Of inflation rates and the cost of living crisis
Mr Speaker, I second the motion as filed by the Leader of the Opposition, Mr Pritam Singh. The discussion on the cost of living crisis which we are facing today, is not complete without a review on the state of inflation in this country.
Inflationary pressures could pick up
In its October Monetary Policy Statement, the MAS shared its expectations for CPI-All Items inflation to average around 5% in 2023, down from 6.1% the year before, and for the inflation rate to average between 3.0–4.0% in 2024. In recent months, we have seen inflation rates gradually slowing down over the course of the year. The decline in overall inflation rates is perhaps cold comfort for many Singaporeans, as prices are ultimately continuing to rise even amid the high prices we are seeing today, and that this is still significantly higher than what we have been used to in Singapore, double that of the 1-2% average inflation rates in the last four decades. Even if inflation rates return to lower levels, prices are now permanently higher. With crude prices rising meaningfully since the third quarter, potentially even hitting $150 as the World Bank warned, food commodities prices threatening to climb even higher if we witness a strong El Niño, and the second order effects on inflation potentially coming through, inflationary pressures could well pick up.
Significance of accommodation inflation, despite it being deemed ‘non-core’
Interestingly, the MAS expects core inflation to be lower than headline inflation at 2.5–3.5% for the year as a whole. Unlike many countries where core inflation is defined as that excluding food and energy costs, Singapore excludes accommodation and private road transport costs, which according to the MAS, and I quote, “are excluded as they tend to be significantly influenced by supply-side administrative policies and are volatile”, unquote. While I accept that the MAS Core Inflation measure is used for monetary policy deliberations, a person without knowledge of the technicalities will nonetheless find reports of a return to price stability as being different compared to their lived experience.
After all, the CPI is meant to be a fixed basket of goods and services commonly consumed by resident households. And looking at the relative weight of accommodation cost as part of Singapore’s CPI basket, it comes in at 21.97%, the highest single component.
Moreover, to say that accommodation costs have no direct impact on the monthly cash expenditure of most households in Singapore as they already own their homes, does not take away the fact that especially in a country like ours which prioritises home ownership, the cost of purchasing a home is a big concern, as it is going to be the single largest expenditure item for the vast majority of households. It is not just any expenditure item, but one that relates to our basic need of providing for shelter and our livelihoods.
As such, my speech today will primarily touch on housing, and as rightly pointed out by the MAS, is “significantly influenced by supply-side administrative policies”; hence we need to take a closer look at our supply-side policies to ensure prices are well managed.
Not too late to defer ill-timed GST rate hike
Before I touch on housing, back to the October Monetary Policy Statement, the MAS took pains to reiterate that excluding the impact of the increase in GST rates both in 2023 and 2024, inflation rates would be lower. The question then is, why add fuel to fire?
Layering on a higher GST rate on top of the inflationary environment we see today with the rising prices of many essential goods and services, is only going to make it even more difficult for Singaporeans to cope with the mounting cost of living pressures. Should we not be insulating our people instead of hitting them with more? This is especially the case where, as I shared in my speech in Parliament just last month, the Government’s fiscal position is shaping out to be much better than projected, with operating revenues now S$8.2 billion higher in the first half of the financial year.
To reiterate, in Budget 2022, DPM Lawrence Wong shared that the GST hike will bring in about 0.7 per cent of GDP in revenues annually, or about S$3.5 billion when the full hike is in place in 2024. Even with a one percentage point increase in the GST thus far, the Government expects GST revenues in FY2023 to be S$2.9 billion higher than FY2022.
In response to my speech, SMS Chee Hong Tat repeated the same response as that shared by DPM Lawrence Wong in the Budget 2023 round up speech, where according to them both, “deferring the GST increase will only store up more problems for the future, leaving us with less resources to take care of our growing fiscal needs and we cannot count on short-term upsides to fund structural needs”. Is deferring the GST hike in 2024, even for one year, when we have ALREADY achieved the revenue increase which the GST hike was meant to bring, going to store up more problems for the future?
Housing availability & affordability – still a challenge
Returning to the subject of my speech today, which is on housing costs. Based on the latest third quarter 2023 data, HDB resale prices continued its ascent, rising 1.3% from the last quarter, with the increase higher than the 1.2% Quarter-On-Quarter (QoQ) increase initially estimated for the quarter. This is despite additional cooling measures introduced more than a year ago in September 2022 involving tighter housing loan criteria, and a new wait-out period of 15 months for current and former owners of private residential property to buy a non-subsidised HDB resale flat.
HDB resale price increases have outpaced private residential prices
Compared to a year ago, public housing prices are now 6% higher vs. private housing prices which are ‘only’ 4% higher. In each year since 2020, public housing price increases have outpaced that of the private residential market, and cumulatively we have seen resale HDB prices up by 36% compared to private residential prices which are up by 28% since the start of 2020.
Moreover, it is not like what a BT columnist puts it, where he calls on Singaporeans to simply “stay cool and don’t go overboard chasing after million-dollar HDB flats”. While one may argue that the HDB resale market does not reflect the affordability of new BTO flats, ultimately, this will feed directly into the formula for pricing new BTO flats, as Minister Desmond Lee shared that and I quote, “when pricing new flats, HDB first establishes their market value by considering the prices of comparable resale flats nearby as well as the individual attributes of the flats, and prevailing market conditions.”
Similar trends across public and private rental markets
Looking at the residential rental market, Minister Desmond Lee is hopeful that in the coming quarters, rental pressures are expected to “further ease, as a significant number of residential units are completed”, as shared in response to a PQ in September where Member Henry Kwek asked what more can the Ministry do to moderate or reverse escalating rental cost to help tenants manage their cost of living.
I agree with the Member’s call and have in March this year also called on the Government to support Singaporeans intending to rent a house in the open market, and to consider mechanisms to moderate rents in the housing market.
But while rental growth rates have moderated, compared to a year ago, private residential rents are up by 19%, well above overall inflation rates, and up by close to 59% over the last three years. While the HDB does not publish a rental index, a comparison of median rentals across HDB towns paints a similar uncomfortable picture. Over the last three years, median rents for a 4-room HDB flat have risen by roughly 35-78%. Median rentals for a 4-room HDB flat in Sengkang for example, is now at $3,200 a month compared to less than $2,000 three years ago!
Rental market pressures impact Singaporeans too
While we may say that as a country with close to 90% home ownership rate, and those who need to rent form a minority, soaring rents impact young Singaporeans who have not been able to purchase a flat but need their own space, and households who may be particularly vulnerable given their tight financial circumstances, and yet do not qualify for a public rental flat as they may be earning a household income of more than $1,500 a month, for example.
I am cognisant that the HDB website has recently been updated to remove references to any income figure, and that “HDB takes a needs-based approach and reviews all requests for public rental holistically”. The ability to afford other housing options, such as renting from the open market or purchasing a flat remains debatable in my view. This is especially if households are currently renting in the open market, and cannot afford the high resale prices today. Even if some can eventually secure a BTO flat, they would need a place to call home in the interim.
Just last month, there were two separate residents who lamented to me that their landlord is raising their rent to beyond their gross household income, where in one case his rent is going up from $1,500 to $2,500 a month, beyond his gross income of $2,200 a month, while in another case, his rent is going up from $3,200 to $4,200 a month, and he cannot simply downgrade to a smaller flat due to his household size of eight. I have in January and March this year called for support measures for households in need, and these cases are just a small subset of many Singaporeans who face a similar predicament.
Insufficiency of current measures
Having described the challenges we are facing in the public housing market, I recognise that the Government agrees that there are issues relating to availability and affordability today. Where I believe our views differ however, is on the sufficiency of the current measures that have been taken.
On the supply of BTO flats
On housing availability, the Government has reiterated its position that it has significantly increased the supply of BTO flats, and will launch up to 100,000 new flats in total from 2021 to 2025. Similarly, I have over the course of a number of speeches, shared that this may not be sufficient.
Even if the HDB launches 100,000 flats in total from 2021 to 2025, this implies that BTO supply falls 20% from current levels to about 18,400 flats in 2024 and 2025. Moreover, while the average of 20,000 BTO flats between 2021 to 2025 is an increase compared to average of 17,000 flats between 2016-2020, this is still 13% below the average of 23,000 flats in 2011 to 2015, during the time when Mr Khaw Boon Wan was MND Minister and sought to address the backlog in HDB flats.
Moreover, while BTO application rates have in 2023 declined to about 3x thus far, it remains unclear if the 1.6x application rate seen in the October BTO exercise is sustainable, or just a result of the first-time introduction of certain specific rules.
On housing affordability
On housing affordability, in Budget 2023, the Government has increased the CPF Housing Grant for first-timer families, to enhance housing affordability in the resale market. As what a head of research at one of the real estate agencies pointed out then, such “beneficial effects could be short-lived as it could result in further price inflation”, as these could be “priced in” by the market.
In addition, with the new BTO classification system from second half 2024, ‘Plus’ flats will be priced with more subsidies, on top of the subsidies already provided for Standard flats today. Again, while the intention is to improve affordability, with the new classification applying only to new BTO launches and not to the existing stock of more than a million HDB units already in the market, the measures could potentially add further upside pressure to resale HDB prices in some of these ‘Plus’ and ‘Prime’ locations. As reported by the CNA last month, “prices for flats located near MRT stations or town centres are now higher by up to S$10,000 compared to before, according to industry insiders.”
On the lack of measures for the rental market
Moreover, there has not been any concrete policy proposals on addressing the needs of those needing to rent a flat in the open market.
In response to my PQ in January this year, Minister Desmond Lee shared that “providing subsidies or grants for renting flats in the open market is likely to induce demand and drive up market rents, which would compound rather than help solve matters. As such, we have no plans to provide such rental subsidies”. Isn’t this the exact approach that the Government is taking, when providing targeted subsidies to enhance affordability in the resale market? Why the double standards? Especially when it comes to vulnerable families who have not been able to obtain a public rental flat?
Increase in supply across flats for purchase and for rent required
What then should be done to address the issues of availability and affordability today? To put simply, if the fundamental demand supply imbalance we are seeing today is not sufficiently addressed, the market is simply doing what it’s supposed to do, with prices and rents continuing to appreciate while many Singaporeans are not able to address their housing needs. If the idea is not to crimp the real demand side of the equation since access to appropriate housing and shelter is a basic need for all, addressing these problems would then necessarily require adjustments to the supply side of the equation, for the market to find a more appropriate equilibrium point.
In other words, we need to increase the supply of HDB flats across both the for-purchase market, and also the neglected for-rent market.
Increase in supply for the for-purchase market
Rather than reduce the supply of BTO flats by close to 20% from 2024 onwards, we ought to ensure that we keep up with the current pace of launches, and this is only just about in line with the average of 23,000 flats launched from 2011 to 2015.
As I have shared in my MND COS speech, a local academic put it very succinctly, and I quote, “Having excess flats is actually a feature and not a bug. It just means that if some Singaporean want to get married and wants a new house straight away, there is a house available!”, and he goes on further to say, “To me, BTO is the real culprit behind our uncontrolled fire”.
Moreover, a lot of the demand from first time homebuyers in the resale market today is also a function of the long wait times for a new BTO flat. To take it one step further from ensuring adequate supply, we ought to also ensure that we strive to continue reducing the long waiting times for a BTO flat, and build a larger percentage of HDB flats ahead of demand, as I have shared in my MND COS speeches in the past years. After all, if we can build industrial facilities ahead of demand, can we not also build residential homes ahead of demand and have a fundamental rethink of the BTO system?
I do appreciate Minister Desmond Lee’s assurance that the HDB is planning to launch more Shorter Waiting Time flats, of around 2,000 to 3,000 flats per year by 2025. However, this is essentially at similar levels to the number of such flats launched in the last five years, ranging from 1,096 in 2018 to 2,850 in 2020.
Increase in supply for the rental market
In the rental market, it is alarming that while there continues to be a very limited stock of rental flats today, the pace of construction will be slowed drastically compared to before. As at FY2022, there were 63,681 rental flats under management, a net increase of about 541 flats in the five years since FY2018. This appears to be a noticeable slowdown compared to the average net increase of 1,640 units per year between 2011 and 2020. The pace of development of rental flats is expected to slow down even further, where there are only 900 public rental flats currently under construction and will be completed in the next five years. In other words, just about 180 flats per year. Why are we constructing new rental flats at a pace which is a mere 10% of that in the past decade?
To minimise the agonising wait for an allocation of a rental flat, and to alleviate the worries of many Singaporeans who have not been able to access a rental flat, it is imperative that we do not neglect the housing needs of vulnerable Singaporeans in our single-minded pursuit of home ownership as the only acceptable housing model for Singapore. And it is important for us to resume the pace of rental flat construction, to be at least on par with the net increase between 2011 and 2020.
Demand – that which has changed significantly
While the supply side solutions I have proposed to address the current predicament are not new per se, and various WP MPs including myself have repeatedly called for this during the housing motion debate and MND COS debates in recent years, what is worth highlighting is that demand appears to be much higher than what was previously expected; or at least what I had previously expected.
It appears that Singapore’s population grew at 5% to 5.92 million as of June 2023, the fastest growth rate since 2008. This could partly explain the tightness we are seeing in the housing market today, and while I am not privy to the Government’s desired population growth rate, if such growth rates persist, then we could have an even bigger problem down the line with housing supply set to taper off from 2024. Coupled with the steady decline in average household sizes, it now appears elevated levels of housing demand are likely to be more permanent, than transient, and we need to better prepare our housing market for this reality.
Lease decay concerns remain unanswered
Finally, as an adjacent point, even if we have successfully adjusted our policies to address the current cost of living crisis, addressing the issue of soaring public housing prices today does bring us to the next logical question – what will happen when we reset prices downward?
The lease decay issue continues to be the elephant in the room, and more than five years since the term VERS entered our lexicon in PM Lee’s NDR speech in 2018, many unanswered questions remain.
Even as we debate the issue of soaring housing prices today, we cannot be silent on the eventuality of the value of HDB flats reaching zero at the end of the 99-year lease, as this will simply mean that the higher the rise in prices today, the harder the fall eventually.
Conclusion
虽然近几个月通货膨胀率有所缓和，现时上，对许多国人来说，物价最终仍居高不下，继续上涨，而且目前的通胀率仍然远高于我们过去习惯的水平。
我重申，政府目前的财政状况正比预期的好很多。在这场生活成本危机中，当我们已经实现了消费税上调本应带来的收入增长时，那么推迟2024年消费税的上调，即使是一年，是否会如政府所说的，为未来带来更多问题？
针对公共住屋的问题，最新数据显示，截至2023年6月，新加坡人口增长了百分之五，达到592万，这是自2008年以来增长率最快的一年。去年注册结婚的新人也创下我国史上最高纪录。如果人口增长率持续下去，那么随着公共住房供应将从2024年起减少近百分之二十，我们可能会遇到更大的问题。
要有效的解决住房问题，就必需调整住屋供应量，以便市场可以找到一个更合适的平衡点。换句话说，我们需要增加预购组屋市场和被忽视的租房市场的公共住屋供应量。
议长先生，我希望政府能认真考虑我们提出的观点，以减轻国人的生活成本压力。