Evaluating the Nexus between Monetary Sector Variables and Housing Affordability in Malaysia
Abstract
Housing affordability is a globally recognized and pressing issue that has prompted extensive discussions in the realms of societal discourse, academic research, and policy development. In the context of Malaysia, this issue persists, despite the government implementing a diverse array of initiatives aimed at alleviating housing affordability challenges. This study aims to explore the nexus between housing affordability and key monetary sector variables, including money supply, interest rates, inflation rates, and foreign exchange rates in Malaysia. The study employed Autoregressive Distributed Lag (ARDL) estimation techniques on a dataset comprising 52 quarterly observations from the years 2010 to 2022. The findings demonstrate the existence of a long-term cointegration relationship between money supply, inflation rates, interest rates and housing affordability. Conversely, in the short term, the analysis reveals that only money supply and inflation rates exert a statistically significant influence on housing affordability. The long-term cointegration of money supply and inflation rates with housing affordability, along with their significant short-term relationship, highlights these two monetary variables as primary drivers of housing affordability. These results underscore the critical role of monetary sector variables in determining housing affordability in Malaysia. Consequently, policymakers are encouraged to prioritize the regulation of monetary sector variables, particularly focusing on money supply and inflation rates, to effectively promote housing affordability in Malaysia.
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