Income Inequality affect Housing Affordability

Wikipedia (2013) http://en.wikipedia.org/wiki/Economic_inequality#Inequality_and_housing

Economic inequality described as the gap between rich and poor, income inequality, wealth disparity, or wealth and income differences.  Simply says, there is a difference between individuals of their assets, wealth, or income.

Inequality.org website (2013) http://inequality.org/income-inequality/

Income inequality refers to the extent to which income is distributed in an uneven manner among a population. Income includes the revenue streams from wages, salaries, interest on a savings account, dividends from shares of stock, rent, and profits from selling something for more than you paid for it.

World Bank (2012) http://data.worldbank.org/indicator/SI.POV.GINI

Gini index measures the extent to which the distribution of income or consumption expenditure among individuals or households within an economy deviates from a perfectly equal distribution. A Lorenz curve plots the cumulative percentages of total income received against the cumulative number of recipients, starting with the poorest individual or household.  The Gini index measures the area between the Lorenz curve and a hypothetical line of absolute equality, expressed as a percentage of the maximum area under the line. Thus a Gini index of 0 represents perfect equality (everyone has same income), while an index of 100 implies perfect inequality (one person has all income, and everyone else has zero income).

                 Malaysia ranks 39th in the WORLD;  

                    3rd most unequal nation in ASIA

figure1: Malaysia World Inequality Ranking
source: http://aafaizli.com/malaysia-income-inequality-world-ranking-and-by-continents/

figure 2: Gini Coefficient by state in Malaysia, 1999-2009.
sources: Economic Planning Unit.

Based on the Economic Planning Unit (EPU), Putrajaya had the lowest 0.342 Gini value where it’s the most equitable state in the country. And the Sabah had the highest with 0.453 Gini value.

But, country Gini index was at 0.431 as at end-2012 which it is “still high” compared with other countries, according to Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah.

In Penang, Gini value had increased from 0.399 in year 1999 to 0.419 by 2009. For my opinion, income inequality will give impact upon people purchase power mainly in purchasing a affordable house.

Penang is a highly urbanised, industrialised and economically important states in Malaysia, as well as a thriving tourist destination. Definitely, developers were grabbed these profit earning opportunities to build up more luxury properties to support the latest market situation. 

Target market of high end projects are mainly focus on high income classes whereas mostly Penang population are in low and middle income group. The prices of houses are high and remains to be moving but local buyer’s purchase power are not afford to own it. An example, a condominium unit in Batu Ferringhi are being sold at astronomical prices, which begin with RM2 million for a 1,000 square feet unit. Are this shown that only rich could live in Penang? The income inequality thus had affected property affordability especially that happen in Penang. There is nothing surprisingly,  if all the Penangites are just property renter. According to the latest news, 60% of Penang's population cannot afford Penang island house price.    

Penang, being an island, is bound to face land scarcity. The wants of people are limited since Penang is not having sufficient resources to produce property that they want. Lands reclamation in north and south of Penang are widely been reclaimed to accommodate human need. Thus this makes the process of construct electrical cables and water pipes more difficulty. As a result, houses value added due to high cost of land reclamation and utilities construction. Local buyer especially low and middle income classes are unable to bear these costs. So, are this mean the rich will become more rich with owning more and more property, however the poor become more poorer with renting rich's property. 

figure 3: Penang property prices.
source: http://penangmonthly.com/statistics-june-2012/

figure 4: Penang's people can't able afford Penang island house. (08.10.2013 online news)
http://www.freemalaysiatoday.com/category/nation/2013/08/10/gerakan-60-of-penangites-cannot-afford-homes/

figure 5: 40% middle-income group cannot afford Penang house prices. (24.10.2013 online news)
source: http://www.starproperty.my/index.php/articles/property-news/penang-is-expected-to-face-a-glut-in-high-end-homes/