pushing up prices of homes across the board in preferred locations. at its peak,

strong house price inflation as we can see from the chart, inflation - adjusted house prices have fluctuated over the past 150 years. house prices reached a preliminary peak in 1899, the year before the housing market crash in kristiania ( the name of oslo at the time ), falling thereafter, especially during and after the two world wars. if you had bought a home just before the kristiania crash, it would have taken more than 80 years for you to recoup your investment. and after the fall in house prices at the end of the 1980s, 12 years passed before prices returned to 1987 levels. following the banking crisis at the beginning of the 1990s, house prices took off and in real terms are now more than twice as high as before the housing bubble burst at the end of the 1980s. a home purchase has been for many years an exceptionally good investment. thanks to rapid house price inflation, many of us have accumulated considerable wealth – at least on paper. chart 6 : how much housing can an average wage buy? in the most of the past century, norwegians experienced a substantial rise in prosperity. larger and cheaper housing was a significant contributor. this meant an ordinary wage could by more housing space, even though the real price of housing also rose sharply. but since the beginning of the 1990s, the average house has become more expensive also relative to income. or to put it another way, an average wage can buy less than half as many square metres today than it could in 1991. chart 7 : higher debt – lower interest burden since our living conditions are generally not more cramped than before, you might think that we have to spend more of our income on financing our homes. but this is not the case. although we hold record - high levels of debt, our interest burden is not heavier now than it was 30 years ago. interest rates have fallen. since income has risen markedly at the same time, principal payments on large loans have also been manageable. norwegian households have responded by taking out increasingly larger mortgages to finance increasingly more expensive housing. this would not have been possible without access to cheap credit. low interest rates have made it possible to maintain housing quality, even though house prices have crept steadily upwards. moreover, lower interest rates, longer repayment periods and the introduction of interest - only periods have made it possible to borrow more without squeezing liquidity. this has also enabled prospective homebuyers to submit a bid higher than they normally would have done, with increasingly