Data from recent years however show that housing ownership is increasingly unaffordable despite several efforts by the government to minimize excessive escalation in the house price. This can be attributed by the fact that income level has not increased proportionately with the increase in house price. High cost of living further aggravates the situation, especially for those living in the Klang Valley.
Most affected groups are recent graduate as well as young couples/new families which fall under the age group of mid-twenties to early thirties. For these groups, home ownership seems like a distant dream. Despite government’s efforts to build affordable homes, this can only benefit a fraction of the affected groups. Increasing the financing margin would not help either, considering the high level of household debts in this country.
As house price is not expected to soften anytime soon and with gloomy economic outlook that can prolonged for several years, it is time that we look at alternatives to home ownership. While home ownership is a norm for those currently above 40, the same cannot be expected for the younger populace.
Having a roof over one’s head can be achieved through renting. In the past as well as current, renting a house is considered a temporary solution to meet this need while a family accumulate enough saving to purchase a house. However, why can’t renting for life be the alternative for those who can’t afford to purchase a house under current situation where house price is prohibitively high?
By renting an affordable home for life, a household budget will be under less stress. There is no risk of housing loan default for a household who choose to rent for life. More households would have balanced budgets, while some could even be on surplus. In other words, this is a practice of spending within means, a proven way that will minimise household debts.
Additional savings as a result of reduced spending associated with home ownership can be channelled to other forms of investments and other essentials, such as children’s education and healthcare insurance. For some people, the additional saving can be utilised to pursue personal interests, such as travel. This practice also has the indirect benefits of less stressful working adults. There will also be less worry on job security especially during economic downturn.
This alternative to the conventional norm requires a mind-set change. It can be a game changer as well for the property and banking industries as over the long run, demand for residential property may drop, which can lead to drop in the property prices as well. Demand for longer term property rentals will increase while default on housing loan may drop as residential property purchase is restricted to only buyers who can afford such a purchase.
The good news is that the practice of renting for life is not a new concept for living as this has been a norm in more advanced country such as Germany.
It is hoped that policy makers and relevant government agencies would seriously look into the alternatives to home ownership for the segment in our society who could not afford it. In the case for renting a home for life, a simple model can be developed to illustrate the economics of renting for life for certain income and age brackets.
Advantages and disadvantages should be outlined so that an informed decision can be made by the affected groups. Additionally, these groups should be encouraged to practice the alternative with sufficient incentives provided.
MOHAMMAD ABDUL HAMID is head of the Media Secretariat of the Wilayah Persekutuan branch of Pertubuhan Ikram Malaysia.