THE IMPACT OF MONETARY POLICY ON HOUSING AFFORDABILITY IN MALAYSIA
DOI:
https://doi.org/10.21837/pm.v20i20.1083Keywords:
housing affordability, monetary policy, money supply, interest rateAbstract
Housing affordability is a global concern, especially among researchers and policymakers around the world in both developed and developing countries. In Malaysia, it has been a decade since the median multiple house price reaching more than a tripled median household income threshold in term of housing affordability. This indicates that housing in Malaysia is seriously unaffordable. In general, this study was conducted to examine the impact of monetary policy on housing affordability in Malaysia. This study focuses on investigating both short and long-run relationships between money supply and interest rate on housing affordability. To achieve this goal, Autoregressive Distributed Lag (ARDL) estimation techniques were employed on a quarterly data from the first quarter of 2008 until the first quarter of 2021. The findings showed the existence of long-run cointegration between all indicators except for the interest rate. In addition, money supply, interest rate, and employment were found to be significant in the short run. In the matter of policy implication, it is best for policymakers to focus on regulating money supply rather than controlling interest rate in promoting housing affordability.
Downloads
References
Bank Negara Malaysia. (2020). About The Bank. Retrieved from https://www.bnm.gov.my.
Berger-Thomson, L., & Ellis, L. (2004). Housing Construction Cycles and Interest Rates. Reserve Bank of Australia Research Discussion Paper. No. 08.
Brown, R., Durbin, J., & Evans, J. (1975). Techniques for Testing the Constancy of Regression Relationships over Time. Journal of the Royal Statistical Society. Series B (Methodological), 37(2), 149-192. DOI: https://doi.org/10.1111/j.2517-6161.1975.tb01532.x
Damen, S., & Vastmans, F., & Buyst, E. (2016). The Effect of Mortgage Interest Deduction and Mortgage Characteristics on House Prices. Journal of Housing Economics, Elsevier, 34(C), 15-29. DOI: https://doi.org/10.1016/j.jhe.2016.06.002
Dhungel, K. R. (2014). Estimation of Short and Long Run Equilibrium Coefficients in Error Correction Model: An Empirical Evidence from Nepal. International Journal of Econometrics and Financial Management, 2, 214-219.
Dogan, E. (2015). The Relationship Between Economic Growth and Electricity Consumption from Renewable and Non-Renewable Sources: A Study of Turkey. Renewable and Sustainable Energy Reviews, Elsevier, 52(C), 534-546. DOI: https://doi.org/10.1016/j.rser.2015.07.130
Elbourne, A. (2008). The UK Housing Market and the Monetary Policy Transmission Mechanism: An SVAR Approach. Journal of Housing Economics, 17, 65-87. DOI: https://doi.org/10.1016/j.jhe.2007.09.002
Gan, Q., & Hill, R. J. (2009). Measuring Housing Affordability: Looking Beyond the Median. Journal of Housing Economics, 18(2), 115–125. DOI: https://doi.org/10.1016/j.jhe.2009.04.003
Ghatak, S., & Siddiki, J. U. (2001). The Use of The ARDL Approach in Estimating Virtual Exchange Rates in India. Journal of Applied Statistics, 28(5), 573-583. DOI: https://doi.org/10.1080/02664760120047906
Haibin, Z. (2004). What Drives Housing Price Dynamics: Cross-Country Evidence. BIS Quarterly Review.
Hui, E. C. M. & Yue, S. (2006). Housing Price Bubbles in Hong Kong, Beijing and Shanghai: A Comparative Study. Journal of Real Estate Finance and Economics, 33(4), 299–327. DOI: https://doi.org/10.1007/s11146-006-0335-2
Karim, M. Z. A., Harif, A. A. M., & Adziz, A. (2006). Monetary Policy and Sectoral Bank Lending in Malaysia. Global Economic Review, 35(3), 303–326. DOI: https://doi.org/10.1080/12265080600888074
Kiong & Aralas (2019). Macroeconomic Variables and Housing Price in Malaysia. Proceeding of the International Conference on Economics 2019. 274, 23 – 34
Kleshcheva, O. (2021). Determinants of Housing Affordability in the Region. 2nd International Scientific Conference on Socio-Technical Construction and Civil Engineering, 274, 1-10. DOI: https://doi.org/10.1051/e3sconf/202127405005
Laurenceson, J & Chai, J. C. H. (2003). Financial Reform and Economic Development in China. Cheltenham, UK: Edward Elgar. DOI: https://doi.org/10.4337/9781843767190
Liu, F. (2013). The Dynamic Effects of Money Supply on Real Estate Prices in the Japanese Pre-bubble and Bubble Period: Compared with recent China. Ritsumeikan Economic Review, 62. 64-84.
Liu, J., & Liu, C. (2012). Investigating the Housing Market Fluctuation Under an Expansionary Monetary Policy in Australia. Pacific Rim Property Research Journal, 18, 81 - 89. DOI: https://doi.org/10.1080/14445921.2012.11104352
Liu, J. & Liu, C. (2010). Impacts Of Monetary Policies on Housing Affordability in Australia. Proceedings of the 35th Australasian Universities Building Education Association Conference, 40, 1- 14.
Maclennan, D. (2008). Trunks, Tails, And Elephants: Modernising Housing Policies. European Journal of Housing Policy, 8 (4), 423-40. DOI: https://doi.org/10.1080/14616710802449760
Menegaki, A. N. (2019). The ARDL Method in The Energy-Growth Nexus Field; Best Implementation Strategies. Economies, 7(4), 105 - 120. DOI: https://doi.org/10.3390/economies7040105
Naylor, T. H. (1967). The Impact of Fiscal and Monetary Policy on The Housing Market. Law and Contemporary Problems, 32(3), 384-396. DOI: https://doi.org/10.2307/1191077
Pesaran, M.H., Shin, Y., & Smith, R.J. (2001). Bounds Testing Approaches to The Analysis of Level Relationships. Journal of Applied Econometric, 16, 289–326. DOI: https://doi.org/10.1002/jae.616
Reed, R. R., & Ume, E. S. (2013). Housing and Monetary Policy. Working Paper.
Reed, R. R., & Ume, E. S. (2019). Housing, Liquidity Risk, and Monetary Policy. Journal of Macroeconomics. 60(C), 138-162. DOI: https://doi.org/10.1016/j.jmacro.2019.01.003
Squires, G. & Webber, D. J. (2019). House Price Affordability, The Global Financial Crisis and the (Ir)Relevance of Mortgage Rates. Regional Studies, Regional Science, 6(1), 405-420. DOI: https://doi.org/10.1080/21681376.2019.1643777
Taghizadeh-Hesary, F., Yoshino, N., & Chiu, A. (2019). Internal and External Determinants of Housing Price Booms in Hong Kong, China. ADBI Working Paper Series, (No. 948). Tokyo: Asian Development Bank Institute. DOI: https://doi.org/10.2139/ssrn.3470064
Ume, E. S. (2018). The Impact of Monetary Policy on Housing Market Activity: An Assessment Using Sign Restrictions. Economic Modelling, Elsevier, 68(C), 23-31. DOI: https://doi.org/10.1016/j.econmod.2017.04.013
Wadud, I. K. M. M., Bashar, O. H. M. N., & Ali Ahmed, H. J. (2012). Monetary Policy and the Housing Market in Australia. Journal of Policy Modeling, 34. 849–863. DOI: https://doi.org/10.1016/j.jpolmod.2012.06.002
Wilhelmsson, M. (2008). Regional House Prices: An Application of a Two-Equation Model to The Swedish Housing Market. International Journal of Housing Markets and Analysis, 1(1), 33-51. DOI: https://doi.org/10.1108/17538270810861148
Xu, X. E., & Chen, T. (2012). The Effect of Monetary Policy on Real Estate Price Growth in China. Pacific-Basin Finance Journal, 20(1), 62–77. DOI: https://doi.org/10.1016/j.pacfin.2011.08.001
Yu, S., & Zhang, L. (2019). The Impact of Monetary Policy and Housing- Purchase Restrictions on Housing Prices in China. International Economic Journal, 33(2), 286-309. DOI: https://doi.org/10.1080/10168737.2019.1610901
Zakaria, K., Sarmidi, T., Mohd Salleh, N.H., & Othman, R. (2013). Kesan Dasar Makroekonomi Kepada Pelancongan di Malaysia. Jurnal Ekonomi Malaysia, 47(1), 53-64.
Zhu, B., Betzinger, M., & Sebastian, S. (2017). Housing Market Stability, Mortgage Market Structure, and Monetary Policy: Evidence from The Euro Area. Journal of Housing Economics 37, 1–21. DOI: https://doi.org/10.1016/j.jhe.2017.04.001
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Zarul Azhar Nasir, Rosylin Mohd Yusof, Ahmad Rizal Mazlan
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 Unported License.
Copyright & Creative Commons Licence
eISSN: 0128-0945 © Year. The Authors. Published for Malaysia Institute of Planners. This is an open-access article under the CC BY-NC-ND license.
The authors hold the copyright without restrictions and also retain publishing rights without restrictions.