Ahmad Fikri Ahmad Fisal
Senior Research Associate
Fikri is a Senior Research Associate at PNBRI. His major interests include history, political economy, inequality and housing. His past publications focused on the ownership and control of government-linked companies in Malaysia. He holds a Bachelor of Science in Actuarial Math and History from the University of Michigan, and a Master of Development Studies from Universiti Malaya.
[email protected]Abstract
This article outlines the merits of establishing a thorough rental database to accurately monitor rent affordability in the Klang Valley. Such a database is relevant given that the proportion of renter households in KL and Selangor has increased since 2019, and may continue to do so.
While official statistics indicate that rents in both states are highly affordable, the discrepancy between administrative and market data raises curiosity on the true situation of renting in the Klang Valley.An extensive rental database allows for accurate and timely monitoring of rental rates, which then enable policymakers to identify and protect cost-burdened renters from financial distress. This matter becomes urgent with the projected rise in rental remand and the upcoming fuel subsidy rationalisation.
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Unaffordable residential property prices have made homeownership a costly option for many Malaysians. As of 2022, median house prices were 4.3 times higher than the median annual household income, far exceeding the 3.0 “affordable” threshold. The laggard growth of income further exacerbates the affordability. Between 2012 and 2022, house prices grew more than two times faster than household income (Khazanah Research Institute, 2024).
On the contrary, there has been relatively little discussion on rent affordability. The government has rolled out various incentives to spur property sales, such as stamp duty exemptions, downpayment waivers and loan guarantees. The latest Budget 2025 even introduced income tax exemptions for first-time house buyers.
Meanwhile, there has not been much concerted effort to strengthen the rental market – be it by strengthening the rights of tenants, furnishing more rental data or strengthening rental institutions. For example, the Residential Tenancy Act has not yet been tabled despite plans to do so since 2019.
The issue of rent unaffordability has emerged as an urgent concern in some countries including the United States. The Biden administration had proposed withdrawing tax credits for landlords who increase rent by more than 5% yearly (The White House, 2024). Presidential candidate Kamala Harris’ campaign had also proposed to expand tax incentives to reduce housing costs for renters and homebuyers (Reuters, 2024).
The widely accepted method to measure rent affordability is through the cost-burden approach (Airgood-Obrycki et al., 2021). A renter household is considered “costburdened” if they spend more than 30% of their monthly income on rent and utilities, or “severely cost-burdened” if they spend more than half of their monthly income.
The richness of rental market data in the US allows for a granular assessment of rent affordability levels there. For example, the number of cost-burdened renters in the US grew to a record high 22.4 million in 2022 from 20.4 million in 2019 (Joint Center for Housing Studies of Harvard University, 2024). The share of cost burden among low-income renter households rose 1.5 percentage points to 83%, while that of middle-income renters jumped 5.4 percentage points to 41%.
To date, there is yet a similar analysis of cost-burdened renter households in Malaysia. However, two recent negative developments hint at worsening rent affordability. First is the consistent growth in house prices nationwide since 2010, which in some conditions may serve as a leading indicator of rent inflation (Gallin, 2004; Zhou & Dolmas, 2021). Second is the higher-than-expected rental growth reported recently in Kuala Lumpur and Selangor (The Edge, 2024).
Thus, this article urges the government to take a closer look at rent affordability. Doing so may encourage policymakers to begin quantifying and closely tracking the number of cost-burdened renters while protecting them from financial distress amid the already elevated cost of living environment.
Is Rent Affordable in the Klang Valley?
The Klang Valley has a relatively higher renter population than the rest of the country. In 2022, 34.3% (2019: 34.1%) and 30.7% (2019: 29.2%) of households are renting in Kuala Lumpur and Selangor respectively. These figures are higher than the national rate of 20.3% (2019: 19.8%) national rate (Department of Statistics Malaysia, 2023a). Within Selangor, the Petaling and Gombak districts have a relatively high rentership rate of 36.4% and 34.3% respectively in the same year, compared to the rest of the state. This is expected as both districts are located very close to the KL city centre and have higher costs of living relative to the other, less urban districts.
Based on official statistics, rent appears very affordable in Kuala Lumpur and Selangor. According to the Household Expenditure Survey (HES) 2022, a household in Kuala Lumpur and Selangor pays, on average, RM647 and RM350 in actual monthly rent, which is higher than the national average of RM201 (Department of Statistics Malaysia, 2023b). Based on the reported median household income of RM10,234 and RM9,983 for KL and Selangor, respectively, the ratio of monthly-householdincome-to-rent are 16 times and 29 times respectively in both states. If utilities and related housing costs are included, the ratio drops to 10 times and 15 times respectively -- still considered to be within the affordable range.
However, market indices reveal a very different story. Based on approximately 70,000 transactions since 2018, the IQI Malaysia Home Rental Index calculates that Kuala Lumpur’s average rent in 2Q2024 is RM2,863, which is 44% higher than Malaysia’s average of RM1,995 (The Edge, 2024) . Meanwhile, the average rent in Selangor is RM1,899. These translate to about 28% and 19% of household income, respectively.
The growth in rental prices between official and market datasets also varies significantly. The Consumer Price Index (CPI) calculates the y-o-y growth in actual rents paid by households to be 2.5% in Kuala Lumpur, 1.6% in Selangor and 1.9% nationally as of 2023 (Department of Statistics Malaysia, 2024). On the other hand, Juwai IQI’s Malaysia Home Rental Index grew 3.9% in 2Q2024, surpassing the projected moderate growth rates of between 0% and 3% (The Edge, 2024). The platform forecasts that the index will grow 5.5% annually by the first quarter of 2025. Rent in Kuala Lumpur saw the highest growth in 2Q2024, increasing 5.0% q-o-q and 5.7% y-o-y.
Meanwhile, rent in Selangor grew 6.2% compared to one year earlier at an average of RM1,899.
Several reasons may explain the disparity between both data sources.
First, the actual rent measured by the HES is possibly skewed by tenants living in low-cost housing, most notably of which is the Projek Perumahan Rakyat (PPR). Eligible low-income households pay only RM124 per month to stay in a PPR unit. As of 2016, there are 72,479 rental PPR units nationwide of which about half are in Kuala Lumpur (Ministry of Housing and Local Government, 2016). Selangor made up only 7% of rental PPR units throughout the country. In contrast, market indices do not include low-cost housing rent and monitor only the private rental market. The large gap between the two datasets deserves a greater scrutiny to portray a truer picture of rental rates in the Klang Valley.
Second, the CPI tends to lag market indices in measuring rental prices (Conner et al., 2024). Market indices by property marketplaces such as Juwai IQI and Property Guru measure current rental listings and actual rental rates transacted. Therefore, market indices are able to track uptrends or downtrends in asking rent and transacted rent almost contemporaneously.
The CPI, on the other hand, measures actual rent paid by existing tenants at a fixed frequency – quarterly (Department of Statistics Malaysia, 2024). Rents typically stay the same for at least one or two years, or unless there is a change in the terms of the tenancy. In the event of a rent increment, the CPI will only belatedly capture it during the next measurement interval.
Furthermore, the change will also be smoothened out over multiple months and quarters (Conner et al., 2024) in the CPI calculation. For example, if a rent rises 10% after staying unchanged for 1 year, the CPI will report the change as rising gradually by one-fourth of 10% per quarter. This reduces the volatility of the CPI despite a sudden spike in rent.
Third, there are non-commercial and behavioral factors that may encourage landlords to maintain rents for existing tenants, such as to avoid the hassle of searching for a new tenant or factors like social affinity. This scenario will keep the actual rents sticky on the downside, despitea significant increase in asking rental rates in the market.