Monday, March 25, 2013

HDB flat should not be for ride on the gravy train

HDB flat should not be for ride on the gravy train


With home ownership crossing 90 per cent, it is difficult to understand why Singapore is building homes at a frenetic pace. Is there really a housing shortage?

From Michael Tan Hoe Heng -
25 Mar 2013

With home ownership crossing 90 per cent, it is difficult to understand why Singapore is building homes at a frenetic pace. Is there really a housing shortage?

The Housing and Development Board (HDB) sold 69,000 Build-to-Order flats from 2010 to last year. Where are these buyers sleeping while waiting for their flats? Do they all need a new flat?

There are 3.8 million citizens and permanent residents, with 82 per cent living in approximately 900,000 HDB flats — an average of 3.5 people per flat. What is a comfortable ratio before the HDB stops building more flats?

When prices are subsidised, there will be overconsumption.

A sign that we might have a misallocation problem, and not insufficient public housing, is that 43,500 whole flats had approval for subletting, not to mention there are flats being sublet without approval.

Why is the HDB wasting public money to build another 25,000 units this year? Why does one not permanently rent from these 43,500 owners instead of buying from the HDB?

The answer: One does not “get” money from the Government if one rents, and one cannot pay the rent using one’s Central Provident Fund.

When I started work, a colleague asked me why I was not queuing for a flat, along the lines of “the Government is giving you money; it’s stupid not to take it”.

I saw classmates applying for flats before they started work so they would not hit the income ceiling. An HDB flat was viewed as their first pot of gold.

We have been told of the perils of a welfare state: Once benefits are given out, they cannot be taken away. Subsidised HDB flats and various housing grants have become an entitlement programme, requiring substantial tax funding.

There is a temptation to appeal to voters by lowering flat prices. Young Singaporeans perceive that they are missing the gravy train of getting a flat that could sell for S$1 million but cost only a fraction.

While many who are applying for flats have genuine needs, how many young couples need a five-room flat? If we could filter out the investment demand, we would not waste resources building flats that owners are not interested in turning into a home.
Every country has limited resources. Should we spend more to build another flat, or use the same tax dollars to help an old lady who collects cardboard, or a child with special needs?

We complain that Singapore is a perpetual construction site, yet we are addicted to this asset enhancement. The HDB should continue to build homes for the poor, but should it aim to house 80 per cent of our citizens?

As the nation prospers, it is logical to expect that a smaller percentage, and not greater, needs subsidised public housing. I applaud the National Development Minister for reviewing the HDB’s role, which should not be to make people rich.

[It takes a brave man, a man of principles and conviction, to write this. It is rare to find a letter written so candidly.

Comments online:
Thumper Koh (edited)

Is it right for taxpayers who do not cash out by selling their flats to
subsidise the "profits" of sellers? At current prices, we are talking
about 100k (5 years holding period) to 400k (15 years holding period).

Sometimes it is not just about government earning but about being egalitarian.

If you look at the Case-Schiller index and rent-price ratios. The
prices should be 4 years of income based on 20% of wages to be spent on
rent and yearly rent at 5% of property price. Current prices are an
anomaly which frequently occurs in cyclical manner. They did not pluck
the 4 years out of thin air.

I believe that HDB prices are affected
too much by CPF. CPF is "free", people do not appreciate the difference
between 1% to 20% of their income on housing because anything less than
20% does not affect out-of-pocket money. Therefore pushing it close to
the 20% mark. Because you can achieve real cash profit from the
untouchable CPF.

Based on current median household income of
6,340. A HDB 4 room flat in non-mature estate should cost no more than
230k based on 30 year loan at 2.5% interest, CPF OA totally used for
housing. Those who over-leveraged with a lower interest bank loan should
be worried, the great quantitative easing (QE) will not last for
another 20 years, since we are already in the 5th year.

There is an interesting paper regarding housing affordability in Singapore before the current growth spurt.


I agree the problem is CPF money. This is money that CANNOT be used for anything else EXCEPT to buy property. Hence, people think nothing of throwing everything in their CPF OA at housing... as investment...

Recently Khaw Boon Wan delinked BTO prices from resale prices, but when it was linked, there was a vicious circle.

Resale market pricess would be higher than BTO because those who are  ineligible for BTO or want to choose their location had to pay a premium over BTO. Then BTO were pegged to Resale prices, so as resale prices  went up, BTO prices increased. And buyers in the Resale market had to  bid higher premiums over BTO so resale prices went up. Pegging BTO
prices to Resale was the stupidest policy ever. Or smartest if the point was to raise BTO prices.

The delinking from Resale prices is a partial solution, because as long as Resale HDB buyers can freely use  their CPF to buy resale flats, reslae prices will continue to go up, and the discrepancy between BTO (which is now being arbitrarily or artificially held to 4 years income) and resale will widen. This is untenable, unnatural and will lead to a backlash.

The additional measure that MUST be included is to limit CPF funds to similar BTO prices in the area. So if a 3-rm BTO flat is going for $200k, resale flat buyers can only tap on their CPF for $200k. The rest must be cash or savings.

See this:

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