Home > Problems caused by PAP's policy > Housing Policy: Should Land Cost be included for Public Housing?

Housing Policy: Should Land Cost be included for Public Housing?

Mah Bow Tan said that the government subsidized $1 billion for public housing and another $1 billion for estate enhancement every year. While he knows where this astronomical figure came from, he is reluctant to reveal the cost price of each HDB flat. Why would the minister be reluctant to reveal the cost? The only reason I can think of is because there will be a backlash if the citizens knew that the government is actually making profits off ‘subsidized public housing’. According to the HDB financial statements, proceeds exceed cost resulting in net profit to the government. Going by Mr Mah’s argument, the only reason the government is subsidizing the flats is due to the inclusion of land price. He argued that land is part of the national reserve and it is only right that the government pays back the value of the land price to the reserve when the land is scheduled for the building of public housing. The question we should ask is, how did the government finance this purchase of land? And should not public housing be non-profitable? And finally, should land cost be considered part of the national reserve?

If the government finance this purchase of land through the use of reserve, then Worker’s Party’s Low Thia Kiang’s argument would be correct. Use money from the reserve to purchase land (which is a reserve), take off land as an asset in the reserve, and then put back the money financed from the reserves back into the reserves. Yes, it’s a merry-go-round of taking money from pocket A and putting it back to pocket A. The land used to built flats essentially still belongs to the government as all HDB flats are technically only leased from the government for 99 years. In accounting terms, it’s akin to taking the land off the reserve balance sheet, replacing an asset class (land) with another asset class (cash). The reserve balance sheet remains unchanged but the land magically becomes a new positive asset to be used in building HDB flats. And that new asset is counted as a cost to citizens for public housing. Does that makes any sense?

If the government finance this purchase of land through taxes, it’ll essentially be a raid on citizens. How would you feel if someone forces you to pay him a portion of your pay, then he uses that part of your pay to finance a house, and then sell it to you at increased margin? Using tax-payers money to purchase land to be used for building HDB flats, which is in turn sold back to tax-payers is akin to double taxation. Let me illustrate with an easier example.

Suppose country S is a one person (W) economy and there is a one person (G) government. The only source of revenue for G is tax. G collects $10 in tax from W. To replace land with cash in the reserve balance sheet, G ‘cash out’ the land valued at $4, and build a house on it at cost price of $6. G then sell the house to W at $8 earning $2 for HDB, and insist that he had subsidized $2 given that the total cost of house and land is $4 + $6 = $10. From the tax-payer’s point of view, W basically financed his own house’s subsidy, and end up paying more for a house. W paid out $18 in total, $10 in tax, $8 for the house. G collected $10 in tax, minus $6 to build the house, minus $4 for pay for the land, plus $8 received for the house, resulting a total net collection of $8. G end up paying only $2 with the reserve remain unchange.

Suppose again that now, G decided to sell the house at cost price and ignore land cost as part of reserve. G collected $10 from W, build a house for $6, and sell the house to G at $6. W would have paid $16 in total, $10 in tax, $6 in the house. G would have collected a total net of $10, with $10 as tax revenue, $6 for building the house and $6 for selling the house to W. G now pays $0 instead of the $2 he paid in the earlier illustration. Since land is not considered part of the national reserve, the reserve also remain unchanged but is $4 less than the earlier scenario.

Comparing the 2 examples illustrated, we see that including land cost as the national reserve result in the citizens paying much more and the government having a lower net revenue. Why then, would the government choose to include land price as the national reserve? Comparing the two, we see that the reserve would be higher by $4 if land is considered as part of the reserve.

Technically, with every building and selling of HDB flats, the reserve gets richer with cash. Cash increases while land, as an asset, is taken off to another balance sheet. Suppose G decided to take back the house from W, G can buy back from W at the same price of $8 or even give W a little profit by buying back at $10, tear down the house, rebuilt another one, and sell it again to W. The price this time round will be even higher than $10 because HDB needs to make a profit. And land price would have risen again as a new development makes the property and land more attractive. Going through the cycle of selling to W, the reserve will be flushed with more cash and the land in appreciating value, will be taken out of to another balance sheet again. What we see is double inflationary pressures from property value appreciation and land value appreciation.

Is it even meaningful to consider land cost as the national reserve? The national reserve is meant to protect our country in times of adversity such as wars or economic attacks. In times of adversity, are we going to sell our land since it’s a reserve????

  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: