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:
- 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.
- 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.
- 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.