Worker’s Party (WP) has proposed a possible solution for maintaining Public Housing affordability by controlling the cost of State land. While this proposal would probably need fine tuning, it is clear that WP are deeply aware of the Public Housing affordability issue. Our dear National Development Minister Mah did not even consider if the proposal has any merit in helping with the affordability issue. Instead he played up the fears of lower HDB prices, if WP’s proposal was accepted.
Mah’s definition of housing affordability is based on commercial measure, which is different from United Nation’s measure
So why is there no urgency from Mah to address the affordability issue? Well, the definition of affordability varies, and Mah has conveniently relied on the commercial measure used by financial institution (read for profit businesses). As long as households do not have to spend more than 30 per cent of their monthly income paying off the mortgage, the property is deemed affordable for the household. But the flaw with this commercial measure is that it does not tell you anything about the mortgage period. In theory you can buy just about any property out there, if you stretch your mortgage period long enough. In fact, in Japan, some mortgages last as long as two generations! This is the consequence of their unsustainable inflated real estate prices. WP is clearly aware of the seriousness of affordability issue and has proposed using Median Multiple, a measure adopted by United Nation. By that measure our Public Housing has already become unaffordable (http://geraldgiam.sg/2010/05/wp-forum-speech-we-can-make-public-housing-affordable-again/).
To be sure, Mah is aware of Median Multiple and had previously used it in 2010 (http://business.asiaone.com/Business/My%2BMoney/Property/Story/A1Story20100308-203226/2.html) to compare Singapore (5.8x) against London (7.1x) and Hong Kong (19.8x) which had higher Median Multiple (I have used Mah’s figures and list them here. Anything above 5.1x is considered as unaffordable). But his comparison seems to be a case of misery loves company. So Singapore is relatively less miserable than its miserable peers therefore it is better off? Let’s be objective here: the real measure of Public Housing affordability should be Singapore’s Median Multiple against its historical trend. If the trend is rising then Public Housing prices are rising faster than the pace that the Singaporean household income is growing, and Public Housing is getting unaffordable.
What got Public Housing into this state?
What irks me the most isn’t Mah’s view on Singapore’s Public Housing affordability; it is his assessment of what contributed to the rising Public Housing prices. I quote him from his response: “Housing prices have risen due to our sharp economic recovery, as well as low interest rates and excess liquidity internationally”.
In other words Mah is saying the price rise is due to external forces that are not within his control. I disagree. There are two reasons why.
First, HDB had under build during the period 2006-2008 (http://www.hdb.gov.sg/fi10/fi10221p.nsf/0/d4a0f107613b79944825766200236310/$FILE/Key%20Statistics.pdf); new constructions were consistently much lower than new household formation, which you can estimate using the number of registered marriage. The statistics were: 2006 (2,752 units vs. 23,706 marriages), 2007 (5,111 units vs. 23,966 marriages) and 2008 (3,183 units vs. 24,596 marriages). If we consider that 20% of the new households will buy private properties, which is the rough proportion of private property owners currently, there are still remaining 18 thousand new households on average competing for around 4 thousand new units annually. Sure, HDB had some inventory that they need to clear due to over building in the earlier years, but to reduce annual supply from 10 thousand units p.a. in the period 2001-2005 (or ~50% of potential 18 thousand new HDB families) to 4 thousand units p.a. (or ~20% of potential new HDB families) is definitely a setup for sharp price increase. I have not even factor in the impact from the rapidly growing number of Permanent Residents during the period, who will also compete in the resale market adding fuel to the price increase. Now Mah is desperately playing catch up by opening the supply tap by building 12-13 thousand new flats annually in the period 2009-2011 (~70% of potential new HDB families).
Of course, my analysis is in hindsight and as the saying goes hindsight is always 20/20. But surely our National Development Minister Mah would know the facts with his access to information and deduce the likely result with his high calibre competency, so why did it still happen? The only reason I can offer is that PAP’s consistent propaganda of a stable and rising Public Housing prices effectively influence housing policy makers stance to be more pro-price growth. To be clear, I am not against price growth. But I am of the view that anyone with a decent understanding of supply and demand concept will know that by reducing supply against an increasing demand will result in price increase, especially in a regulated market like Public Housing. Singapore do not need to pay millions for a Minister to increase Public Housing prices, heck I can do the job and for half the price or your money back. But Singapore needs a Minister who can ensure Public Housing affordability.
Second, the PR impact on housing prices is understated. Mah had pulled out some impressive statistics in 2010 (http://business.asiaone.com/Business/My%2BMoney/Property/Story/A1Story20100308-203226/3.html), one of which shows that the amount of Cash-Over-Valuation (COV) that PRs pay does not differ much from Singaporeans. But as pointed out by many other careful observers, PR impact on housing prices extends more than COV. Simply by competing for supply (resale units) with Singaporean will result in price increase. The PR and governing housing policy were definitely matters within Mah’s control.
I am not against PRs and I do think that they are necessary to supplement Singapore’s workforce. But when the PRs I talk to aspire to buy Singapore Public Housing as a form of investment so that when they decide to leave Singapore to return to their home country, they have a retirement fund from the handsome profit that has been created from HDB flats, it tells me something is wrong with the Public Housing system. Singaporeans, in contrast, are left with an inflated asset which their later generation will find it increasingly difficult to afford. Are HDB flats creating wealth for Singaporeans, or non-Singaporeans, I wonder?
The other points made by Mah in his response were all political punches which does nothing to address the crux of the affordability issue. He said WP’s proposal is equivalent to raiding our national’s reserves which are meant for future generations, and spending the money on ourselves now. If that were to be the case, then I think it would be fair that Singaporean should know how much is going into the reserves as a result of State land sale. Unfortunately at this point HDB does not disclose land cost and construction cost. This is a step backwards considering that HDB annual reports in 1980s had disclosed all these facts.
Fortunately for Mah, he is contesting in Tampines and not Aljunied. But I think it is clear that the Public Housing is a matter close to most Singaporean’s heart and if he hopes to continue on as National Development Minister, he had better focus on making Singapore Public Housing affordable again, or he may be the first contesting Minister to not get elected.
Disclosure: The writer is not affiliated to WP. All expressed views are his own. He belongs to the first time homebuyers who bought resale HDB flat due to the long wait time for direct HDB flats. He will be voting in this General Election. He was motivated to write this painstaking long piece because he is irked by the fact that PAP keep using HDB prices as political chips. So from a voter to Mah (and also the PAP) please do not play up the fears of lower HDB prices when opposition gets elected, what you are doing now is dangling a carrot (with your promise to steady but surely Public Housing price increase) in front of the Singapore voters, but leading the national down a dangerous path (long term deviation from the affordable Median Multiple). I do not wish for an unaffordable Singapore for my children, where newly weds cannot afford to buy a apartment like in the case of Hong Kong, or they have to obtain two generation mortgages to buy a apartment like in case of Japan.
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