Home > Economics, Problems caused by PAP's policy > The many hats HDB flats need to wear

The many hats HDB flats need to wear

Our public housing, one of the most unique programs in the world, is being utilized in so many ways, it’s becoming contradictory to it’s many purposes. How does the government explains how a single policy seek to fulfill so many aims? I have been thinking through this messy policy that admittedly is not an easy issue. While I am no housing expert, I would like to offer some (naive it may be) views.

Question 1: The aim of public housing is affordable housing for the mass public. As such, should it be looked upon as an asset?

The problem with treating public housing as an asset is the public part becomes privatized. When the government offers public housing, they are essentially subsidizing apartments for people who can’t afford. In many countries, only the poor lives in public housing that looks like slums. But when you subject public housing to market forces (such as in the resale market), the ‘subsidized’ price will rise to the highest point bearable in the market (if you believe the market is efficient, which seems like it). What you end up with is no longer ‘subsidized pricing’. The public housing essentially behaves like the private housing market. Volatility went up and speculative activities becomes encouraged. Many studies have been done to prove the high correlation between public housing market and private housing market in Singapore. How then does the HDB continues to fulfill it’s aim of offering ‘affordable’ public housing?

Affordable is a relative term. Flats cost more than double what it used to be 20 years ago. With property prices (both resale and new launches) rising much higher than the country’s medium income (of around S$2500), has the term ‘affordable’ deteriorate? Increasing inflation, increasing cost of living and a low medium income exacerbated by a high Gini deficient can only mean one thing: Singaporean’s disposable income is getting lesser, at least according to the medium salary. With lower purchasing power, how can there be an increase in the quality of life?

If the government truly and sincerely wish to offer affordable flats, shouldn’t the more rational approach be selling at cost price without all that speculative market forces so as to keep prices stable? The youtube interview above is misleading in suggesting those people with flats are happy with rising value HDB flats and only those seeking to buy one would be unhappy. It is not between the haves and have-nots. The entire issue is between the speculators — people who seek to profit from housing as an asset class, and those who really need a roof over their head.

Question 2: Should HDB flats be viewed as a retirement tool that can be monetized for retirement?

Singapore has the unique feature of having more than 85% of the population living in public housing because of historical reasons. When the country first gain independence, there is an urgent need to house an otherwise unhygienic and crowded population. The policy then is to create ownership of houses, with the aim of instilling a sense of belonging and feeling invested in the country’s growth. Before you know it, the majority of the population is already living in public housing.

However nice the word ‘ownership’ sounds, we need to bear in mind that we are merely leasing HDB flats from the government, subject to a 99 year lease and HDB regulations. Breaking those HDB laws such as renting out to undesirable people could mean a purchase you spent half your life savings on to be force taken back by the government. Where then is this ‘ownership’?

Most of us, minus speculators does not shift houses frequently, at least within the public housing spectrum (upgraders is another issue altogether). We stay in our flats for a very long time, often building up emotion links and retiring in them. It is more than just a house. It is home. Why then would we want to sell our flats when we got old? I don’t agree that HDB flats can be used as a monetizing tool. There are 2 main reasons:

“Selling a larger flat for a smaller one when one gets old because the children should have grown up and either have the financial ability to sustain the flat and your retirement, or you no longer need that much space” may sounds totally rational. But with the ever smaller family size in Singapore’s demographics, we see a huge financial burden on caretakers. Retiring into a smaller house would also mean a downgrade in life quality.

Secondly, if HDB flats are to be used as a retirement tool, that would mean for every batch of retirees, there would be an exodus of 3-5 room flats for sale, creating downward pressures on bigger flat prices. And since these retirees need somewhere to live, they would need to purchase smaller 1-2 room flats. This in turn creates upward pressures on smaller flat prices. With an aging population, if HDB flats are really monetized for retirement, we end up with a scenario whereby the retirees are selling at a lower price for their bigger flats and buying at a higher price for their smaller flats. The benefit for moving into a smaller flat, while still positive, would be smaller. Moreover, it is a fact that there are not that many 1-2 room flats available at the moment, and we are already starting to see the babyboomers generation retiring. It is also an obvious fact that people are not selling their houses for retirement if they could.

Question 3: Lee Kwan Yew commented that houses are expensive because they are nicer and elegantly built. Are houses actually getting better?

I disagree with this statement. Everyone knows that in the attempt to house more people, flats nowadays are shrinking at an impossible rate. A 3 room flat in the 80s can have the same space area as a 4 room flat today. I see how a typically long and wide kitchen of older flats got sliced into half in flats built in the 90s and then got sliced again into half in new flats in the Sengkang and Ponggol area. Bed rooms are now so small a King size bed can hardly go through the door of the master bedroom. In fact, for my brother’s bedroom, there isn’t even enough space to put in a proper bed. We ended up with a sofa bed instead. How then are these much more expensive new flats ‘nicer and more elegant’? Flats are now so dense and compact there isn’t much greenery and breathing space to speak of. I see that we are marching towards the path of Hong Kong and Tokyo, and I can’t bear to imagine how flats would look like in the future should the population be allowed to increase exponentially further (at last count, Lee Kwan Yew said we need more than 900,000 foreigners not counting S and E pass foreigners. That means adding more than 1 million or 20% of the current population; and already 1/3 of the current population are foreigners.)

Question 4: This is a more draconian statement that not many people, especially non-citizen might like – HDB flats should only be sold to Singaporeans, period.

When you introduce more than 1.5 million foreigners into the country with an increasing number of PRs given out, you are obviously increasing demand for public housing in the resale (and rental) market. Being foreigners, and some rich ones such as expatriates, demand for housing is extremely inelastic as unlike young Singaporeans who can continue to stay with their parents, PRs need a house more urgently and is willing to pay more to secure one.

If HDB flats are subsidized to begin with, why should non-citizens be allowed to benefit from this ‘low-cost’ housing? Higher demand for rental increases rental rate which in turn increases attractiveness in investing in public housing that can be used to generate rental income. Demand for public housing would then rise expectantly, asserting upward pressure on prices from direct demand (need for a house) and indirect demand (want a house as an investment tool).

Mah Bow Tan recently rebutted WP’s Low Thia Kiang’s proposal to sell new flat launches at near cost price, giving the reason that the ‘large supply’ of new flats will cause general housing prices to fall, thereby hurting current flat owners. Going by the same logic, an increasing large group of new citizens and PRs would generate a significant pressure on general housing prices to rise. We have already seen the effects taking place with resale flat prices going into the range of $1 million. All the news published on such high COV only creates higher price expectation, distorting the market equilibrium prices further.

What Singapore lacks, is a private housing market. A market that serves housing priced between a public housing and a private housing such as condominiums. Public housing should only be offered to Singaporeans and the private housing market can be catered to non-Singaporeans. We see an obvious market given the large disparity in price between a HDB flat (~S$3-400,ooo) and a condominium (S$700k-S$2 million) in the heartlands. The recent DBSS scheme seems to act as a component to fill in this gap but is yet to be seen if the resale market for DBSS (since it’s only launched a year ago) would lie towards HDB flat pricing or condominium pricing.

The reason for having this thought is because I think public housing prices should be kept as stable as possible keeping external market forces out of the picture (internal market forces is entirely fine). Foreigners should not be allowed to influence and distort a public housing scheme. This is dangerous because should Singapore’s economy weaken and foreigners start to leave the island for greener pastures, we will experience the entire opposite of today’s increasing housing prices. With such a large foreigner population, the movement of this particular group should not be ignored.

And we all know a deflationary economy is an even nastier evil than an inflationary one.


I will continue to add on to this rather long post.

  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: