Well done SDP for your housing policy plan!

The SDP has released its 38-page housing policy proposal “Housing A Nation”, and they have certainly outdone themselves this time. SDP has proposed the creation of a new category of HDB flats known as “Non-Open Market”, and these flats would be priced without land costs. This creates significant savings for home-buyers, but since buyers can no longer use price to outbid competitors, the trade-off is that all NOM flats must be bought via balloting and can only be sold back to HDB.

This is a good policy idea. I normally espouse a free market approach for most goods and services, but housing in Singapore is where I believe the market should be extensively curbed. Homes in Singapore will naturally be expensive compared to other countries due to land scarcity. But expensive homes come at a cost to society, as high mortgage debt contributes to families having less kids and adults taking on less entrepreneurial risk.

Part of the reason why housing costs are high in Singapore is because the Government insists that land must be sold at market price for housing purposes. As HDB buys land at prices similar to prices paid by private housing developers, land can make up about $400/psf of a home’s cost today. The Government’s rationale for pricing land for homes in this fashion was mentioned by Mah Bow Tan in his infamous statement that “lowering state land prices is like raiding reserves”.

However, MBT’s logic misses a few points:

  1. The reserves are not being reduced when residential land is sold for free. Instead, it is the rate of growth of our reserves that will be slowed as a result.
  2. When residential land is being sold for free, this is effectively a subsidy from our past reserves to the people. This isn’t a new concept, because such subsidies are already in place today. Investment returns from our reserves are being used in our current budget. Hence, one could say that we are already raiding our reserves today.
  3. Our reserves also grow when excess tax revenue is set aside as past reserves. Tax revenue comes from the people, so we can sustain some of our reserve growth if we can increase the people’s collective revenue by giving them cheaper homes (e.g. resulting in more local kids growing into adults, and through greater entrepreneurship).

High home prices bring some benefits to Singaporeans who use their home values as a hedge against inflation. However, this kind of hedging, when practiced throughout society, eventually makes home prices too high for young buyers. I personally view that the PAP’s asset enhancement policy, whilst well-meaning, has been a mistake. The marketplace offers many financial instruments as a hedge against inflation. There is no need to institutionally turn homes into a hedge against inflation.

If SDP’s proposal is to be implemented, then it must ensure that existing homeowners do not find their home prices plummeting once the policy is introduced, as the retirement prospects of many Singaporeans is locked in brick and mortar. Another impressive aspect of SDP’s proposal is to make NOM a voluntary policy. Existing homeowners can choose to declare their homes as NOM, thus pocketing between a quarter to half-a-million. Or they can choose to remain as “open market” homes, and hope that the marketplace of buyers would be willing to pay a good price for their homes. However, one key uncertainty in SDP’s proposal is the effect that NOM housing would have on the price of OM housing. If OM house pricing is overly depressed, then this policy will result in many losers and thus becomes untenable. Perhaps a temporary pricing guarantee from govt is needed to sustain OM home pricing?

One criticism about SDP’s proposal so far is that “it is really a rental scheme”. Yes it is. But we should ask ourselves what is wrong with that? The perception is that paying rent is an expense that chips away at our income. But this ignores the fact that interest payments on our mortgage also chips away at our income. Furthermore, if the cost of rental is sufficiently low, then a lot of cash is freed-up and can be used for other investments.

SDP’s proposal is well thought-out and should be seriously considered by the PAP. However, I believe that the nature of politics means that the PAP is unlikely to want to adopt any idea created by an opposition party, for fear that it is a sign of weakness. It will be a sad day for Singapore if good ideas are discarded because of politics.

SDP’s proposal should also send a clear message to other opposition parties like WP, NSP SPP, and RP that they need to pull up their collective socks. SDP has launched shadow budgets and two major policy papers on healthcare and housing. The other parties have been mostly silent on policy proposals thus far, which clearly shows that they are not ready to form an alternative government.


About sgthinker

I'm a 40-year old Singaporean male, and this blog pens down my thoughts and feelings about Singapore's political happenings, government policies and society trends. I hope this blog will provide a moderate voice in the growing online debate about the state of Singapore's society. Some of the posts here won't be solely written by me, since there will be times when other writers are more eloquent at expressing their views, in which case I'll share their insights (along with my comments). The content on this blog is owned by me.If you wish to share or reproduce the content, please attribute it to this blog.
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14 Responses to Well done SDP for your housing policy plan!

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  5. Alan says:

    I agree that for public housing especially for those smaller 2/3 room HDB flats, land costs @ market value should not be factored in the selling prices. Otherwise it can be viewed as mere profiteering, similar as if they are selling the land just like private developers.

    Remember our PAP Govt has already robbed CPF members their rightful returns by reaping the differential earnings from the investment of cheap CPF Funds and it would be reasonably expected that these earnings be used to provide affordable housing for citizens, and should therefore not be added to increase our reserves indefinitely.

    Now it seems our PAP Ministers are scheming to suck every available drop of blood from every citizen to the extent that none will be left for any public donation, am I correct?

  6. Ucontrolfreak says:

    You don’t respect other voices(good or bad, people has a right to daytime piece) how can you talk politics, hypocrite.

    Go and die because it is people like you that makes this place hell

    And please stop your garbage because you are not worth listening to. And remember, die soon ok you control freak!

  7. Tan Ah Kow says:

    On your point that “homes in Singapore will naturally be expensive compared to other countries due to land scarcity”. Whilst there is some truth to that statement, the scarcity of land is only part of the contributing factor to the cost of housing. There is also another component (one of many) to the supply side factor that is contributing to the cost and that is the supply of money.

    Think of it this way, if every buyer, in a hypothetical world, has only say $1 in their entire asset to spend on a house than clearly, it would not be possible for any house to be sold at more than $1. Even in a hypothetical land scarce place, where there is a population of 10 and only 1 house can be built, if all 10 people only have $1 to spend, that 1 house would not cost more than $1 because no one can outbid each other despite the scarcity of supply — i.e. the house. No matter how much the supplier of the house — let’s say the government — try to justify “market rate” of land, if all that buyer can afford and able to pay, that will be the price of house.

    Of course, in reality the equation is not so simple but hopefully you get my drift about the supply of money as another dimension in the contributing factor to the price of housing. In the Singapore context, the question is this? Where is the money coming from to jack up all these prices?

    If HDB houses are only restricted to Singaporean and PR, and at the same time wages are not going up, how do these people get money to outbid each other to jack up the prices of houses? Could it be that our interest rate is too low?

    Just musing as I don’t have any answer really.

    • sgthinker says:

      Nowadays, there is a lot of money in the system and this is due to the QE measures initiated by the US Govt. All that money is depressing interest rates world-wide, so there’s little any elected Singapore govt can do about it. This money also wants to find safe havens for investment, and SG’s property market is a prime target.

      There are a lot of rich locals and foreigners in Singapore, and they can be ridiculously rich. Minister Shanmugam recently disclosed in his interview that when he became a minister, his pay cut was so drastic that his new pay was equal to what he used to pay in taxes. So if a minister is being paid $1 million per year, a top lawyer would be able to earn $5 million per year.

      • Tan Ah Kow says:

        How does so called QE money get into HDB properties in the first place? Isn’t HDB restricted to Singaporean and PRs only? So how does Singaporeans and PR get their hand on these QE money? Are Singaporeans and PRs acting as proxy buyers for foreigners?

        If QE money is indeed propping up HDB prices, then isn’t that a worrying trend? What if QE stop, won’t it cause supply of money to stop and property crash?

      • sgthinker says:

        Those rules on HDB ownership restrictions were only put up about a year ago, whereas QE and the world of easy credit existed way before that. The super-low interest rates combine with typical earnings to enable some people to buy HDB flats even when COVs are astronomical.
        As for what happens when QE ends… who knows? Maybe the damage has already been permanently done.

  8. SecondGuest says:

    The good thing about SDP near sighted vision is that their proposal, if implemented, will provide short term jubilation for first time homeowners but only for the economy to breakdown later and the entire country collapses – the latter in the worst case scenario.

    • Sgcynic says:

      Wow, what a well-supported rebuttal to SDP’s policy. I’m sure everyone is convinced by the concise argument. Totally in linr with past PAP rebuttals. The PAP couldn’t have have up with a more succinct argument.

  9. Pingback: Daily SG: 6 Nov 2012 | The Singapore Daily

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