These structural changes suggest that a new paradigm in public housing is needed. The new paradigm for public housing should include the following features. First and foremost, the HDB should once again embrace affordable housing for the majority of Singaporeans as its primary mission. While improvements in the design of HDB flats are desirable, they should not come at the expense of affordability. To ensure affordability, the government should strive to keep the house affordability index (which is the ratio of house price to the buyer’s annual income) well below four, preferably around three. A new four-room HDB flat in Pasir Ris is priced at about $300,000. This is five times the median household’s annual income of $60,000, well above what financial advisers consider prudent. Such flats should be priced closer to $200,000. In a similar vein, entry-level three-room flats should be affordable for the 21st-30th percentile of households with annual incomes of around $40,000. This suggests a new flat price of around $120,000, which was the price of such flats about a decade ago. Given the real possibility of slow median wage growth relative to house prices, the first order of business for HDB should be to restore and sustain the affordability of housing for the majority of citizens. Second, to manage property prices more generally, the government should consider setting itself a general house price inflation target. This target should comprise of inflation targets for public housing and inflation targets for private housing. The HDB flat inflation target could, for instance, be set at levels consistent with (expected) median wage growth. Above this inflation target, the government should have to explain why it exceeded the target. Compared to other markets, the housing market is particularly prone to speculative booms and bust. This makes it even more critical for the government to take proactive steps to prevent house prices from rising excessively, and to pre-empt housing bubbles from developing. With general inflation, it may not be realistic for the Singapore government to adopt inflation targets as we import almost all our goods (and many of our services) and therefore have little control over externally-induced price increases, other than through appreciation of the exchange rate. With home prices however, it is quite reasonable for the Singapore government to consider adopting inflation targets. Not only is the government the biggest landlord by far, it also has a number of microeconomic and regulatory tools at its disposal to affect the rate at which home prices are increasing. Third, public housing policy needs to be rethought in the context of demographic and economic changes. When the population was young and incomes were rising across the board, public housing was an efficient and incentive-compatible way of spreading the fruits of economic growth. It was also a good way of helping Singaporeans achieve social mobility and build up their assets for retirement. The rapid ageing of the population also suggests that focus of government policy has to shift from enabling asset accumulation to helping Singaporeans unlock and monetise their housing assets. At the same time, slower income growth and relative wage stagnation for a sizeable segment of our workforce highlight the need for more social transfers. No longer can public housing serve as the de facto instrument of income redistribution. To deal with these demographic changes, the government needs to ensure an affordable rental market for low-income households and provide well-designed reverse mortgage and lease buyback schemes. This is critical in ensuring that the old and the poor are not marginalised and excluded socially. Finally, fostering a strong sense of community in our HDB estates would also help to ameliorate the sense of inequity and exclusion often seen in unequal societies.
Posted on: Sun, 30 Nov 2014 12:05:27 +0000
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