How it took massive votes lost and election upsets to get grudging changes in totally flawed and vicious policies, this historic example of housing being one
HDB policies have come a long way from the days when Mah Bow Tan was the Minister of National Development to now with the current Minister being Khaw Boon Wan.
Back in the days when Mr Mah was the Minister of National Development, he thought that HDB prices were very affordable to the public.
In Nov 2010 about 2.5 years ago, in an article published on TODAY [Link], Mr Mah said, “Ask most housing experts and observers, and they will say that HDB flats remain within reach of the majority of Singaporeans. After all, HDB builds and sells flats at heavily-subsidised prices to ensure affordability.”
However, he questioned why the people kept thinking HDB flats were not affordable.
He said, “With their (homeowners’) CPF contributions, few have to pay any cash for their mortgage payments. In total, more than 80 per cent of Singaporeans live in 900,000 HDB flats today. Yet, people still worry that HDB flats are not affordable. Why are there such sentiments?”
He explained how HDB ensured that the prices were affordable, “To ensure that first-time buyers have access to affordable housing, we do several things. First, HDB prices its new flats below market value, taking into account the income of homebuyers. Hence, first-timers enjoy a substantial subsidy when they buy new flats from HDB.”
He then talked about the different measures of housing affordability, “One is the housing price-to-income ratio (or HPI), which compares median house price to annual household income.”
“In a Straits Times article in February 2010, two NUS professors, Tu Yong and Yu Shi Ming, noted that Singapore’s HPI for resale flats in non-mature estates is 5.8, compared to Hong Kong’s 19.8 and London’s 7.1. That means Singaporeans generally need 5.8 times of their annual household income to buy a resale flat in non-mature estates, whereas a Hong Kong resident needs more than three times that amount.”
He added, “While the HPI is relatively easy to understand, it does not consider factors like loan availability and financing costs, which are important for many deciding to buy a flat. Therefore, another widely-accepted measure is the debt-service-ratio (DSR), which looks at the proportion of the monthly income used to pay mortgages.”
“The DSR for new HDB flats in non-mature estates, based on an industry norm of a 30-year loan, averaged 23 per cent this year. This is well within the 30-35 per cent international benchmark for affordable expenditure on housing.”
Mr Mah’s remarks invited rebuttals from Ms Hazel Poa, the current Secretary-General of NSP. She rebutted Mr Mah’s assertions on her blog [Link] in Nov 2010, shortly after Mr Mah’s article appeared on TODAY.
Ms Poa said, “From 1990 to 2009, median household income increased from $2,296 to $4,850 – an increase of 111%. Over the same period, resale flat prices increased by 342%. The affordability (i.e, via HPI measure) of HDB flats has certainly deteriorated very significantly over the past 19 years. It now takes a median income household more than double the time to pay for the flat.”
“Next, we consider the suitability of the debt-service-ratio (DSR) as a measure of affordability for national planning purposes. There are several shortcomings, the most serious being a pre-qualified sample – the DSR is calculated based on existing home owners. These are people who can afford to buy the flat. Those who cannot afford to buy a HDB flat would not have bought one and hence would not be captured by the DSR. The loan application process would also have weeded out those whose DSR would exceed the ‘30-35 per cent international benchmark for affordable expenditure on housing’.”
She concluded, “Under such circumstances, it would be quite difficult for an examination of the DSR to turn out with an ‘unaffordable’ rating, no matter what the price level. For example, if good-class bungalow owners use only 15% of their income to service their mortgages, can we conclude that good-class bungalows are very affordable (to the public)? The DSR is a reasonable measure to assess if a particular person/family can afford to buy a particular property, but to use that as a gauge of affordability for the general population leaves much to be desired.”
In the TODAY article, Mr Mah also talked about balancing homebuyers’ against taxpayers’ interests. He said, “HDB also regularly reviews its subsidies to ensure affordability. But I must caution that there are limits to how much we can increase subsidies, without compromising other interests.”
“In other words, we must also consider affordability from a national standpoint. If we increase housing subsidies, what would we have to give up? The quality of education for our children? Healthcare services for our parents? Or do we impose a higher tax burden on Singaporeans?”
Ms Poa then countered to offer some other options for Mr Mah’s consideration in her blog, “(1) cut defence budget; (2) reduce the payments made by HDB to SLA for the purchase of land to build HDB flats – to the best of our knowledge, these payments go eventually into the reserves which is not used to fund any public sector services or projects; and (3) cut ministerial salaries.”
Barely 6 months later, in May 2011 after Mr Mah wrote the TODAY article on the affordability of HDB flats, he was out of the Cabinet. In the May GE in 2011, he and his team garnered only 57.2% of the votes in Tampines GRC, a big drop from the results of 2006 GE.
Mr Mah said he accepted responsibility for the unhappiness over the sharp rises in housing prices, “Housing is always a very sensitive subject. And I guess to the extent that in the last couple of years, housing prices went up very sharply, coinciding with the very dramatic turnaround in the economy, I guess that resulted in quite a lot of unhappiness on the ground. And I accept responsibility for that.”
When asked if his decision was motivated by the polls outcome, he said it was one of the factors. “It indicated … that we needed fresh minds, fresh thinking, fresh ideas,” he said. “When the results came out, it was probably a clear signal that I should do so sooner rather than later into the term.”
In other words, in 6 months, this man changed his views dramatically from “people still worry that HDB flats are not affordable – why are there such sentiments?” to “I guess to the extent that in the last couple of years, housing prices went up very sharply”. It took considerable “unhappiness on the ground” to turn Mr Mah around in his thinking, it seemed.
HDB housing policy in 2013
The Minister who took over from Mr Mah now sings a different song. Mr Khaw now talks about making new HDB flats even cheaper for the public.
In Mar this year during a Parliamentary debate [Link], Mr Khaw said more will be done to reduce BTO flat prices relative to incomes, and to reduce the financial burden of housing on the young.
He said, “We have stopped BTO prices from rising by delinking them from resale prices. We can now pause and see what else we can do to bring BTO prices in non-mature estates to, say, around 4 years of (annual) salary as it was before the current property cycle started.”
“One thing is clear. We are committed to restoring and maintaining the affordability of new HDB flats to the vast majority of first-timer Singaporean households. Their Singapore Dream of owning their own flats, like their parents’, is safe. We will make sure of that.”
Notice Mr Khaw used the term to “restore” the affordability of New HDB flats. Also, notice that the Govt doesn’t talk about using the DSR as a measure of housing affordability any more. Interestingly, Mr Khaw also avoids talking about resale flat prices and prefers to focus on new BTO HDB flats these days.
And in the recent interview with ST [Link], DPM Tharman also said, “Over the longer term, I do think that we will be better off with housing prices being a smaller multiple of incomes for the average person especially.”
“For the low income group, we’ve got very substantial grants and subsidies. But for the average family, average young family, including those who are in the upper middle income group, and those who go for private condos included, we’ll be better off as a society and as an economy in having a more steady growth of property prices and the multiple of property prices to incomes being somewhat lower.”
“It’s important for us to keep prices in check so that younger families feel that housing is affordable and don’t have to put so much of their disposable income into servicing their loans. I think that’s the right long-term objective.”
Let’s take an example by looking at BTO flats launched last year, Choa Chu Kang’s Keat Hong Axis [Link]:
- Applicants’ median household income for 4-room: $4,000
- 4-room BTO at Keat Hong Axis after grants: $250,000
- HPI = 5.2
If Mr Khaw had his way to offer BTO flats at HPI of 4 (i.e, 4 times of annual income), then a 4-rm flat price with applicants’ median household income of $4,000 would work out to be $192,000.
Comparing with the price of current ones at $250,000, can we expect a further drop of at least 23% in prices of BTO flats in future?
In summary, looking at how HDB policies evolve from Mah’s time to present time, the moral of the story is, your votes do count
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