During a recent event on poverty which I attended, Dr Muhammed Abdul Khalid, the author of ‘The Colour of Inequality’, remarked that many Malaysians not identified as poor were considered vulnerable. He explained that any unforeseen expenses would easily set them back a couple of hundred ringgits, pushing them below the national poverty line. I would add to his observations that the possibility of falling into poverty extends beyond unbudgeted expenses to fixed expenses such as housing costs. Unfortunately, data examining the financial constraints faced by Malaysian households after paying for housing costs is limited. Furthermore, with skyrocketing property prices since the year 2000, the impact of housing costs on households, especially those with incomes below the median income, needs to be studied. House prices in Malaysia have consistently increased in the last two decades, with significant increases in 2005 (4.5%), 2007 (4.9%), 2011 (4.2%) and a huge leap after Covid-19 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 only after paying for housing. In developed countries like the UK and Australia, poverty identification with households’ residual incomes (after housing costs, AHC) instead of incomes before housing costs (BHC) is considered a better indicator to direct anti-poverty interventions. Studies have conclusively shown an increase in poverty incidence after housing cost (AHC) compared to before housing cost (BHC) (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, and ten years later, in 2022/23, more than 44% of social renters and 35% of private renters were in poverty after housing costs (Tunstall et al., 2013; Joseph Rowntree Foundation, 2025). Rising housing costs also negates any increase in poor households’ income, keeping them in perpetual 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 cost takes precedence over other costs due to its legal nature, such as rents and mortgages, which are commonly governed by legally binding leasing agreements or mortgage payments (Saunders, 2017). Therefore, all other non-housing expenses are recalculated to fit within the remaining residual income (Stone, 2004). Furthermore, housing cost is ‘lumpy’, unable to be broken down or consumed in reduced proportion like foodstuff (Whitehead et al., 2008).
Consequently, I would argue that it is insufficient to determine housing affordability using the conventional housing cost-to-income ratio (also known as the rent-to-income ratio). This methodology produces a general “rule of thumb”, considering a property to be affordable if the housing cost burden on households is limited to one-third or 25 to 30% of household income. This ‘rule of thumb’ has multiple flaws due to its gross generalisation and assumption about a household’s ability to pay. It seems to indicate what households ought to pay rather than what they can afford to pay. Furthermore, it does not consider household size, varied needs, choices and behavioural preferences (Hulchanski, 1995; Hui, 2001; Yip et al., 2002; Bogdon et al., 1997).
Alternatively, the residual income approach that evaluates affordability based on the balance of household income after paying for housing costs provides a deeper insight into whether there is enough resources to meet non-housing expenditure. Micheal Stone introduced the terminology ‘shelter poor’, referring to a situation of not being able to meet non-shelter needs at a minimal level because of being squeezed between household income and the amount spent on housing (Stone, 2004). Similarly, Kutty discusses ‘housing-induced poverty’ as a situation of households having a residual income of less than two-thirds of the official poverty line after paying for housing costs (Kutty, 2005). When poor households are pressed to meet their housing cost obligations so that they don’t default on their monthly mortgage repayments or rents, they usually cut back on other household expenses that could be reduced in the consumption portion. This phenomenon is well illustrated by the ‘opportunity cost’ concept. Opportunity cost here means the cost of foregoing non-housing commitments to fulfil housing needs due to limited household income (Whitehead, 1991; Hancock, 1993). Therefore, housing affordability would be more accurately determined by assessing if the extent of what has been forgone was manageable or excessive, depriving them of minimum needs.
Therefore, if households struggle to pay for monthly housing installments and have insufficient residual income for other household needs, then they should be considered incapable of owning the property. Studies have shown that low-income households spend nearly all their income to meet their non-housing expenses (Norazmawati, 2008); therefore, any reduction in residual income due to an increase in housing costs would drive the household to make cutbacks and forego procuring basic services and goods. The impact of housing costs plausibly drives poor households towards multiple deprivations commonly observed among income-poor households. Households have been found to postpone needed medical care due to competing demands of paying rents/mortgages and seeking medical care (Kushel et al., 2006; Pollack et al., 2010). In the worst scenarios, households either forgo meals or pawn their valuables in exchange for cash (Bray, 2001; Kirkpatrick et al., 2011).
While there is a lack of scholarship that draws attention to the relationship between housing cost and the deepening of poverty amongst households below median income, studies on housing affordability signal such plausible incidents. All types of housing available in the current property market are unaffordable to households in the 25th income percentile, especially after the year 2010 (Rangel et al., 2019). Therefore, with the lack of properties priced below RM 200,000, are households struggling to meet basic necessities for their families after committing to a mortgage repayment schedule?
There has been a persistent mismatch between house prices in the market and buyers’ affordability using the median multiple method (price of affordable housing should be no more than three times annual income). Only 21% of houses were priced below RM250,000 in 2014, when the threshold of affordability for the median Malaysian household was RM165,060 (Azuddin et al., 2021). Loan repayment calculators by financial institutions usually provide a guide to the amount of monthly mortgage repayments by purchases. Thus, purchasing a property at RM300,000 with a 10% downpayment (RM30,000) and a bank loan of RM270,000 would set a household back RM 1,138 every month for the next 30 years.
Department of Statistics Malaysia (DOSM) recently reported that while the national median household income stood at RM 7,017, the median for the lowest income decile was only RM 3,815, with 21.8% of households having incomes below RM 3,999. Therefore, a monthly housing cost of RM 1,138 would reduce households’ disposable income to RM 2,677, a couple of hundred ringgit closer to the national poverty line of RM 2,208. The report further states that households in the lowest income decile spend up to 29.3% of their household expenditure on housing and utilities (Department of Statistics Malaysia, 2025a & b).
Therefore, although inconclusive, the data allude to grave circumstances requiring further investigation. Thus, as house prices continue to increase, households in the lowest income decile are plausibly struggling with mortgage repayments by cutting back on food, clothing, and healthcare to avoid losing a roof over their heads through foreclosures. This plausible housing cost-induced poverty in Malaysia needs to be studied to enable timely policy interventions to prevent the deepening of poverty among low-income households.
Sivarajan A
23 October 2025.
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