Flats are not houses, think hospital beds instead


Where we go wrong is in our use of words. I have always cringed when Singaporeans use the word “house” to mean their flat. I may be old-fashioned in this respect, but I would only use the word “house” when I refer to a dwelling that sits directly on a plot of land; I would not use it for a pigeon coop in the sky. If one looks at international usage, that’s probably the norm.

The wrong choice of words affects how we think of something. Words come with associations and values. I’d argue that our careless choice of words warp how we think of Housing and Development Board flats — public housing in which 85% of Singaporeans live.

A useful new debate has commenced with Ho Kwon Ping and Donald Low suggesting that we should rethink the role of the Housing and Development Board. Essentially they are arguing for a shift in HDB’s emphasis, giving greater priority to a price regulatory role. This has come in the wake of several years of rising prices, accompanied by considerable volatility. As Donald Low pointed out, prices have risen at a much faster rate than median incomes in recent years. Such a trend is political dynamite.

Where I have a little difficulty with both their analyses is that they still speak of flats as “assets” even as they debate how to regulate the market. I won’t deny that property is an asset, but there are assets and there are assets, and we need a sharper and more critical assessment.

I would argue for a far more radical rethink of what housing means. As it is, the seeds of this rethink can be found in their essays, because they speak too of social protection. Donald Low, for example, stresses the importance of having a healthy mechanism for monetising the value of HDB flats as our population ages. Without such a mechanism, the asset cannot fulfil its social safety net function. Here already, we have the beginnings of a conundrum. No doubt assets, e.g. a portfolio of stocks and shares, can serve as stored value for a future cushion, but property is relatively illiquid. Worse, when like all assets, speculative bubbles arise or, more seriously, burst, it is very hard to sidestep its ill effects — again because it is relatively illiquid.

What Donald and Kwon Ping are suggesting is a bigger role for a state body in price control in an attempt to avoid speculative ill-effects. In the absence of details from them, all I can say is that we have to reserve judgement. Like all price control measures, there is a huge risk of failure and unintended side effects.

Dwelling place is better compared to a car or hospital bed

I don’t disagree with the outline of their proposals, but I think it will help us think more clearly, and thus arrive at cleaner solutions when we first examine framing and implicit assumptions. Otherwise, policy review becomes a case of bending a pipe here, and sticking a valve there. What results is an ugly contraption with inherent legacy inefficiencies.

And this is where the local use of “house” comes in.

pic_201411_20My point is this: The property market in Singapore, particularly public housing which is really a leasehold arrangement with 99 year-leases on slots in high-rises that are likely to deteriorate badly well before 99 years, is conceptualised using an inappropriate frame. The frame we rely on is descended from an agrarian society where land is a productive asset, as in a farm. Furthermore, there is inherent physical scarcity. Short of the seas and oceans evaporating and all our forests deforestrated, the total stock of land is limited and generally unchanging.

It is not altogether inappropriate to carry the frame over to urban houses; even though they aren’t productive assets, by being linked to the land on which they sit, they too enjoy the property of scarcity.

But when we move over to speaking of pigeon coops in the sky, especially ones with 99-leases and which are contingent on the structural integrity of steel and concrete, we have departed very far from the agrarian model. The flat is (generally speaking, unless you work out of home) not a productive asset, nor does it enjoy inherent scarcity. At any time, private parties or the state can ramp up supply (albeit at a cost).

As an asset class, we should learn to see flats as more akin to motor vehicles. They’re assets, but they’re depreciating assets. Once we adopt this perspective, huge questions about the folly of how we price “property” come into play.

Speaking of folly, some of us might remember the time when Certificates of Entitlement were the subject of ridiculous speculation. People were selling used cars (with their COEs) at prices higher than when they had bought them new! As soon the government changed the rules, put in ten-year limits and modified annual supply, the market crashed. Many were burnt.

This experience should sober us up. We should ask whether our HDB resale market has similarities, albeit on a much longer time scale.

I would go further and suggest that a better comparison may be with healthcare. Perhaps we should see a dwelling place as a right accruing to each citizen (or human, as you may wish) in the same way that we see healthcare. This doesn’t mean we don’t have to pay for it, but it means we have to have a way to ensure that even for the most indigent, this right is still provided, with costs absorbed socially. And like healthcare, the frills can be the subject of top-up pricing. The right to healthcare may mean nothing more than a C-class ward, generic medicines and limited access to specialists. You want airconditioning, a private room, an earlier surgery date? Pay.

However, also like healthcare,

  • The right expires when you expire; it is not something that can be transferred to your descendants. After all, as citizens too, they enjoy similar rights to dwelling places.
  • As for the frills you have to pay for, you should pay as you consume. Again, not something held in perpetuity, transferable to descendants.

Stop ‘owning’ flats

Once we conceive of housing in this light, we would design a very different housing market. It’ll be one where the state guarantees that a basic dwelling place is available to everyone, with subsidy mechanisms in place to help the indigent. If the basic dwelling place is too basic, people can rent better units instead (the “frills” option).

Of course, there is the reality that people get attached to where they live in a way that no one ever gets attached to the hospital bed one lies in. And moving home is a huge hassle. So unlike healthcare, even if it is a pay-as-you consume system (in other words, rent) the lease contract may have to contain clauses that assure a much higher level of stability (or at least predictability) in the pricing of the frills and essentially reserve to the dweller the option of staying put for as long as he wishes.

You can’t afford or don’t need the frills any more? You end the lease and move out.

And just as you don’t sell your hospital bed to another person, but hand it back to the intermediary provider, so with the dwelling you quit.

What this analysis suggests is that like healthcare, we can’t expect to do without a huge role for an intermediary provider. In the same way that people don’t “own” their hospital beds, we shouldn’t be speaking of “owning” our flats. The intermediary, be it the hospital chain or the housing provider, is the owner, but the contractual relationship between the user and the owner/intermediary is strongly predicated on the understanding that the user has a right to a basic provision.

Now, I’ve covered the easy part: critiquing the system we have and the (mis)assumptions behind it. The hard part: how do we price rights?  How do we price frills?  How to ensure that intermediaries fulfil their duty and not exploit for profit? How much competition is compatible with universal access?

I believe these are huge areas for study in economics, and I suspect we are still very far from answers. A lot of work might have gone into understanding the economics of the capitalist model, but what we’re talking about here is a socialist model (or at least a market socialist model)… and that’s just it: this debate is in a sense, a debate about the end of capitalism.


7 Responses to “Flats are not houses, think hospital beds instead”

  1. 1 Qiao Zhi 30 November 2014 at 19:03

    I honestly don’t think the govt would ever agree no matter how much sense you make in your article because lky, lhl and company are heads over heels in love with the boasting right that under the PAP 85% of Singaporeans ‘own’ their own homes. Try saying out loud substituting ‘own’ with ‘lease’ you get: 85% of Singaporeans lease their own homes, or even more clearer: 85% of Singaporeans live all their lives in flats leased from the govt for 99 years.

    Further, the govt would be in deep shit trying to justify taking the lion’s share of our CPF (i.e. our retirement money) to pay for this lease.

    You see what I mean? 😉

    • 2 FussFreeHome 3 December 2014 at 23:43

      Quite true. The HDB or rather the SLA is raking in huge profits from selling BTOs at “subsidized” rates and the government is effectively robbing young Peter to pay for elderly Paul’s asset appreciation.

  2. 3 twasher 30 November 2014 at 21:05

    Might be worth looking at the German model, where most people rent rather than own their residences. Seems to have worked out well for them.

  3. 4 yuen 1 December 2014 at 04:25

    since people pay dearly for COEs, an asset which depreciates even more rapidly than cars and ‘houses”, I dont think you can discourage people from chasing up the price of apartments merely by pointing out their shortcomings as “assets”

    the government gets the blame when apt prices rise, and when they fall; it is not much use trying to eliminate complaints; the question is how to do good by formulating policies that cope with the existing situation

  4. 5 KS Teo 1 December 2014 at 11:35

    Singapore is a pseudo democracy. Even if majority of academics agree this
    should be the new way to look at public flats those with vested interest will do everything possible to stop it.

  5. 6 D 1 December 2014 at 12:38

    I would suggest you have brought over your own very powerful implicit assumptions in writing this article. The real oddity in Singapore is that flats are leaded not owned. Why? A property owning middle class is something very powerful, but not present in Singapore. Accident or design? The government decides how many HDBs to build and also how much land to sell to private developers so as well as owning almost all the land, they also control supply into both market segments.

    Now, is there some intrinsic reason why Singaporeans cannot own their homes, or is it a decision forced on them by the state? Remember, if you do not vote wisely, something about slums etc.

    You have talked about dismantling the state before. I suggest this would be a good place to start thinking about how.

  6. 7 Sin Pariah 6 January 2015 at 18:32

    In Little Red Dot with inherent land-scarcity challenges where withdrawal of CPF retirement nest-egg is sanctioned for residential property purchase, the current PAP Govt cannot even muster the political will to do policy U-turn to revert to two core principles under 1G PAP:

    (A) Require sale of public housing back to HDB upon purchase of private residential property – perhaps adjusted for present time value and other location-specific value (eg, proximity to MRT station, etc).

    (B) Prohibit rent-out of whole-flat except based on evidence of familial relocation or financial stress.

    Additionally, now that Min Sum pegged to “lower-income household” cannot be achieved by more than half of total (as opposed to “active”) CPF members in past years’ Age 55-cohorts, introduce prohibition to bar withdrawal of CPF savings for purchase of investment residential property.

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