Living next to low-cost housing ‘diminishes property value’
Published on: Friday, April 08, 2022
By: FMT
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Depending on land worth and location, properties sold for RM42,000 and below have been classified as low-cost in Malaysia since June 1998.
But neighbourhoods with more affluent property owners could develop prejudice towards, and resistance to, low-income housing developments nearby.
This is a global dilemma. Referred to as the “not-in-my-backyard” (Nimby) phenomenon, it boils down to the “protectionist attitude” of communities who are averse to what they consider “less desirable” higher-density low-cost housing (LCH) projects within their immediate surroundings.
In a working paper titled “Living Next to Poor Housing – A Regression Analysis of Greater Kuala Lumpur” (Khazanah Research Institute, 2021), Gregory Ho Wai Son and Lim Han Hsuen used property prices to quantify the effects of living in close proximity to LCH in Malaysia.
The research, which used the Hedonic Price Model to measure regression of property prices, was conducted by geolocating transacted residential data for the entire greater Kuala Lumpur region from 2015 to 2019.
This model is based on the premise that price is determined both by internal characteristics of the property and external factors affecting it.
Since June 1998, properties sold for RM42,000 and below have been classified as low-cost in Malaysia, depending on land worth and location, catering for families with a monthly household income of less than RM1,500.
Ho and Lim were able to quantify that living in close proximity to low-cost housing contributed to lower house prices in Malaysia. In an unrestricted model, the Nimby effect showed a regression of about RM9,000 for landed properties.
As they progressively narrowed distances to examine properties closer to LCH, the Nimby effects were observed to be much higher compared to other attributes – between RM29,000 and RM39,000 for landed properties, and between RM63,000 and RM71,000 for non-landed properties.
By using median regression rates, the data indicated residents of landed properties more consistently exhibited or experienced the Nimby effect, compared with those in non-landed properties where results were more varied.
The number of LCH within a specific distance also affected property prices, although this was weaker compared to the effects of proximity.
The presence of non-landed LCH complexes within 1km decreased house prices by RM8,000 for non-landed properties, and about RM14,000 for landed properties.
Within 3km, the presence of each LCH in the vicinity led to a decrease of RM3,000 for landed properties and RM2,000 for non-landed properties, but Nimby effects fizzled out over distances above the 3km threshold.
Private- vs government-managed
Within the greater KL area, the researchers noted 728 privately managed and 86 government-managed LCH. As 90% were privately managed, they sought to examine whether Nimby effects differed for properties next to public low-cost housing.
The count and distance of landed properties in relation to government-managed LCH did, indeed, negatively impact landed property prices but was statistically insignificant within a 1km radius.
However, non-landed properties closer to government-managed LCH actually showed positive price increases, suggesting that the presence of public LCH was favourable.
In contrast, Nimby effects were significant at all distances within 1km, 3km and 5km radiuses for landed properties near privately managed LCH.
While the distance of non-landed properties in relation to privately managed LCH showed mixed results, the effects were still significantly negative within a 1km and 3km radius.
Overall, it could be deduced from the findings that the negative impact of privately managed LCH on property prices is greater than their publicly managed counterparts.
The paper also noted the following observations that corroborated other studies:
- freehold vs leasehold – freehold properties seemed to fetch a higher price of between RM60,000 and RM80,000;
- accessibility – the further a property from the KL city centre, the cheaper its price;
- connectivity – the further a house from train stations, the cheaper its price.
Maintenance woes
In line with the social objective of providing affordable housing, the government requires private property developers to fulfill a set quota of building LCH.
Ho and Lim observed this had led to a positive effect where LCH are quite uniformly distributed, creating an inclusive city where poorer communities have access to shelter regardless of where they are in the greater KL region.
Moreover, government LCH tends to be in fairly accessible areas, allowing these poorer communities access to public transportation and central business districts.
The uniform dispersion also means most neighbourhoods will generally have a LCH development within proximity, which is perhaps why the effects of presence/count are weaker than the effects of distance from these developments.
However, the researchers noted deteriorating physical conditions of LCH, due to lack of maintenance, as a reason for the decline in surrounding property prices.
Private non-landed properties managed by Joint Management Bodies (JMB) are plagued by non-payment of maintenance fees and sinking funds by residents. These monies are required for the betterment and upkeep of the building.
Other studies have also shown that some private LCH premises completely lack a JMB to collect maintenance fees and undertake upkeep.
Government LCH, on the other hand, is managed by a general public body, not an individual collective. While the maintenance of government LCH still leaves much to be desired, Ho and Lim acknowledged that the government has emphasised maintenance in recent years via an allocation of funds.
They also believe another reason behind the regression of surrounding property prices is the sub-standard nature of LCH that is unconducive to cultural or social ambitions. For example, units are too small to fit a family, resulting in overcrowding; or a lack of parking bays leads to rampant illegal parking along neighbourhood roads.
Ho and Lim also noted other qualitative questions beyond the scope of the working paper that could contribute to a regression of property prices in the vicinity.
They called for more attention to be given to raising the living standards within LCH and ensuring proper building maintenance.
# This article was written by Vigneswar Rajasurian of PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.
