Abstract

The objective of this report is to determine the factors affecting household demand in Kuala
Lumpur, Malaysia. There are many variables that can influence household demand of houses in
Kuala Lumpur such as population, location, interest rate, inflation rate, income level, and so on.
Introduction
Malaysia is a national republic country. It comprises of 13 main countries and three distinct
federal territories. The region is estimated 330,803 square kilometers. Malaysia's land is divided
into two areas, Malaysia's Borneo and Peninsular Malaysia. Malaysia's population is expected to
be approximately 31.95 million in 2019, ranking 44th in the world. Malaysia's current population
is 31.95 million, a significant increase from an approximately 29,791,949 in 2013. In Malaysia,
we can see that there are many kinds of traditional or modern buildings. Each of these kinds of
housing has distinct prices depending on the market price and place. The increase in estate prices
was due to supply and high demanding variables. According to REAL Estate and the Association
of Real Estate Developers (Rehda) Treasurer Datuk NK Tong, "As property prices continue to
increase, there is also the issue of not being able to afford housing rapidly to satisfy increases
demand.”

Over the years, the housing industry has been using conventional development methods due to a
result of higher demand for better housing, ever-changing technology, increased construction
costs, strict environmental policies, and concepts of innovation and creativity. They all need to
start to discover their place in the sector (Yusof and Abidin, 2007).

The factors that affected the demand of houses in Malaysia :-

Price of Houses
The primary factor influencing the demand of houses is the price of the house itself. This is an
adverse connection between the price of houses and the demand of houses. As the demand theory
states, when the price increases, the quantity of demand will fall and, in the opposite case, when
prices decrease, the quantity of demand will rise. From the graph we can see that when the price
of houses is at PA, the quantity of demand is at QA; and when the price is at PB, the quantity of
houses will increase and become QB. It indicates that more houses are required when the price
drops.

Population
Based on the data, the population in Malaysia is increasing continuously each year. There are
many legislation, regulations and processes linked to constructing houses that will slow down the
manufacture of housing, and individuals today need more buildings to reside it. “People will
migrate to another region where homes are constructed, but house are not necessarily constructed
in the region where individuals would like to live.” (Vermeulen and Van Ommeran, 2006). For
example, when their family members increase, individuals need to purchase a larger house.
Many Malaysian is lack of affordable to own property which forces them to enter into the rental
market and informal settlements. This is a drastic rise due to population growth and urbanization.
Therefore, this could have an impact on the demand of accommodation in Kuala Lumpur. There
are a lot more variables in the real economy that affect household demand, but we cannot deny
that one of the major factors could be an increase in the population.

Interest Rate
Usually, Malaysians like to borrow a bank loan to own a property. Each bank has its own interest
rate.This may impact the price of accommodation through a variety of liquidity impacts, because
the greater the interest rate provided by the bank, the greater the borrowing cost. Thus, the
demand for housing will be reduced. For example, Malaysia’s interest rate for the years 2006 &
2007 is the highest in the graph, so that house prices in 2006 & 2007 will become more
expensive as the loan is higher. If the borrowing cost is greater, the demand of houses will
reduce. When the bank offers a lower interest rate, the more individuals want to purchase a
house, the more houses are required.

Inflation rate
In Malaysia, the inflation rate always goes up and down every month. When inflation occurs,
most things in the economy will increase their prices. This will result in greater costs for
structures, as the building raw material will increase their price. When the cost increases, the
supplier will increase the price of houses to maximize their profits. As the price increases,
demand for homes will decrease. There is a powerful and long-lasting connection between
inflation and housing price, as shown by Zhu(2004). It can also be said that, given the worldwide
situation, increase in money supply will lead to inflation and increase in housing prices.

Income Level
Income level is also a reality that can impact the demand of housing. The connection between
income level and household demand is positive. This is because the greater the individual’s
income, the greater the demand for housing. Individuals will spend more money and have a
greater opportunity of buying a house when their income increases. For instance, individuals are
permitted to afford larger mortgage when their income rises, which can cause the demand for
housing to rise quickly. When individuals earn greater incomes, the demand for housing will also
rise as they have more decisions to choose whatever kinds of products and services that are
appropriate for them. When the incomes of individual decreases, the demand for homes will also
decrease as they do not have any additional money to purchase a house. Based on the graf, the
average income level of individual in Malaysia is rapidly growing each year, especially for year
2015 to 2016. The average income level of year 2015 is RM2,312 while the income level of year
2016 is RM2,657, this incident will cause the demand of housing increases. As a result, the
quantity of demanded houses will be affected due to the income level of the individual.

Location
Area of housing Kuala Lumpur Pahang

Demand of housing (Units)

Location is also a crucial facts that can influence the demand for housing. Normally, most
individuals are buying a home that are convenient for them. For instance, residential areas that
are close to their workplaces, public transport, entertainment, etc. Usually the houses in the city
have a greater demand owing to the convenient location, so the price of houses in the city is
more costly than the houses far from the city. For example, the price of houses in Kuala Lumpur
is more expensive than the houses in other cities, because the ease of transport is not much more
than Kuala Lumpur.