Thursday, January 8, 2015

On Housing, Pricing

Singapore 'must get creative' on housing, income inequality: Ho Kwon Ping

In his lecture, S R Nathan Fellow Ho Kwon Ping said creative solutions will be needed as the nation deals with the biggest "known unknown" in the next 50 years: disruptive technological change.

Nov 13, 2014

By Fiona Chan

Housing affordability and income inequality are two challenges facing Singapore's economy in the next 50 years, businessman Ho Kwon Ping said yesterday.

In a lecture that examined how the nation's economic strategy would need to evolve in the coming decades, Mr Ho offered some radical solutions for these bread- and-butter issues that have become political hot potatoes.

To keep home prices within the reach of Singaporeans, he proposed setting "sale price caps" for all new homes and doing away with the distinction between public and private housing.

The price caps would be decided by a redefined Housing Board, which would have given up its role as a developer and become a "national housing price regulator", said Mr Ho, in the second of five Institute of Policy Studies- Nathan lectures that he is giving on Singapore's public policy.

[That way lies communism. Oh wait. In the 70s, he was accused of being a communist or communist sympathiser?]

After setting the sale prices for homes on a land parcel, the HDB would auction the plot to private developers to build the homes.

This move would ensure housing affordability by allowing home prices to be directly pegged to the economy's health and income growth, said Mr Ho, who is also executive chairman of hospitality group Banyan Tree Holdings.

"We already have price regulation through HDB unilaterally setting the price of entry-level flats," he noted.

Extending this to private homes would improve the current system, in which the prices of public housing - where 85 per cent of Singaporeans live - are influenced by private home prices which, in turn, are determined to some extent by foreign demand, he said.

[The reason for rising home prices is very simply too much cash chasing too few goods. A classic inflationary tale. And the too much cash comes from... CPF. And people treat CPF savings as "coupon" money. It can ONLY be used to buy property so there is no opportunity costs in buying property with CPF money... as far as they are concerned. ]

Mr Ho's proposal drew several questions from the 250 people at last night's lecture, with some questioning how it would dovetail with housing subsidies and whether the proposal was similar to the now-defunct Design, Build and Sell Scheme (DBSS). Mr Ho responded that the subsidies would be built into the HDB's price caps, and the proposal differed from DBSS as the HDB would not be selling the flats itself.

As for tackling income inequality, the erstwhile journalist and dissident had two proposals.

One was to give graduates of vocational and technical schools more industry experience and apprenticeships so that they can command similar starting salaries to those of university graduates.

The other was to set up a "more innovative immigration programme" to raise the quality of foreign workers here, many of whom are cheap and unskilled and depress salaries at the low end.

This could be done by converting the current "punitive" foreign worker levy into deferred savings, which can be withdrawn by the worker when he leaves Singapore.

[This would make Singapore even more attractive to foreign workers as this means that their wages are de facto higher. Was this this point?]

This Central Provident Fund- like savings account would raise foreign workers' overall pay and attract higher-skilled talent, Mr Ho said. It would also help ensure good behaviour among these workers while they are in Singapore.

"The two-year 'use and discard' approach to foreign workers, besides being less than humane, is just simply bad economics," he added. It would be "far more productive" to invest in training foreign workers, giving them the incentive of a longer work residency here and top-ups to their savings accounts.

[Agree. our current approach is wasteful, unproductive, and most of all inhumane.]

Such creative solutions to Singapore's land and labour issues, as well as to the problem of more competition from other global cities, will be needed as the nation deals with the biggest "known unknown" in the next 50 years: disruptive technological change, said Mr Ho.

His lecture yesterday, held at the National University of Singapore, followed his first talk last month on politics and governance in Singapore in the next 50 years.

He will give three more lectures - on demography and family, society and identity, and arts, culture and media - in his capacity as the first S R Nathan Fellow.

Rethink house price policies

NOV 17, 2014


POLICYMAKERS need to consider the relationship between home ownership and asset appreciation.

As the majority of Singaporeans became home owners, policymakers may have conflated the goal of home ownership with that of asset appreciation. This is mostly misguided. While house price inflation provides a boost to consumption because of the wealth effect, this benefit has to be weighed against its costs.

Not only do rising house prices cause anxiety for new households looking for a home, but they also have socially corrosive effects. For example, if house prices increase more rapidly than wages over a sustained period, people may begin to view financial speculation or investing in property as a more reliable way of securing income gains than through their own labour.

The increase in speculative activity and the shift in social attitudes with respect to how money can be made (rental income and capital gains instead of wages) erode society's work ethic, increase status competition and envy, and divert society's resources from productive activities to less productive and potentially destabilising ones.

The basic dilemma for our housing policymakers is that, as Singapore is a global city with liberal immigration policies for highly skilled individuals and open capital markets, its high-end private property prices will rise towards those in other global cities. These forces in turn exert upward pressure on mass market private home prices and, to some extent, HDB resale prices.

In the context of Singapore's new status as a global city, the Government has to be a lot more deliberate and activist in managing both HDB and overall house price appreciation. Sky-high private property prices exacerbate the sense of inequality, reduce social mobility, and increase the risks of destabilising housing booms and busts. These structural changes suggest that a new paradigm in public housing is needed. This paradigm 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 - 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 the 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 with other markets, the housing market is particularly prone to speculative booms and busts. 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 Government to adopt inflation targets as Singapore imports almost all its goods (and many of its services) and therefore has 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 Government to consider adopting inflation targets. Not only is the Government the biggest landlord by far, but 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 the 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 the workforce highlight the need for more social transfers. No longer can public housing serve as the de facto instrument of income redistribution.

The writer is the associate dean for research and executive education at the Lee Kuan Yew School of Public Policy. This is an excerpt of a paper he prepared for the Institute of Policy Studies in 2011.


Housing price caps not the way forward

PUBLISHED ON NOV 19, 2014 1:29 AM  0 5 0 0

MR HO Kwon Ping called for the HDB's role to evolve from that of a housing developer to that of a master land developer and price regulator ("The next 50 years of Singapore's economy", last Thursday).

Despite the high-minded intentions, having regulators set sales price caps, essentially price controls, is an economist's last resort and often worsens the situation. New York City's rent control regulation is a prime example.

Notwithstanding a housing shortage, enterprising private developers who cannot price their apartments above the mandated limit can get around it by either lowering the quality of their housing or charging various "miscellaneous fees" to offset the reduced prices.

In the first scenario, lower-quality housing tends to draw less affluent residents, affecting neighbourhood businesses in the process.

In the second scenario, regulators and developers might find themselves in a cat-and-mouse game of regulate-and-evade, wasting government resources.

The other question concerns secondary market participants.

Would the discrepancy between resale prices and primary regulated prices cause property "flipping", especially if the difference is wide? Or would the HDB's five-year minimum occupation period be expanded?

The sale, purchase and pricing of a residential unit are largely a contract between the buyer and the seller. Policies should facilitate the process, but not replace or distort it.

Alan Ng Zhi Yang

[Limit the use of CPF for property purchase and prices will be reined in.]

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