Housing: SMU Prof says SG better than other cities

Yesterday (3 Apr), ST published an article (‘Home prices and inequality: Singapore versus other global superstar cities’), summarizing a lecture delivered by Prof Celia Moh from SMU on 23 Mar.

She told the audience that the bottom half in Singapore actually now own a quarter of gross housing wealth. Singapore has a more equal distribution than in other cities with higher-than-average house price growth, she said.

At the conclusion of her lecture, Prof Moh said as a global superstar city as well as a nation state, Singapore has harnessed the “entire spectrum of land and housing policies to keep housing prices affordable”.

She showed that Singapore’s house price-to-income ratio of 5 is the lowest among the global superstar cities, with Hong Kong’s ratio at 17:

(ST Graphics)

(ST Graphics)

Singapore’s resident home ownership rate of 91 per cent is also an outlier, with Hong Kong, Paris and London relying on social rental housing to meet the housing needs of lower-income households, she said.

“New York City has a small public-housing sector but relies on rent vouchers as well as rent control regulation of nearly half of its private rental housing stock,” she added.

“Based on my estimates, the low inequality that has been achieved in the distribution of Singapore’s gross housing asset comes close to capital distribution in Piketty’s ‘ideal society’. The bottom 50 per cent owns one quarter of the gross housing wealth.”

(ST Graphics)

She estimated that the overall wealth distribution in Singapore would probably approximate the Scandinavian wealth distribution in the 1970s and 1980s.

Praising the government, Prof Moh said, “This aspect of housing achievement has been arrived at through astute political decisions, an effective and non-corrupt government, and the hard work of government agencies such as the HDB and Urban Redevelopment Authority.”

“In particular, I would like to conclude with a personal tribute to our founding Prime Minister, the late Mr Lee Kuan Yew, for his visionary leadership of Singapore during its first critical decades. We are all deeply saddened by his passing,” she added.

Khaw’s promise to bring Affordability Ratio of all HDB BTO flats down to 4

Prof Moh may be singing praises to the government for keeping Singapore’s house price-to-income ratio to 5, far lower than Hong Kong’s ratio of 17 but Prof Moh forgot that at ratio of 5, this is still 20% short of Minister’s Khaw target ratio of 4.

In fact, it was Mr Khaw himself who set this target and made the promise to all Singaporeans publicly in Parliament.

After he took over the job as National Development Minister from Mah Bow Tan, Mr Khaw told Parliament that more would be done to reduce HDB BTO flat prices relative to income, so as to reduce the financial burden of housing on the young [Link]:

Many are now clamoring for the HDB to return to basics and its original mission of helping Singaporeans own a basic home. But what does ‘returning to basics’ mean?

The primary mission of HDB to offer an affordable flat for the majority of Singaporeans will remain unchanged. Fortunately this is within our control as we set BTO prices and HDB is the largest housing developer.

We have stopped BTO prices from rising by delinking them from resale prices. We can now pause and see what else we can do to bring BTO prices in non-mature estates to, say, around 4 years of (annual) salary as it was before the current property cycle started.

One thing is clear. We are committed to restoring and maintaining the affordability of new HDB flats to the vast majority of first-timer Singaporean households. Their Singapore Dream of owning their own flats, like their parents’, is safe. We will make sure of that.

Note that Mr Khaw used the term “restoring” the affordability of new HDB BTO flats, which implies that in his predecessor’s time under Mah Bow Tan, the HDB BTO flats were unaffordable.

In the 70′s, a graduate’s starting pay was around $1,000 per month. Then, in Marine Parade HDB estate, the prices for a new 3-room, 4-room and 5-room flat were $17,000, $20,000 and $35,000 respectively. A young graduate with his wife not working, could easily afford a 5-room flat at a price-to-income ratio, also known as the Affordability Ratio (AR), of slightly under 3 (i.e. 3 years of annual income to match the price of the house). Even households earning $500 a month could easily afford a 3-room flat priced at $17,000 (AR under 3).

The World Bank considers a ratio of 5 or under as affordable for local residents, while the United Nations has set the bar lower, at 3 (see Link). In any case, anything above 5 is considered unaffordable by both the World Bank and the United Nations.

By 1990, the average price of a new 5-room flat was $70,000 and a young graduate earned about $2,000 a month. The AR then was still under 3, quite affordable.

Today, the situation has become worse for Singaporeans. Take the new BTO launch in Nov last year as an example [Link]. After taking into account of grants for first time buyers, even a new 4-room flat is not affordable to Singaporeans anymore.

Sengkang Anchovale Fields (non-mature estate)

Typical 4-room:

• Nett selling price less grants = $270,000
• Applicants’ median monthly household income = $4,200 (according to HDB data)
• Price to annual household income = 5.4 (more than 5, not affordable)

If we were to take a young graduate’s pay of about $3,000 these days, the ratio would be even worse at 7.5. The only way to afford a 4-room flat, in this case, would be to have both husband and wife working and earning a combined household income of $6,000. The price-to-income ratio would then come down to 3.75, below 5 but still more than 3.

Singaporeans compare now and before, not with other countries’ situations

Prof Moh would be mistaken if, by comparing Singapore with Hong Kong and other cities, Singaporeans would feel blessed and be consoled.

The truth of the matter is that one typically compares their current predicament with their past experiences. As such, many young Singaporeans as well as older ones feel that things are getting worse for them. Most Singaporeans couldn’t care less if they are better off than citizens of other countries or cities, cause they are not living there. They work and live in Singapore.

Not surprisingly, their anger with the government has translated into vote drop for the PAP government in the last GE.

To make matter worse, HDB BTOs at mature estates are priced much higher than those in non-mature estates. For example, a 4-room BTO flat in MacPherson is priced at $388,000 (less grants) [Link]. This is 44% higher than the price of Sengkang Anchovale Fields above.

HDB flat buyers generally prefer to stay close to their parents, who are typically already living in mature estates. Some parents have no choice but to help their children fork out a sum of their retirement money to help their children buy a HDB flat near theirs in mature estate.

Such phenomenon of parents helping children to buy their HDB flats is virtually unheard of in the 70s, 80s and 90s.

It is with such comparison of what happened in the olden days vs what’s happening now that is angering more Singaporeans. It doesn’t matter to most Singaporeans how we are much better than other countries or cities in terms of housing.

From $388,000

Ref:http://www.tremeritus.com/2015/04/04/housing-smu-prof-says-sg-better-than-other-cities/