Monday, March 18, 2013

Pondering next phase of public housing

Mar 18, 2013

AS SOARING property prices prompt soul-searching questions about public housing policies, care should be taken to avoid the pitfalls accompanying some of the suggestions thrown up.

Foremost is the risk posed in fundamentally altering the value equation when an HDB flat represents both a home and an asset. A back-to-basics approach might appeal to those seeking dramatically lower prices for first-time buyers. But today's buyers are far removed from the homeless squatters of the 1960s. Like existing home owners, they see a flat as an investment too. Any policy changes, therefore, must necessarily bear in mind asset values as well, especially when there is a huge stock of 900,000 HDB flats already in the hands of owners, providing them financial security for various needs.

When the HDB's key mission of building affordable homes has to go hand in hand with such broader considerations, a variety of fresh ideas deserves to be explored. Those floated by National Development Minister Khaw Boon Wan recently are lower-priced Build-To- Order flats with a longer minimum occupation period before these can be sold on the open market, a shorter lease to match cheaper prices, and the separation of new flats from others by allowing resale only to the HDB. Other means of lowering prices could be to increase grants to first-timers or to take land costs out of prices and recover this when the flat is resold. Like cooling measures, any policy tweak is likely to impact stakeholders in one way or another and not please everyone.

While market peaks are cheered by owners, no dip is low enough to satisfy first-time buyers. Ramping up supply can help address the latter's immediate housing needs but any consequent oversupply could dampen resale prices. Accentuating the tension are the opposing views of those who see housing as a crucial social need and others who caution against overspending on public housing, thereby tying up funds which might be better invested elsewhere, from a macroeconomic perspective.

One reality that should guide expectations is the ineluctable limit to asset appreciation in the housing sector. Assuming ever-higher values hither and yon poses considerable risks as an era of slower growth is upon the nation. Thus, it would be prudent for all to be prepared for moderate price gains tied more closely to the rise in wages and inflation than to look for big windfalls like those realised by HDB owners who had cashed out earlier.

[It may be that in about 5 years time, the housing market would collapse from a ageing population unable to upgrade, an excess of flats coming onstream, and demand falling because of a weaker economy. ]

Rebalancing the system will not be easy, given the divergent interests. Hence, it would be useful for the interlinking issues to be debated thoroughly during the next phase of Our Singapore Conversation.

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