In his Parliamentary speech Mr Khaw describes how the government’s asset appreciation policy had allowed some HDB owners to build up substantial nest eggs.
However, Singaporeans have actually been short-changed by their government/landlord because they have been forced to accept housing quality and densities at a cost that in a democracy would be unacceptable.
Kirsten Han a Singaporean blogger wrote about the appalling quality of the high-rise block, higher density estate and smaller albeit new unit that her mother was relocated to under SERS.
Still housing costs might be expected to rise substantially due to economic growth and limited supply. However it is vital that we understand that high cost is to a large extent a result of deliberate government policies. What the PAP refer to as their asset appreciation policy.
First and foremost is the government’s monopoly over land and its control over the supply of housing.
Second is the government’s deliberate decision to increase the population so enormously through immigration and the foreign worker policy as well as the various measures it has taken to make HDB property look more attractive than other investments.
These have helped to push up prices but have perverted the HDB’s original aim.
Mr. Khaw mentions allowing HDB owners to own private property in 1989 as well as the decision in 2003 to allow them to sublet their flats. However he omits to mention some of the other measures that the government has taken. These include allowing us to use CPF contributions to pay for our housing loans. This was effectively a big subsidy to housing investment compared to other forms because payments came out of pre-tax income and had the desired effect of pushing up prices. In addition each succeeding Budget has brought more generous grants, which were originally intended for lower-income groups but were subsequently extended, to encourage ever more over-investment in housing.
Ultimately these subsidies and grants are self-defeating because they have just had the effect of increasing prices by the present value of the subsidies (see my earlier blog, “A Bulge in the Pipeline”). As the CPF subsidy is worth more to the wealthier (though only up to the Additional Wages limit for contributions) it has the effect of diminishing housing affordability for those in most need of public housing. Indeed HDB has come so far from its original aim that it now serves an opposite function.
Supply and demand However the biggest contributor to higher housing prices has been the government’s policies on both the supply and demand side. Despite more than a million people being added to the population between 2001 and 2010 the stock of HDB units only rose by some 11,000 units between 2004 and 2009.
USA today also wrote about this problem that the government is creating on both the supply and demand side. http://usatoday30.usatoday.com/money/economy/housing/2011-03-15-Singapore-public-housing.htm
To quote, “ From the end of 2007 through last year, Singapore’s public housing resale price index soared more than 40%.The median price for a four-room apartment rose at the same rate during that time, from $215,000 to nearly $304,000. The actual rise, however, is “more dramatic,” because public housing flats are smaller today than in the past, says Kenneth Jeyaretnam, secretary-general of the Reform Party, a liberal free-market party.
Critics blame the price increases partly on the government’s inability to keep up with demand for public flats as Singapore’s foreign population surges.
The government is the largest landowner in Singapore, meaning “it determine(s) the market value of the flats depending on how much land it releases and the amount of flats it builds,” says Jeyaretnam.”From 2007 to 2009, residential housing flats increased by less than 5,000, while the overall population climbed nearly 400,000, according to government data.
The government has ramped up construction of public housing. But the “root problems” haven’t been addressed, according to Jeyaretnam, namely that the country has too many people and not enough housing.”
Too many people not enough housing. All those extra workers had to be housed somewhere. While allowing PRs to buy flats in the resale market may have marginally contributed to higher prices the biggest contribution has undoubtedly come from allowing owners to sublet their entire flat to foreigners and to hold private property at the same time as owning an HDB (once the Minimum Occupation Period has expired). The labyrinthine and often contradictory HDB regulations present ample loopholes to be exploited and they have been with alacrity by PRs and Singaporeans alike.
Economically renting and buying are more or less perfect substitutes (meaning that price changes in one market will be reflected immediately in prices in the other) and increases in rental yields will push up HDB prices.
These policies have made a mockery of the original intention of HDB . Instead they have been a big bribe to upper middle-income groups who have had the financial wherewithal to exploit these deliberate loopholes and anomalies. This has only served to widen income inequalities.
This government’s policies should have been to remove subsidies which largely benefited those who had more capital to start with and who in a free housing market would have been able to look after themselves.
An illusion of prosperity
Naturally, the asset side of the government’s balance sheet has increased in value as land prices have risen due to inelastic supply and ever-increasing population pressure. Because of this asset price rise HDB owners have been given the illusion of increasing prosperity.
However there has been a fundamental mispricing in the HDB market in which decreasing time to expiry of the lease has not been taken into account. HDB properties can be taken back by a future government at the expiry of the lease for no compensation. Yet properties with sixty years or less to expiry trade at very similar prices to new flats with ninety-nine year leases in the resale market. This is completely different from how leaseholds on private property are valued in Singapore. This is also completely different to how leaseholds are valued in any other country in my experience.
The buyers have been sold the fiction that an asset that has to be handed back to the government in at most ninety-nine years, and in many cases much less, will somehow ignore the laws of economics and keep on appreciating forever. Let me repeat that there has been a fundamental mispricing in the HDB market.
Singaporeans have been told by PAP ministers and in particular LKY over and over again never to sell their HDB properties, as they can only go up in value. No government that I am aware of has made such an explicit promise and it can only be characterized as highly irresponsible. If a financial investment had been promoted in this way by a broker or corporation without any mention of the risks and investors had subsequently lost money, the buyers would be entitled to compensation.
In fact the financial crisis of 2008 and subsequent recession were precipitated by exactly this kind of move to urge mortgages onto buyers who used the assets to fund consumption. For many in the US and the UK as well as the Eurozone this resulted in negative equity and ultimately foreclosure.
The problem is that there is a fundamental conflict of interest between the government’s roles as provider of supposedly low-cost housing for the masses and as monopoly owner of at least 80% of the land in Singapore. This is why the PAP government has had a vested interest in pumping air into the housing bubble. Until now they have been happy to maintain the fiction that the length of the leasehold does not affect HDB valuations. This is because with the deliberate creation of huge excess demand for housing the HDB finds it profitable to acquire existing HDB blocks from their owners and pay them compensation which is close to the price of new BTO flats. That is because they can vastly increase the density of housing on that area by doubling or tripling the size of blocks and building them closer together.
To gain an exact understanding we need to know how much the state’s land holdings are worth and how this impacts the government’s finances through the manipulation of land prices. This is one reason I called for the value of these assets to be listed In the Statement of Assets and Liabilities that the Finance Minister presents to Parliament every year at Budget time. How To Make A Surplus Disappear Without Anyone Noticing”.
Mr. Khaw’s Speech and Subsequent clarification by Blog
Khaw made two main points:
HDB prices were likely to appreciate much more slowly than in the past
A commitment to make new BTO flats in non-mature estates more affordable by bringing down the ratio of prices to median incomes from five and a half times to no more than four times (by his calculations)
In the article on his blog he suggested several ways this could be done without affecting the values of existing HDB owners:
Shorter leases for the new HDB apartments.
A radically different form of lease in which leaseholders would be charged lower prices based on historic land values but then would only be allowed to sell their flats back to the government at prices related to what they had paid for them
The latter proposal is similar to the Hong Kong system for public housing in which purchasers, who have to be below a certain income level, have to sell back to the government at a lower price or else pay back the subsidy they had received between the market price and what they paid. However in Hong Kong public housing accounts for a much smaller proportion of the total housing stock than in Singapore.
It is also similar to proposals from some quarters for flats to be sold at a price reflecting only the cost of construction and not the land cost. It is hard to see how this is distinguishable from providing rented housing for lower-income groups since the flats in question can only be sold back to the HDB. Except that this ill-thought out proposal would allow those on higher incomes to benefit from the scheme and also provide a put option for existing HDB owners in the event of a crash since they could always sell their HDB flat back to the HDB for the price they paid for them and take out the difference between that price and the scheme price in cash.
Despite Mr. Khaw’s assurances that this would not affect the prices paid for existing flats it is easy to see why this is incorrect. Both measures would have serious implications for the prices of existing HDB properties.
It is hard to see how this could be done without undermining the current fiction that
HDB properties with shorter times to run on the original lease are worth as much as newer ones. And then what would happen when the government wishes to acquire the flats with shorter leaseholds? In equity they would have to be paid less than those with longer leases. Any adjustment of HDB prices to reflect the length of leasehold is likely to have unpleasant consequences for those who have overpaid for HDB properties in the resale market based on the illusion that the government has given them an implicit promise to extend their lease for free by exchanging their existing property for one with a fresh ninety-nine year lease.
Lower Priced But Restricted Housing?
Despite the minister’s argument that this would be a separate class of housing which would not be fungible with existing HDB properties, it is likely that the creation of this option would undermine the current market prices as a large proportion of existing demand was diverted into this new option. In particular it would be likely to make the current mispricing between old and new HDB properties equally untenable.
It would also, in my view, be unattractive for all the reasons mentioned above.
It appears that the government has decided that it will get more support by lowering prices for new owners even if this has the effect of lowering HDB prices generally. Or else it has not thought through the implications carefully enough. There is a more sinister interpretation. This is that with slower economic growth and thus a declining need to expand the workforce through immigration the HDB will no longer find it profitable to increase housing densities by acquiring units from existing owners and paying them compensation that does not reflect the diminution in value caused by a shorter time to expiry of the lease. Singaporeans who have relied on HDB to be a secure investment that will never lose value may be in for some unpleasant shocks in the future.
In Part 3 I will discuss some solutions to the current dilemma that would allow Singaporeans to own their own homes rather than being leaseholders and dependent on the government.
Recent announcements by Mr Khaw Boon Wan in Parliament and on his blog indicate that he is rethinking the role of HDB in Singapore’s future. There seem to be hints that the PAP are abandoning their somewhat euphemistically entitled, “asset appreciation” policy which I call a policy of “deliberately creating a housing bubble “
I warned against the dangers of creating a housing bubble in my earlier blog, “A Bulge in the Pipeline”. There I also explained how the various government schemes for subsidies and grants were not the solution to housing affordability. Ultimately subsidies and grants are self-defeating because they have just had the effect of increasing prices by the present value of the subsidies.
Latest figures put the number of Singaporeans living in HDB estates at 87%. That’s nearly everyone. We need to examine Mr. Khaw Boon Wan’s ideas very closely as they impact on the majority of our population and as immigration policy is so closely intertwined with HDB policy.
What is the purpose of HDB?
Surely the role of public housing should be to provide low cost housing to the people who most need it and not to provide some kind of asset appreciation vehicle? The original purpose of HDB was indeed to provide affordable housing of acceptable quality for the lower income groups.
HDB was born out of the Singapore Improvement Trust set up by the British Colonial government in 1927. The main aim was to resolve the overcrowding and slum conditions downtown in Chinatown and to move people out of their traditional Kampongs.
The PAP had made public housing a central tenet of its election campaign in 1959, promising to provide low-cost housing for the poor if it was elected. After the Barisan Socialis walked out in 1965 the PAP were left without any effective opposition to their policies. The PAP duly dissolved the SIT and set up the HDB.
In most advanced countries, social housing such as HDB is aimed at the bottom 20-30% of the income distribution. Mr. Khaw did acknowledge that housing for the poor was the original intention of the HDB building programme but he quickly glossed over that to state that over time it had come to serve a different function.
There are outside observers especially Americans, acutely aware of the US prime mortgage debt debacle that precipitated the financial meltdown of 2008, who see a whole population’s housing needs being taken care of by a government as the ideal socialist big-government state. Mostly these observers have never visited Singapore, let alone an HDB Estate, so what would they know? Certainly they will not be aware of the manner in which ‘upgrading’ is used as a weapon to threaten or bribe residents into voting for the government which has, through being the sole provider of public housing, unusual power and control over nearly 90% of its population.
Other observers often pro –market liberal or small government advocates view a whole population living and being permanent lease holders in housing originally intended for the poor as being denied democratic rights to own property and even of the universal right to have freedom to live where they choose (the ethnic quota). It has been likened to a state of virtual serfdom like the Soviet Union or other Communist states.
Housing is a basic need whereas the ownership of property is a measure of the level of prosperity and democracy of a Nation.
Currently HDB housing is not fulfilling the role of public housing . The high price makes it unattainable for too many, the wait list is too long and the restrictions such as typically needing to be married or over 35 or satisfy a racial quota are too onerous. To quote Kathy Chu for USA today,
“Even so, the surging real estate market has put some pockets of public housing out of reach for Singapore residents like taxi driver Joshua Santhira, 51.
“I can find a flat, but at a price I can’t pay,” says Santhira, who wants to upgrade to a three-bedroom flat from his two-bedroom unit in Singapore’s Yishun area, 20 minutes outside the city.”
HDB is also not fulfilling the requirements of social housing. On my house to house visits I have met many amputees because with the lack of universal health care and inadequate health funding diabetes is a major problem in Singapore. I remember one man all too clearly who was isolated on a floor with no lift. I say isolated but he was a virtual prisoner in his own home. A robust social housing programme would see him relocated to a disability- access friendly, purpose built unit. Not just a lift to his floor externally but wide access doorways internally, ramps and special bathroom.
Rebecca Lim for BBC news on February 17th tells the story of a Ms Ng surely a candidate for social housing. “Ms Ng suffers from a hereditary skin condition and was only able to undergo surgery recently when a donor paid her medical bill. Her husband lost his previous job after he was hospitalised for an operation in October 2011.
In her one-room apartment she fished out unpaid bills, including one for more than S$400 owed in school fees.”
This story could illustrate many of the problems that those in need of social housing struggle with such as the cost of medical care and the lack of free school education and the reliance on charitable institutions and donations in order to survive. But what is striking here is that Ms Ng and her husband have two daughters and take care of his 12 yr old from a previous marriage yet live in a one room apartment.
Whatever purpose it now fulfills from the time of the PAP government’s expropriation of much of the land in Singapore in the 1960s to now, the original purpose has become perverted far from its original intention.
Government as Landlord
In fact HDB has been turned into a means of both bribing and controlling the majority of Singaporeans. The government through its ownership of most of the land has effectively monopolized the supply of housing to everyone but the top decile of the income distribution. That elite landowning or freehold-sharing decile includes most of the government which is making the decisions affecting the other 90%. The ivory tower they inhabit is not just a metaphor. Such has always been the case with Landlords versus Tenants.
Never has there been a more clear demonstration of the gap between have and have nots in a population. Singaporeans are left with very little chance of ever moving up the property ladder to freehold ownership, and an obstacle to the building of a prosperous middle class and a further squeezing of the sandwich classes across generations. This is of course exactly what the PAP want which is to keep most of the population in a state akin to serfdom. It is impossible to have a democracy under these conditions.
With the PAP as both unfettered government and landlord the people are extremely vulnerable to deliberate government policies and conflicts of interest as well as from the usual mis- steps and U turns. Beware then the housing bubble, uncapped immigration, insufficient supply of housing stock and now it seems interference in the market value of leases.
In Part Two, I shall deal with:
Mr Khaw’s policy proposals which have made a mockery of the original intention of HDB and which have shortchanged Singaporeans
The government’s asset appreciation policyand the illusion of prosperity that HDB owners have been given.
Poor housing quality and high densities at a cost that in a democracy would be unacceptable
Press OK to abandon changes or Cancel to continue editing
Your browser is not supported
Kindly note that Groups does not support 7.0 or earlier versions of Internet Explorer.
We recommend upgrading to the latest Internet Explorer, Google Chrome, or Firefox. If you are using IE 9 or later, make sure you turn off Compatibility View.