POORER households are hardest hit by rising cost of living that has been compounded by a lack of affordable housing, according to The World Bank’s latest Malaysia Economic Monitor report.

The report said the build-up of inflationary pressures over the years had had a disproportionate impact on lower-income households, especially those in urban areas, who spend a larger proportion of their income on the goods and services that have recorded the most significant price increases. 

It said household expenditure survey last year indicated a marked unevenness in the composition of household expenditure across income brackets, with households in the lowest-income deciles spending close to 40% of their expenditure on food, compared to about 25% among the highest-income deciles. 

“As a result, the poorest households have been disproportionately affected by the build-up of inflationary pressures over the past years with higher relative increases in food prices,” said the report, which was published last Thursday.

Rising costs had been more pronounced in urban areas, as food price inflation had been higher compared with rural areas. This had been further compounded by the persistent deterioration in the affordability of housing since 2012 due to undersupply of affordable homes.

The World Bank said the rising cost of living for low-income households underscored the need for better targeted social assistance measures to support the poorest households, particularly those residing in urban areas. 

It said the government could fine-tune its Bantuan Rakyat 1Malaysia (BR1M), which currently makes no distinction between high-cost and low-cost areas, in terms of either income eligibility thresholds or benefit levels.

The World Bank warned that the “rapid increases” in real housing prices since 2008 could be a source of future instability. 

Increases in housing prices could relax borrowing constraints and allow existing homeowners to increase consumption, thereby boosting the economy. 

“However, the rapid increase in prices creates incentives for the construction of new properties, which could potentially lead to a burst in prices and an abrupt adjustment to economic activity,” the report said. 

According to simulations conducted by the World Bank, Malaysia is projected to exceed the threshold that defines a high-income economy some time between 2020 and 2024. 

The World Bank currently defines high-income economies as those whose gross national income (GNI) per capita stands at US$ 12,236 or more.

In 2017, Malaysia‘s average GNI per capita is estimated to stand at US$ 9,660, or US$ 2,576 short of the threshold. 

The World Bank, however said, GNI does not holistically summarise a country’s overall level of development.

“In particular, GNI does not fully reflect the broader aspects of well-being, such as general health and environmental sustainability, which contribute towards the overall welfare of a country’s citizens, though it is often closely correlated with some of these dimensions.

“Nor does it capture the distribution of wealth and prosperity across geographical regions and segments of the population,” the report said. – December 17, 2017.