The policy paper put out recently by the Singapore Democratic Party (SDP) (link) is a bold move in this direction. Leading economist Yeoh Lam Keong called it an “excellent” paper on Tuesday, 6 November, when he was giving a talk — more about this later.
Readers may wonder about my opening paragraph. What do I mean when I say we do not have real public housing in Singapore? Doesn’t the fact that some 85 percent of Singaporeans live in Housing and Development Board flats point to its enormous success?But that’s only if one equates HDB with public housing. The government may say so, and will pull out all stops to brainwash you into thinking it is so, but that doesn’t make it so.
At the core of the definition of public housing must be its social objective. It is to provide a roof for those without the means to go to market for a home. The HDB might have started that way, but — it can be argued — it has long since evolved into a mass developer like any other. The very fact that it prices its new flats with reference to prevailing market prices and the insistence on costing in the market value of land make it no different from City Developments, Frasers Centrepoint or Wing Tai Holdings. Even the fact that HDB builds smaller flats does not distinguish it anymore from the others, in this age of ever-smaller condo units.
Where HDB may differ significantly from the private developers are (1) various income and family-unit eligibility criteria for buying; (2) minimum stay period; (3) restrictions on owning other properties; and (4) government grants to first-time buyers.
The first three conditions make sense when there is a scarcity of HDB flats relative to demand, and when the product is priced below market rates. Means-testing and restrictive conditions as quid-pro-quo for means-tested eligibility would then be a sensible way to allocate a scarce good, especially one heavily subsidised by public money. But HDB flats are no longer subsidised except in a highly contentious, notional “market subsidy” way and certainly no longer scarce goods. The political promise is that a flat is available to anyone who wants one. That 85 percent now live in one is proof of that, albeit waiting times are a source of discontent.
The reality therefore is that the first three conditions serve not an allocation function, but primarily to boost the attractiveness (and therefore market value) of flats built by City Developments, Frasers, Wing Tai et al. It does this by self-mutilating the flexibility and enjoyability of HDB flats. The government would want you to see the eligibility and use restrictions as “proof” that HDB flats serve social objectives, but frankly, they are poor arguments when set against the stark fact that they are market-costed and market-priced.
The social need arises from market failure. To insist that the need be served by a market-priced good is oxymoronic.
The fourth condition, that HDB flats can come with a government grant for first-time buyers, comes truer to social assistance, but it is actually unrelated to HDB. It’s a pure fiscal measure that can be put under the purview of a different ministry at any time and even extended to cover any kind of housing purchase. This has a laudable social objective, but it is not intrinsically related to HDB, nor define HDB as public housing. If tomorrow, we say the grant is applicable for a condo purchase so long as it is one’s first home, would that make condos public housing too?
Another argument I would make why HDB is no longer a public housing scheme is based on the very fact that 85 percent live in one. Are we saying 85 percent of Singaporeans are poor and need subsidised public housing? That would be ridiculous. On the other hand, if we recognise that, whilst most of that 85 percent are middle-class, some are less than that, then we must confront the fact that the sale and pricing mechanism is the same for all. How socially compassionate is it to make the lower-income pay for a flat by the same rules that the middle-class live by? Especially in a society with an income gap wider than many developed countries, to expect 85 percent of the population to obtain housing through the same market-based rules is to ignore the needs of the lower-income. In such an income-differentiated society, it is heartlessly crazy to have a “one-size-fits-all” housing policy.
The HDB has become a mass developer of middle-class housing, and has left in its wake lower-income sections of our society unattended to.
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The SDP’s policy paper proposes a new class of “Non-open-market” housing, or NOM flats, for short. The key characteristics are: (1) priced closely to what it costs to build them without inserting land values; (2) sold on 99-year leases; and (3) can only be sold back to HDB. The price at which HDB buys a flat back is the price of an equivalent newly-built NOM flat less the pro-rated value of lease period consumed.
SDP’s calculations indicate that the resulting prices should cost households of the lower income deciles no more than 20 percent of gross income for 9 to 15 years. It argues, correctly, that expecting families to take 20- to 30-year mortgages, often paying over 20 percent of income, is to put families under financial stress. Too much Central Provident Fund savings are used to pay for a flat instead of being saved for retirement. Moreover, the crimp on disposable income discourages having children — surely a critical issue for Singapore today.
It is a detailed paper setting out clearly its assumptions and numbers, and is well worth a close read.
Where I have a problem with it would be the small issues. For example, I don’t see why their proposal for NOM flats extends all the way to 5-room flats. The scheme, in my view, should be restricted to the smaller sizes.
Another issue I have: it sets out a rather complicated pricing formula for conversion of an existing open-market flat into an NOM flat. This is to cater to those who feel financially stretched servicing loans for a flat they previously bought, and want to go onto the NOM scheme. Frankly, I would not so easily allow people to stay on in their flat while converting it to NOM. There are policy and management issues surrounding where NOM flats are to be located; I can imagine a good argument for wanting certain blocks to be NOM and other blocks not, e.g. future upgrading might bring on problems of who pays how much if there is a mix of NOM and open-market flats in the same block.
If a family is financially stretched and wishes to switch to an NOM flat, they should sell their open-market flat (on the open market) and apply for a separate NOM one.
I would also fine-tune the argument that SDP makes for building up a buffer of housing stock to reduce waiting times. I would say, build up the buffer only for NOM flats. The current Build-to-order scheme (which entails a few years’ wait) is fine for open-market flats once NOM is in place.
Why do I say this?
Because once we distinguish clearly that the public housing social objective is carried on the shoulders of NOM flats, then we shouldn’t duplicate these objectives with open-market flats. If a new family needs a home quickly (e.g. after marriage), they should opt for an NOM flat — thus the importance of having a buffer stock of ready-for-moving-in flats. When the family has a better idea of the number of children it has and more assured career and income streams, then it can sell the NOM flat and buy an open-market HDB flat (or a private condo unit). For this second home, they can plan ahead and wait.
But on the whole, the SDP has presented a good set of proposals, and I hope it opens a wider debate about what we really mean by “public housing”. What should be its social objectives? What should be the affordability limits that must govern the type and cost of flats we build? How did we fool ourselves that we had such a great public housing scheme when there was little in it that was truly “public housing”?