The rental rate mechanism in Islamic Finance and its role in promoting housing affordability and Sustainable Development (SDGs) in Malaysia
Abstract
Islamic finance holds strong potential to accelerate progress toward the Sustainable Development Goals (SDGs), particularly in addressing housing affordability. In Malaysia, the housing sector has been a major driver of economic and social development since independence. However, housing affordability remains a persistent issue, calling for innovative and inclusive policy solutions. This study investigates key barriers to housing affordability and examines the role of Islamic finance in enhancing access to affordable housing in Malaysia. Using panel data analysis, the study compares three regression models Ordinary Least Squares (OLS), Fixed Effects (FE) and Random Effects (RE) based on variables including household expenditure, population, interest rate, inflation rate and rental rate. The findings reveal that the rental rate in Islamic finance (RR) has a positive and significant impact on housing affordability, indicating its potential as an ethical and sustainable alternative to conventional interest-based mechanisms. By reducing financing costs and duration, the RR model enhances homeownership capacity and supports equitable housing access. The study offers policy implications for integrating Islamic finance instruments into national housing frameworks, contributing to SDG targets on sustainable cities, poverty alleviation and inclusive economic growth.
Keywords: Affordability, housing development, islamic finance, socioeconomics, welfare economics
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