With a larger opposition presence in parliament, ministers and People’s Action Party (PAP) backbenchers have become more aggressive in making the case that government policies do indeed help the more disadvantaged in society. This became particularly notable during the recent parliamentary sittings when the first budget post-general election 2011 was debated. In defending their “virtue”, I see the PAP side resorting to soundbites several times. Have they been coached by public relations people?
The trouble with soundbites is that in achieving their effect by reducing an issue to a memorable phrase, they must necessarily over-simplify. And someone like me will react by saying: Hold on a minute, what does that oversimplification gloss over or conceal?
Thrice it happened in the last three days as I perused the parliamentary reports in the Straits Times, and I shall devote a short commentary to each of them. In this article, I address the assertion that someone who earns only $1,000 a month should be able to buy a flat.
It began with Finance Minister and Deputy Prime Minister Tharman Shanmugaratnam casually remarking that 98 per cent of Singaporeans below 35 earn at least $1,000 and are able to buy flats. It was the threshold of $1,000 a month that raised collective eyebrows, mine included. Housing minister Khaw Boon Wan then explained on 2 March that:
Said Mr Khaw: ‘This piece of comment caused a stir precisely because it sounded so incredible.’
Mr Tharman was referring to a new two-room flat, he explained. He pointed out that the subsidised price of new two-roomers was about $100,000, if the applicant is a first-timer. He will also be entitled to housing grants of up to $60,000.
‘So the net selling price to him is about $40,000, and the monthly mortgage payment of such an HDB loan can be fully recovered from his Central Provident Fund contribution,’ said Mr Khaw.
He added that most two-room applicants earn above that income ceiling, pointing out that their median income based on recent [Build-to-Order] launches stood at about $1,400.
— Straits Times, 3 March 2012, The maths of buying a flat with a $1,000 monthly income, by Daryl Chin
Out came the back of the envelope.
Let’s say a worker earns $1,000 a month in basic pay and does so over his entire working life. Each month, he takes home $820, and sees $340 creditted into his Central Provident Fund (CPF) account — the latter made up of contributions of $180 by himself and $160 by his employer, based on CPF rates as last revised 1 September 2011.
Let’s assume he takes out a 25-year loan at 5 percent interest per annum. His interest and repayments of principal will be roughly as in the table at right. As you can see, he will be able to make the necessary payments from his CPF contributions alone, provided he devotes the bulk of his CPF inflow to those repayments for most of the 25 years.
So yes, Khaw is right. But what are the implications?
1. It’s a two-room flat, i.e. it has just one bedroom
2. With just one bedroom, how is he going to raise a family?
3. With only $880 in disposable income, how much can he possibly save?
One might argue that if he gets married, even to another person earning $1,000 a month, the couple’s ability to pay for the flat and their disposable income doubles. They might then be able to afford a three-room flat (i.e. two bedrooms). But . . .
4. If the spouse has to continue working, how are they to have children? How are they to help pay the costs of their own elderly parents?
5. There is still the same difficulty with saving, especially if they have children.
6. At the end of their working lives, they will have very little in personal and CPF savings. How are they going to retire?
7. Often, Singaporeans pay for medical care through their CPF savings too. Can this couple, their children and elderly parents afford medical care when most of their CPF is dedicated to servicing a housing loan?
8. And that’s assuming that this worker and his spouse do not suffer any prolonged period of unemployment over three decades. Given Singapore’s track record of cyclical swings, that’s not a good bet to make.
9. Khaw seems to imply that the mortgage loan covers 100% of the nett purchase price and that the buyer does not have to provide any down payment in cash. I don’t know if this is always the case, but I will use the same assumption as he did. If this is wrong, then that’s another hurdle.
Taken together, what we have is a picture of the minister being right only if we treat the question very narrowly. The moment we try to understand social well-being wholistically, the parts don’t add up.
That, unfortunately, is a strand that can be traced through many of the government’s assertions each time they are challenged about people’s well-being, whether we’re talking about healthcare, social mobility, income inequality, or in this case, housing. They score on specific points, but only if taken in isolation.
We should not accept such narrow framing.