Mr Speaker sir, the two motions before the House today touch on a subject that is near and dear to Singaporeans – housing.
The first part of my speech will touch on the over-arching principles and values that should guide our housing policy.
The bedrock principles that should guide our housing policies
In the early years of our independence, HDB flats were built for rental and then later for sale primarily as affordable homes. But today, many younger Singaporeans feel that the Singapore dream of a HDB flat is increasingly out of reach or at least severely challenging.
I spoke to a young Singaporean recently who will be marrying this year. She tried and failed twice to get a BTO in a non-mature estate. Given this as well as the time factor, she is now looking at resale options, but resale prices are high. On top of the price, the cash + CPF up-front component that they need to pay to get a bank mortgage loan or even a HDB loan is substantial. Both of them are young and have little CPF; so they have to seek funding from their parents, who have their own difficulties to cope with; or find other solutions.
In fact, nearly six in 10 (nearly 60%) people who want to rent or buy said they find property becoming more unaffordable, according to a poll of 790 respondents conducted in July 2022 by a private company that provides online services for home rentals.
Let’s unpack this. Why do people feel this way? It is because the most affordable type of HDB flat – the BTO flat – is seeing excess demand, with many launches substantially oversubscribed. And that feeling is coupled with another – the high prices of resale flats, which have been getting higher.
The generation who grew up during the heyday of the asset appreciation approach to policy have grown up with the expectation that HDB prices will keep on rising and that this is very, very good.
But one simple truth is dawning on more and more Singaporeans. If HDB flat prices rise and rise, that inevitably tends to affects house prices for the young. That is because land sales values from the state to the HDB seem to be influenced by historical resale transactions; and that in turn affects BTO prices; and the fiscal capacity of the state to provide subsidies out of the Budget is not unlimited. Hence, a HDB flat lessee may realise some capital gain but his or her children may be struggling in the housing market. The passing of the years and generational change has made more and more Singaporeans grasp this fundamental reality.
There is another fundamental reality that has not been fully grasped. And that is that the resale prices of flats will inevitably hit a point when it starts to decline.
Many of us are not so focused on this lease decay issue right now. With the HDB resale market buoyant, it can seem like it is not relevant to the time we’re living in. But it is something Singapore will have to contend with in the medium to longer-term.
Rebooting housing policy and public expectations about HDB flats
Sir, we are facing the inevitability of lease decay as well as the need to keep housing affordable for the young who are starting families. Facing these two realities, I think the time has come for us to reboot, refresh and reframe mindsets and start thinking of our HDB flats as primarily a home to live in, an affordable home, and much less of an asset whose value will rise in the same way that the value of developed country equities – that is stocks and shares – have generally risen over the long term. HDB flats are not like stocks and shares. Framing policies, setting expectations that the price of a flat is going to go up and up and never come down is not sustainable. Older HDB lessees can see this when their children enter the housing market.
Sir, I spoke about the need to keep flats affordable for new families. There are two other reasons to reboot our mindset and move away from the mental model of the HDB flat as an ever appreciating asset that uplifts generations through property price uplift.
Firstly, if we frame our policies to prompt rising HDB resale values in the belief that monetising that resale value should be one of the main ways we provide for retirement, where does that leave those who do not want to sell and move out?
Many elderly Singaporeans are living in flats worth a considerable sum. But they do not want to downgrade. Some want to stay put in the communities, where they have sunk roots, where their friends and relatives are, where they have social capital, where they are familiar with the neighbourhood and its hawkers.
Others may look around at the market for buying a smaller home and find that, after deducting broker’s commission, renovation and moving costs, and after factoring in the need to repay CPF accrued interest which more and more sellers are finding that they cannot do, the prospect of downgrading does not release enough cash for the upside to outweigh the downside.
Plus most are unwilling to take up the Lease Buy-Back scheme as they want to leave their flat to their children who they think will face even higher property prices, which probably explains the scheme’s low take-up. And many are unable or unwilling to rent out their flats for reasons of privacy or not having alternative dwellings.
There are and will be many people who will not benefit from an ecosystem of policies centered on people monetising their HDB flat for retirement.
Secondly, if Singaporeans accept that HDB flat prices will keep rising and rising at a rate that will give them a significant capital gain, that may blunt the drive to do other economically meaningful things – to retrain, to set up a business, to innovate at work, to increase productivity. Markets reward such economically useful behaviours. But when greater rewards can be gotten from gaming the property market, from flipping properties, the urge to do those other things lessens. The expectation of ever rising property prices can become the opiate of the masses, depleting our entrepreneurial and innovative impulses. Rising property prices can also suck away a household’s capital from other uses, like financing a spell away from the workforce to retrain or pursue a further degree, for example.
Rather than focus on rising HDB flat prices to uplift the generations, I believe we should rewire our thinking to once again view HDB flats as first and foremost an affordable home to live in. And Singaporeans will get a better and more sustainable uplift if all our minds are focused instead on nurturing an economy that creates better-paying, future-proof jobs with a decent career path (including vocational ones) and combine that with some degree of national redistribution to offset advantages of birth.
I come now to the second part of my speech, where I pose a few questions to the government.
Does the government think that HDB resale prices will keep on rising indefinitely?
Firstly, and most importantly of all, I would like to ask the government if it still sees HDB flats as an appreciating asset? More specifically, does the government designate HDB flats as a retirement asset, which necessitates their appreciation over time, even though the inherent nature of the finite lease requires that they must eventually depreciate, and expire at zero? Is this asset appreciation assumption the centre of gravity of housing policy?
There are various statements from the government on this and some seem on the face of it to be contradictory. There have been statements that prices may keep on rising even after year 70 – for example from former MND Minister Mr Khaw Boon Wan in Sep 2018. And there was DPM Lawrence Wong’s statement in 2017 that resale prices will eventually come down to zero as the lease decays. I will not quote the various statements that could be quoted, due to time limitations.
How does the government define affordability in terms of the house price to income multiple?
Secondly, what is the government’s view on HDB affordability? What, in government policy-making, is the boundary line that divides affordability from unaffordability on a metric of housing affordability?
One widely used housing affordability metric is the median multiple, also known as the House Price to Income ratio or HPI. This indicator simply divides the median house price by the median annual gross income. This indicator was the primary indicator of the 1991 World Bank/UNCHS Housing Indicator system and was used as a measure of affordability by the UN Commission for Sustainable Development. Its use has been publicised by an organization called Demographia, which publishes regular surveys of housing affordability. Demographia views a multiple of 5.1 as severely unaffordable, 4.1 to 5 as seriously unaffordable, 3.1 to 4 as moderately unaffordable and under 3 as affordable.
My Parliamentary colleague, Sengkang MP Mr Louis Chua filed a PQ to obtain data as regards this multiple.
For first-timers who bought resale HDB flats, the HPI in 2022 ranged from 5.7 to 4.2. For those who bought BTOs, it ranged from 4.8 to 2.9. The average for BTO was 4 and the average for resale was 5.1.
At this point, I note that Hon Mr Xie referred to our 2020 manifesto formula which calls for a maximum debt service ratio ceiling selling price for BTO flats in non-mature estates. This cap applies to all flat types, including 5-room BTO flats. There are other elements in that formulation, such as a cap to loan tenure and further discounts for 2 and 3 room flats. Mr Xie’s example compares median 4-room BTO flats in non-mature estates to our maximum cap. This is not an apples to apples comparison.
Our position now, of 3 or close to 3 HPI for BTO in non-mature estates that my Hon friend Prof Jamus Lim explained, is developed based on the new information derived by my Hon friend Sengkang MP Louis Chua, that first time applicants collecting keys for BTOs had a median household income of $7,700 per month. We believe that it is useful to refocus the conversation on first-timer median income. Hence the Workers’ Party’s view that we should aim for a HPI of 3 or close to 3 for non-mature BTOs as a function of first-timer household income. Annex 2 which Minister Desmond Lee circulated, puts the HPI for BTO flats in non-mature estates at around 4.5 for 3-room flats to 5.5 times for 5-room flats.
So I repeat my question on what the government defines as unaffordability going by HPI. Does it view for example anything under a HPI level of 6 as affordable? To be sure I’m not saying that the government should accept the Demographic classification, but the government should clarify what its stance is on HPI is.
How are HDB supply planning decisions made? Why does demand-supply mismatch occur?
My third question is on planning sufficient HDB supply for new household start-ups. Clearly the rate of formation of new households as a result of marriages or even other kinds of events like divorces is not something that changes drastically from year to year. It is tied to demographic data that does not see sudden or radical changes, in general. The government controls most of the land in Singapore and hence does not face impediments in terms of being able to acquire land to build HDB flats, unlike in many other countries.
Why then do we get into situations where the supply of HDB BTO flats cannot keep up with demand, where there is excess demand such that BTO projects are oversubscribed at increasing ratios as my colleague Sengkang MP Louis Chua has expanded on in detail; and much demand that would go to BTOs ends up going into the resale market, leading to resale price spikes? Why does demand and supply get mismatched? And it’s not just due to Covid delays, this has happened in the pre-Covid past too.
It would be useful if the government can share its perspective on this and also share what it does to research and plan ahead to match supply with demand.
Does the government take seriously the link between housing affordability and fertility? Has it studied this?
My fourth and last question to the government is on the link between housing and TFR. It is often said that economic factors like house prices are not the only factor affecting the willingness of couples to have children. But talking to many constituents and fellow Singaporeans over the years, I am of the view that, while not being the only factor, it is a very important factor indeed.
I recently spoke to a constituent in the Serangoon ward of Aljunied GRC. She had married recently. Both the husband and wife are university graduates. Surveying their housing options, she felt that the burden of debt to acquire a decent home was so high that they were unsure as to whether to bring children into the world if they did not have the economic means to give their kids all the support they would need to thrive in Singapore.
Hence, I would like to ask the government if it takes seriously the possible linkage between TFR and housing access and affordability. Has it studied the effect of rising and high house prices on our TFR?
A PHD student at NUS, Kidjie Saguin, in a paper she authored for the Asian Development Bank Institute in March 2021, found a significant link between higher resale prices and lower TFR in Singapore.
Surely this is a question that can be addressed through economic modelling, regression analysis and so on. Has the government studied this and will it share data on this? If not, would it do so?
Which brings me to the third and last part of my speech where I will share two concrete suggestions to improve accessibility and affordability for HDB housing.
1st proposal: 70 + 29 leases
First of all, I would like to suggest that the government consider building some BTO flats sold at 70 year leases, with the option to top up another 29 years. This will allow BTO flats to be sold at a lower price. Such flats may also better suit the life plans of many buyers. For example, someone aged 50 may buy such a 70 year lease flat at year 20 because they want a shorter lease and they don’t expect to live beyond 100; or those who may want to stay in the same flat for life.
This would be another addition to the HDB eco-system that widens choice to Singaporeans who may want very different things at different stages in their lives.
In this proposal, payment for the optional additional 29 year period is made only upon exercising the option, but the option payment quantum is locked in from the date of initial purchase. This option should be exercised not later than 5 years before expiry of the initial lease period. This would allow a 5 year planning window for HDB to decide how best to deal with the site.
70 year BTOs like this would be sold at a significantly cheaper price due to the shorter lease duration. And that cheaper price may make possible a shorter loan duration which many may welcome as being less risky, given the vicissitudes of life. The CPF funds saved thereby would get compounded in the buyer’s CPF accounts and boost retirement adequacy. There is no loss to the state as the state can take back the flat upon lease expiry and it could be put to various uses such as public rental housing or sales of balance flats.
The assumptions and principles behind this new 70 + 29 BTO flat have some parallels with those behind the lease buy-back scheme – which allows leases to be shortened with some monetary benefit gained by the lessee.
Second proposal: Build some BTO flats ahead of demand
My next proposal is to build a new class of flats which are built ahead of demand and not built to order. The core idea in this proposal was actually mooted in this House by my colleague Sengkang MP Louis Chua at the MND COS last year.
Sir, young couples and families waiting for a BTO flat can sometimes wait for 4 or 5 years or more. Is this a reasonable expectation for society to have of newly-weds and new households starting up?
During those years of waiting, the couple will have to find other living arrangements. Many choose to stay with parents but that does not come without challenges, for obvious reasons; challenges that can strain young families. Some would certainly postpone childbearing for this reason. Is this healthy?
Building more flats ahead of demand would create some buffer stock, some redundancy in the system, to allow couples to buy a BTO flat faster, without the current wait times.
Sir, I am aware that the HDB currently does sometimes build flats without waiting for 70% of the units to be sold. In comments HDB made to Channel News Asia in November 2022, it said that it is already building ahead of demand or actual bookings, where possible. And since May 2011, it has called for and awarded construction tenders for the majority of BTO projects ahead of the outcome of the flat selection. Minister Desmond Lee also said yesterday that the proportion of shorter wait time BTOs will rise.
My suggestion here is to build more of such “advance build BTOs” more frequently, and to create a special class of flats built ahead of demand as another complementary plank in our HDB eco-system, once market conditions have become normalized from what they are today. These would be flats where there is no requirement to sell before construction starts.
One objection to this proposal is that what if the flats remain unsold for a long time? The cost of maintaining those empty flats would be a loss to the state. However, if such flats remain unsold, the selling price could be reduced until we reach a market clearing level where someone will buy it, which is how markets operate. The risk of flats remaining permanently unsold is small once you consider this. Moreover, HDB would obviously conduct market research before deciding to build certain flat types at certain locations, which would lower that risk even more. And unsold flats could also be repurposed for the expanded public rental stock proposed by my colleague Sengkang MP Professor Jamus Lim. And I am not calling for all flats to be built this way, only some.
One of the mantras of our industrial development, one reason the EDB was able to attract investment in the 1960s and subsequently, was our willingness to build industrial facilities – factories, industrial parks and so on – ahead of demand, so that investors could start up their factories quickly. If we can build industrial facilities ahead of demand, can we not also build residential homes ahead of demand, to reduce the wait time for new couples and encourage faster new household formation and perhaps child-bearing to lift our globally abysmal TFR?
I should note that I am suggesting building this new class of build-in-advance flats after we have cleared the current BTO backlog and so as not to divert resources away from that task, though planning for that should start early.
Before I end, I have some clarifications for Minister Desmond Lee on his Annex 9 which compares HPI in Singapore to several cities with very high house prices, such as London, Los Angeles and Sydney. Are the HPIs in these cities based on all home transactions including landed homes? Would the Minister have the HPI in those cities for apartments with the same average square footage as HDB flats in Singapore? That would be a more useful, apples-to-apples comparison.
Secondly, would the Minister also acknowledge that people living in London, LA and Sydney who cannot keep up with high house prices can move to cheaper suburbs or move to a smaller city or another state where house prices are lower whereas in Singapore people can only do that if they migrate?
Delivered in Parliament on 7 February 2023
 The Workers’ Party working paper on HDB resale prices, Pg 17