Follow us on Telegram for the latest updates: https://t.me/mothershipsg

Feb. 7 saw Parliament rolling onwards, with the resumption of the public housing debate that started in the evening of Feb. 6.

PAP Member of Parliament (MP) Xie Yao Quan and Worker's Party (WP) MP Leon Perera both put forth proposals for taming house prices, increasing their accessibility, and tussled over a two-year-old party manifesto.

Xie Yao Quan (PAP)

During his Feb. 6 speech, Xie expressed his support for the motion put forth by the Minister of National Development, Desmond Lee. Xie mentioned that the top issues on Singaporeans' minds concerning housing are accessibility and affordability. Accessibility, he defined, as whether one can get a flat and get it fast. Affordability is whether one can pay for the flat.

Accessibility

Although Xie commended HDB's efforts to ramp up construction of BTO flats in 2022, he said more could be done to provide more flats with shorter wait times.

"Flats with shorter wait times should become an anchor product, a staple, in our future BTO inventory," Xie said.

To address the shorter wait times, Xie suggested that building more flats ahead of demand. Although this risks oversupply, Xie believes this is "well-manageable".

He clarified that his suggestion would not solve the current supply crunch but is meant to be a long-term solution.

Aside from shorter wait times, another aspect of accessibility in getting a BTO flat is the success rate. Xie feels the overall system is "doing well and producing outcomes, and we should give recognition when it is due".

According to HDB, virtually all first-time families who apply for BTO flats in non-mature estates succeed in securing a flat within three attempts.

He attributed the perception of the low chances in balloting to the concentration of applications in a small number of projects, while other applicants at "many other projects available" stand a good chance.

Affordability

Xie referred to the Workers' Party (WP) highlighting anxieties over the chances of a successful BTO application, especially in mature estates. He asked for the WP's position on this, and said that "there is no easy solution" for this issue.

"Would the Worker's Party be prepared or be minded to acknowledge this reality to Singaporeans?" Xie asked.

Xie said for the past two years, the WP said that Singaporeans' housing needs have become more diverse, so there should be more varied housing options, such as more rental options.

However, Xie said he has a "different outlook" where home ownership remains the dominant housing need and aspiration of Singaporeans, and other needs have become more diverse.

"How do we keep flats affordable, such that Singaporeans while owning their homes, also have enough to build and live the good life in other diverse areas and fulfil increasingly diverse needs?"

Suggestions to keep housing affordable

To keep housing affordable, Xie suggested a cap on BTO prices.

"I believe we should keep any 4-room BTO flat within reach of a Singaporean family at median income. In my mind, this means keeping the price of a 4-room BTO to five times of median income, or just under S$500,000 before grants," he said.

He also suggested expanding and extending the Prime Location Public Housing model, allowing the government to "flex" the additional subsidies applicable to various projects. "It is a bit like we now have S size and XL size subsidies. It is time to add the M size and L sizes in between," he said.

He also mentioned the Worker's Party's definition of public housing affordability outlined in their 2020 manifesto, where BTOs in non-mature estates should be pegged to household incomes.

According to his back-of-the-envelope calculations, this would come up to S$380,000. However, the average BTO in a non-mature estate is S$340,000.

"So it seems like our non-mature estate BTOs are affordable, by the Workers' Party own definition of affordability," he said.

At the end of his speech, Xie praised the system by calling it "a heck of a public housing system and a heck of a social compact with Singaporeans on housing that have produced a heck of a set of outcomes to date."

You can watch his full speech here.

Leon Perera (WP)

After the debate resumed on Feb. 7, WP MP Leon Perera spoke on what he saw as problems with HDB's current policies, and presented two proposals of his own.

Need to stop viewing HDB as an appreciating asset

Perera said that since BTO flats are in high demand, prices go up and so will the cost of resale flats.

He also referred to the lease decay issue, where resale prices will eventually hit a point where it starts to decline.

Perera said that it is time to "reboot" mindsets and start thinking of HDB flats as primarily a home to live in, instead of an asset whose value will rise.  

Reasons to stop seeing HDB as an appreciating asset 

"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?" Perera asked.

He pointed out that many elderly Singaporeans may not want to downgrade and instead prefer to stay in a familiar community. Downgrading also includes costs like agent's commission, renovation and moving.

Parents may also be unwilling to take up the Lease Buy-Back scheme, as they want to leave their flat to their children who may be subjected to higher property prices. Also, viewing HDB flats as an appreciating asset may discourage Singaporeans from pursuing other economic activities like entrepreneurship, retrain, innovate at work, or pursuing a degree.

Questions for the government 

Perera then poses four questions to the government.

1. Does the government see HDB as an appreciating asset?

Perera asked if the government thinks that HDB resale prices will keep "rising indefinitely."

“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?”

Perera finds this, on the face of it, contradictory, as some statements suggest that property prices may keep on rising even after 70 years, while DPM Lawrence Wong’s 2017 statement suggests that resale prices will eventually come down to zero due to lease decays. 

2. How does the government view HDB affordability?

Perera also asked how the government defines house affordability. He cited a commonly used housing affordability metric known as House Price to Income ratio (HPI), which divides the median house price by the median annual gross income.

He then cites a finding from Demographia, an organisation that publishes regular surveys on housing affordability. The finding perceives 5.1 as severely unaffordable and under 3 as affordable.

“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 six as affordable or HPI level of five as affordable?" Perera asked, adding that the government may not accept Demographic's classification, but clarify its stance on HPI.

Perera also responded to Xie's question from the previous night:

"At this point Sir, I note that the honourable member Mr Xie Yao Quan referred to our 2020 manifesto formula which calls for a maximum debt service ratio selling price for BTO flats in non-mature estates. This cap, to the debt service ratio, 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 to 3-room flats, that manifesto formulation. Mr Xie's example compares median 4-room BTO flats in non-mature estates to our maximum cap."

That is not an apples to apples comparison."

3. Why can't supply keep up with demand?

Perera then asked why the supply of BTOs can't keep up with demand, are oversubscribed, leading to greater demand for resale flats and price spikes.

He points out that the rate of new household formation, which equates to the demand for property, is tied to demographic data which does not drastically change.

"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 at times,” he said.

4. Does the government see a link between fertility rate and house prices?

Perera’s last question was on the link between housing and the total fertility rate (TFR), pointing out that housing is an important economic factor that directly affects a couple’s willingness to have children.

He suggests that low housing access and affordability could have an impact on couples' decision to have children.

Leon Perera's proposals

Perera then shares two proposals to improve accessibility and affordability for HDB housing. 

1. Selling BTO flats at 70-year leases, with the option to top up another 29 years

   • This allows BTO flats to be sold at a significantly cheaper price, making it possible for a shorter loan duration, suiting the plans of some buyers.

2. Build HDB flats ahead of demand

   • This reduces waiting time for BTO flats which can sometimes go up to four or five years.
   • These flats have no requirement to sell before construction begins, and if are unsold, the sale price will be reduced until there is market demand.

You can watch his full speech here.

The exchange between Perera and Xie

After Perera's speech, Xie thanked him for responding to his question and sought clarification on the WP's 2020 manifesto, which stated that selling prices in non-mature estates should be based on a 20-year mortgage, 10-year down payment and a monthly repayment of a maximum of 25 per cent of the median monthly household income.

Xie questioned whether this would apply to all flats, including five-room flats.

Perera clarified that the 25 per cent debt service ratio formula in the manifesto is a maximum cap. “It is not an expression of a target for the average,” Perera said. He added that the formula also has other elements that differ from a typical transaction, but it would apply to all flats, including five-room flats, and it is a maximum cap.

Xie responded and said that the formula in the manifesto was “offering a definition of affordability” by defining it as the median household income applied to all flat types, even for higher-income earners.

Perera then emphasised that the formula is the maximum cap and not an expression of what the average should be targeted at. It also has other elements, like additional subsidies for 2 to 3-room flats. He asked what point Xie was trying to make.

Xie said that based on the WP manifesto, pegging the 5-room flat to median income, which means that the cost of a five-room for higher-income Singaporeans “must come down” and “must be funded in some way”.

“I would like to ask Mr Perera just how exactly does he suggest funding this because it must mean that the price of a five-room flat must come down to a median income level," Xie asked.

In reply, Perera emphasised that the formula was a cap for 5-room flats that comes about by capping the debt service ratio at 25 per cent. On funding, Perera said that if he listened to the proposals the WP MPs made in this debate in “totality”, WP have addressed this issue. Perera cited an example of a different approach to land valuation.

“We have got proposals that address how these things are going to be funded,” Perera said.

The exchange continued for several minutes before it was ended by Speaker Tan Chuan Jin.

You can watch the full exchange at this link.

Top image via MCI/YouTube