Rising Public Housing Cost: the SDP solution

Rising HDB Prices

 

 

The SDP Solution (source)

In recent years, Housing and Development Board (HDB) flat prices have skyrocketed by an astounding 40 percent in two years between 2007 and 2009.

For younger Singaporeans this hyperinflation of housing prices means that you have been priced out of a home.

For those who have made the commitment and bought the flats at these sky-high prices, you are staring at a lifetime of high mortgage payments.

Today the Government controls as much as 90 percent of the land on the island. The HDB scheme is a huge profit-generating enterprise for the PAP Government.

Mr Wong Pak Shong, a former top official of the Monetary Authority of Singapore, remarked that when it comes to the compulsory acquisition of land, the PAP Government "is a terrific moneymaking machine."

The Government insists, however, that the prices of flats remain affordable despite evidence to the contrary. Over the three month period to September 2009, more than 30,000 households were in arrears of their HDB loan repayments.

More than 60,000 families received financial advice from the HDB because they could not keep up with the mortgage payments. The number of repossessed properties rose by 18% in 2008.

Most Singaporeans use the bulk of their CPF savings to service the HDB loans that they take for their flats. They usually take up to 30 years to finish paying up the mortgage – just in time for their retirement. Lest anyone forgets, the CPF is a retirement savings scheme.

If you have to use your retirement funds to buy a flat so that you end up with nothing to retire on, it means that you cannot afford the property. All you are doing is to party now but pay for it later, a practice which many retirees are unfortunately finding out the hard way.

Affordability means that the amount of money one earns every month is enough for basic expenses which must include paying for your housing loan and putting aside an amount for retirement. If the housing portion is so large that it leaves nothing for retirement, it means that the flat is unaffordable.

The SDP's Solutions

1. Make transparent HDB's building accounts.

The proposal of any alternative policy to the HDB pricing system must depend on the transparency of the way that flats are priced. Essentially, the three major components of building costs that go into erecting a block of flats are land, material, labour, administrative, and opportunity costs. The Government has steadfastly refused to give the public a detailed breakdown of these costs.

2. Zero-profit venture.

After the accounting for the true cost of building the flats, that is the cost of building the flats minus the land cost, the pricing of the flats must tend towards a range that would ensure that HDB breaks even. An index of such costs could be constructed and prices of flats pegged to this indicator. Annual returns should be submitted to Parliament for scrutiny.

A zero-sum approach will mean than flats in higher demand will be sold at above cost. This will be balanced out by the other flats that are sold below cost. The end result is that the HDB does not make a profit, nor does it incur losses in the long run.

3. Extend the 99-year lease.

The lifespan of HDB flats could also be extended from the present 99-years to a much longer term. As the older flats mature, the values will start to drop as they approach the end of the present 99 years. Rather than continually build new flats and forcing dwellers to move into these new units (and thereby committing them to more debt), the extension of the 99-year lease would help keep costs and expenditure down.