Tuesday, November 16, 2010

HDB 50 Years: From Affordable to Struggle

Note: This is the article which I wrote that Minister Mah Bow Tan is trying to "rebut" in his weekly column in Today newspapers. This article first appear on NSP newspaper, North Star, which we have sold thousands and thousands in various parts of Singapore.

Goh Meng Seng

HDB is celebrating its 50 years of existence recently and has started a round island exhibition of its past achievements. It has even come up with a two part TV series on Channel News Asia to glorify its past achievement. For the first 20 years or so, from 1960 to 1980, HDB has done a relatively impressive job of providing cheap public housing for the majority of Singaporeans.

However, we must recognize the fact that without the Land Acquisition Act that empowered the PAP government to acquire land from many small and medium land owners at dirt cheap prices, it would not be possible for HDB to redistribute these lands in terms of cheap public housing to the masses. Without the sacrifices made by all these land owners, the PAP government would not be able to acquire up to 80% of land in Singapore at an unimaginably low prices.

Thus, it would not be complete to talk about HDB’s achievement of housing more than 80% of Singaporeans without looking at the power given to the government via the Land Acquisition Act as well as the enormous sacrifices made by many land owners in the past. The Land Acquisition Act and HDB are the pillars of the socialist land reform tool that is aimed solve the problem of inadequate housing for the masses. The government has the privilege and power to forcefully acquire land from many land owners at dirt cheap prices but it also has the social obligation to redistribute these lands to the masses via HDB by providing cheap public housing.

The enormous amount of past PAP’s political capital is derived from the success of such land reform effort to provide cheap public housing at REAL SUBSIDIZED prices to the masses. When the late Minister Teh Cheang Wan (who has committed suicide after corruption probe) tried to explain about affordability of the new increased prices of HDB in a news article published in Straits Time 1981, he has put up an impressive chart of the breakdowns of costing for the various HDB flats. The costing includes construction and land costs. The selling prices were based on these costing in which different amount of REAL COST SUBSIDIES were given. Most of the time, the subsidies stated were more than the land cost stated.

It is almost impossible for us to know the present costing of any HDB flats built in modern days, least REAL COST SUBSIDIES if any. The pricing mechanism of HDB’s new flats has been changed drastically, from cost based pricing to resale market based pricing. HDB claims that it is giving “MARKET SUBSIDIES” when it prices the new HDB flats at a discount from the resale market prices. I guess I could also tell my customers that they are getting “MARKET SUBSIDIES” from me when I give them some discount on the products they buy from me, this is in spite of the fact that I am still earning a profit from the sales.

If the prices of new HDB flats are based on the resale market prices, wouldn’t it be in the interests of HDB and the PAP government that the prices in resale market to be kept high so that they could sell their new HDB flats at higher prices?

This pricing mechanism is flawed. On the surface, it is supposedly based on “market forces” but could such market force price the flats in accordance to the general affordability of the people? The answer is obviously no. Such pricing mechanism will only capture the availability of liquidity and demand that is created by population growth. It cannot represent the actual “affordability” as it could not reflect real income growth as well as general inflation rate.

In recent years, the prices of the HDB resale market are heavily influenced by:
1. The increase in demand caused by the influx of foreign migrants who became Permanent Residents (PRs).
2. The excess liquidity that brought in by these PRs.
3. The shortage of new HDB flats due to HDB’s inability to forecast accurately the demand of housing
due to the rapid population growth.

All these factors have nothing to do with the real income growth and affordability of Singaporeans. In fact, it is not difficult to realize that over time, HDB prices have outstripped income growth in the past decades.

During my father’s generation, a family with only one income could possibly pay off its HDB mortgage loan within 10 years. For my generation, we could only pay off our HDB mortgage loans with two incomes of husband and wife. For our present and next generation, they could only afford their new HDB flat with a 30 years mortgage paid by two income earners! It is very obvious from this general observation that HDB prices have outstripped our wages at least by two times.

Minister Mah Bow Tan whose Ministry in charge of HDB has tried very hard to prove the affordability of HDB by using all sorts of statistics. It has used an inherently bias Median Household Income of HDB flat applicants as well as statistical data comparison between income growth and HDB resale price growth for the period of 1999 to 2009. This comparison is totally inadequate. We should look at the comparison of income versus HDB resale prices for the period of 1990 till 2009 instead. This is the most appropriate comparison because the PAP government started its “Asset Enhancement Scheme” in early 1990s.

Although the data is incomplete due to the lack of data for the period from 1991 to 1994, but it is very obvious to us that the HDB Resale Price Index has outstripped Median Household Income growth by 200%. I shall also quote the analysis from Lucky Tan’s blog:
1. From 1990 to 2009, RPI rose to 442 (442% of the base year) but household income rose only to 211 (211% of the base year) i.e. income rose at roughly half the rate property rose over a 20 year period. The RPI was only 34.1 in 1990, today it is 154 i.e. a HDB flat today is 4.5 times the price 20 years ago but household income is only 2.1 times.

2. You will notice the big jump from 1990 to 1995 when the RPI rose from 34.1 to 101.9. That jump occurred just after CPF was liberalised for housing in 1991. During that period household income only went up by 36% but HDB price almost tripled. CPF basically went from funding retirement to funding
home purchases.

The conclusion is very obvious. Due to the fact that HDB prices have outstripped income growth for the past 20 years, it is inevitable that we will be shortage of funds for retirement since almost all of our CPF funds are being used to pay the 30 years mortgage for our flats.

Minister Mah Bow Tan and PAP leaders have not denied the fact that with the present HDB prices which need a 30 years mortgage payment, Singaporeans would have shortage of retirement funds in CPF. CPF would have failed its mission in providing savings for comfortable retirement of most Singaporeans. In fact, Minister Mah has suggested a way out of this situation: Monetize your HDB flats to finance your retirement. It is a very nice sounding way of saying you need to sell off your flats for your retirement!

It is really a cruel suggestion to all hard working Singaporeans who have worked so hard for more than 30 years of their life to sell their flats and lower their quality of live for their retirement just because the cheapest HDB housing in town during their time has sucked up almost all of their CPF contributions which left little for their retirement.

HDB has started out as a good socialist tool for land reform and redistribution. However it seems that half way down the road, it has totally diverted from its original humble but important objective of providing cheap public housing.

It has developed into a monster that overpriced basic housing which results in it cannibalizing on Singaporeans’ retirement funds. If we do not stop the PAP government’s Minister Mah from perpetuating this policy direction of high HDB prices, we would be supporting his plan to get Singaporeans to sell off their HDB flats for retirement in future!
Is this some big achievement for HDB to brag about for its 50 years existence?


Anonymous said...

Nice article n well thought points.

Anonymous said...

Yes, I feel also feel that the priority of a publically-funded housing department should be to house everyone adequately, and not to prioritise profits.

It is easy to criticise HDB for overpricing, but what solutions can you provide? When you come into power, will you price new HDB flats according to costs? And if you do, what will you do if the public-housing market takes a plunge? So many HDB-families rely on re-selling their HDB flats in times of need (eg. education, illness, retirement etc); what will you say to these people as they watch the resale prices fall significantly?

It would be great to hear what a person like you would do if you get to be in charge.

Anonymous said...

It is exactly due to the perpetuation of a bad policy that the govt is caught with no easy solution to this problem. The govt must first own up to this problem and then resolve to solve it. Any solution will be hard, take years to unwind and will cost lots of money. It will be futile and unlikely for any one outside the govt to find a viable solution. It is too premature and unfair to expect anyone who feedback on this huge problem to also come out with a solution which requires intensive research and soul searching first. That's the responsibility of the govt given its first-rate talent pool of policy makers. The govt prides itself with its home ownership program now. In the future with an increasingly ageing population, Singapore will suffer an infamy of home dis-ownership.

Anonymous said...

I think the point of 9:34am is to put 'opposition' politicians on the spot: it is very easy to criticise where the govt has gone wrong, but as aspiring ruling-party politicians, they should come up with viable solutions to problems, no matter who created those in the first place.

Yes, S'pore is crowded, it's expensive, it's cold towards the poor and defenseless; but what will a new ruling party do to correct these issues? I've read opposition parties saying that they'll cut GST, cut ERP, cut military spendings, increase medical subsidies, increase housing subsidies...etc. But where is all the money going to come from if the govt govt collects less revenue? Dip into the reserves? If that is a solution, when will we STOP dipping into the reserves? And then where will all the increase spendings be funded?

Opposition politicians are not ordinary citizens who simply complain about the ruling govt. The former are people who should provide us with a glimpse of all the good that will happen IF and WHEN they topple the ruling party.

Anonymous said...

George says:
I disagree that one cannot raise criticism simply because one does not have a solution.

To the posters who said this, I would pose these question for their answers:
1. Who is responsible for creating the problem in the first place?

2. Is there ever a voice given by the govt to people like the writer all along? If not for the INTERNET and new media, I doubt very very much that Mr Goh would have been allowed space in the govt controlled MSM to voice his concern - this I absolutely and firmly believe is the case. In fact, it is still happening now.

3. The recent monstrous losses incurred by the govt of OUR NATIONAL RESERVES exposes just how much the govt has accumulated at the cost of Singaporeans. If the govt had remained focused on its primary objectives of uplifting the lives of Singaporeans in all vital aspects, including housing, the present situation is unlikely to have risen. our national reserves wouldn't have been so big with so much to 'give' away to crooked global financial and investment houses (there can be no other way to describe these scoundrels) who are aided by the greed of the Singapore govt. THAT GREED IS STILL VERY MUCH IN EVIDENCE NOW.

4. Even if the opposition have no solutions at this point they are not to blame. How could they when they are outsiders who are deprived of the very data and info nec to evaluate the situation properly? By the same token why are you (the pro-pappys) so certain that they have no solutions? For that matter, must the solutions be along lines of the govt? Why should their obviously FAILED polices and philosophies be used as guides to determine/decide outcomes and solutions? There is certainly more than one way to skin a cat. If the opposition is expected to clear the shit created by the govt, then they are ENTITLED to do it their way. Does it make any sense for a govt who has failed in its first duty to look after Singaporeans, to make any demands on how others should approach a solution?

I am indignant because of those who pose smart alec questions but in really are empty vessels with vested personal interest. IMO your self serving words expose your betrayal of Singaporeans for the sake of your party interest.

sgcynic said...


Anonymous said...

I never said that a person cannot criticise if he has no solutions to the problems. What I said is that opposition politicians should (1) not only point out problems, but also (2) have the ability to suggest viable solutions.

So far, I've heard many opposition politicians point out the shortcomings of the current govt (many of which i agree are in need of review), but I've not heard many who are able to suggest workable solutions. For example, many point out that inflation is killing many poorer families, but how many opposition politicians can suggest viable ways to lower inflation?

Let's not forget that talk is cheap. We need people who can put the money where their mouth is.

Anonymous said...

All of you to understand that the power lies in the bottom 30% of the digital divide, the elite and the beholden takes 1/3 will vote PAP, the disgruntled like you 1/3 and the fight is in the hearts and minds of the clueless bottom 1/3 of the digital divide. Like the Gutenberg printing press which destroyed the Monarchy in Europe by convincing the farmers and serfs to change their minds, all of you should instead of complaining, use some rubber gloves and print out 100 copies and distribute at the bus-stops every day. Soon this is float back via their RC net work and they will have to come up with better ideas.

Ed said...

I agree that the role of HDB should be carefully re-examined. What are the objectives of HDB in modern Singapore? How do they compare with public housing bodies in other countries.

My views are as follow:

1) I don't know of any developed country in the world where the government provides housing to more than 80% of the population. Generally, the government provides public housing to the bottom 20-30% of the population while private developers handle the rest. And a good reason for that: market forces are generally better at determining demand and supply dynamics than a government agency.

2) HDB is effectively a monopoly in 80% of the housing market, effectively covering the lower, middle-lower, and mid-tier housing market. There is no competition and home owners have less of a choice.

3) The conundrum is that the private sector only gets a small amount of land for residential purposes, with the bulk going to HDB. As such, private developers focus exclusively on building high-end properties because the margins are the best. Add to the small supply, private property prices are easily pushed up when demand grows. Because HDB prices are pegged to the market which a) follows the top-end segment, and b) is inefficient to begin with; there is an argument that HDB prices, and thus the Singapore property market as a whole, is not reflective of the actual demand and supply situation.

4) I believe more transparency is needed, more competition is needed in the property market, especially in the mid-tier. This can be achieved by reducing the percentage of housing provided by HDB from 80% to say 30-40%. I fully appreciate that this cannot be done overnight but possibly over a 10-year period. For example, HDB can start by first stopping all buildouts of EC / 5-room flat market, and the land can instead be released to private developers. Later on, the 4-room flat market will be open to private developers as well.

5) It does not mean that with more land released to private developers, prices will automatically fall. What it does mean is that at least for the 60-70% of the housing market, the demand and supply situation could be better addressed and we will likely have more realistic prices in the market for mid-tier homes.

6) Assuming that this is a viable solution (the above is open to criticism, of course), the complication is that HDB is a polticised entity, and HDB helps the PAP government have more control over 80% of the population by being the only home provider to this market. Reducing the effectiveness of HDB will no doubt reduce the influence of PAP as well in the HDB heartlands. In my opinion, that is the bigger challenge.

Anonymous said...

HDB is perhaps one of the more notable political structures built by PAP (alongside GRCs, and pegging of Ministers' pay to private sector etc). For most S'poreans, their HDB flat is their largest store of wealth. So despite all of our grouses over policies that don't work, not many would want to vote in a new govt for fear of crumbling HDB prices that would erode their store of wealth.

Anonymous said...

I would like to see BTO prices selling at near cost price. How will this affect the resale market if only certain breed of people can buy BTO? Unless you are first-timer, the other categories of people should not be able to buy BTOs easily. Our fathers bought BTOs at real cheap prices compared to now. As quoted from the writer, they would have earn 4-5 folds their money.

Yes, HDB is building ALOT of BTOs now... But the kind of price tag is beyond MANY! Why open to PRs in the first place? If income ceiling for HDB is going to adjust upwards, does that mean that more and more of our public housing is going to foreigners? Oppositions at this point of time do not have to give solid and detailed solutions to our current problems. They have limited information.

We need to think of who created these problems at the start and what have they done so far.