To understand how distorted HDB flat prices are, all you need is to take a look at the charts comparing the Straits Times Index (STI), the Private Property Index (PPI) and the HDB Resale Price Index (RPI) over the last 20 years.
You could easily see HDB prices going in line with economic fundamentals, especially after the 1997 Asian Financial Crisis, the Dot Com Bubble and the Sept 11 terrorist attacks in the United States.
However, after the subprime crisis, the STI and the PPI crashed while the HDB RPI kept breaking new record highs. The main reason is simple: extremely low supply met with high demand from Singaporeans and new immigrants.
From 2006 to 2008, only 10,950 units were built and during this period, our population grew by about 10 per cent or 439,000 to 4,839,400, mostly through immigration. (Source: HDB annual report FY 2008/2009 and Singapore Department of Statistics)
When HDB prices fail to keep in line with economic fundamentals, is the government being responsible?
Demand from foreigners:
In the March 2010 Parliament sitting, Minister for National Development, Mr Mah Bow Tan said that “PRs make up “only” one in five resale flat buyers and have minimal impact on resale prices.”
That’s 20 per cent and considered “minimal”? What is the latest figure now? 30 per cent? Is public housing for Singaporeans or foreigners?
Mismanagement of demand:
On 14 March 2010 during an interview with CNA, Mr Mah said:
“The overall objective is to make sure housing prices do not outstrip real economy… in that sense what we try to do is make sure prices don’t go up faster than incomes and make sure prices don’t go down or crash. And that’s the reason why we target NOT the real demand. The fundamental objective of HDB housing is owner occupation and long-term investment.”
From the comment above, it is evident that Mr Mah is ignorant of the fact that prices are already going up faster than incomes. In his recent appearance on television where he broke down in tears, Minister Lim Boon Heng confirmed wages of lower income families were stagnant and worse, falling. Did Mr Mah fail to do what he set out to do, to "[make] sure prices don't go up faster than incomes"? Also, how do we ensure adequate supply when we do not target real demand? Are housing demands of Singaporeans being ignored?
When asked by Nominated Member of Parliament (NMP), Mr Terry Lee, 22 February 2010 in Parliament, Senior Minister of State, Ministry of National Development, Ms Grace Fu said,
“The Government does not track the type of properties rented, purchased or owned by new citizens (20,513 in 2008, 2009 data unavailable). As a policy, we do not distinguish between indigenous and new citizens. Our commitment in housing is to provide sufficient and affordable flats for first-time Singaporean homebuyers, whether new citizens or otherwise.”
It is also clear that the PAP has no policy to monitor demand from new immigrants as well. How responsible is this?
In October 2010, the HDB Chief Executive Officer said:
“Well the BTO is a very important initiative because it enables us to gauge the demand, the real demand for flats. So I think using the BTO programme where people have to commit to buying a flat before we build is helpful for us because we know it is real demand.
“I think this is one clear benefit. And we will also know whether we are oversupplying or undersupplying based on gauging the demand from the BTO flats.”
I have my doubts of the effectiveness of using the BTO programme to gauge real demand. It does not include discouraged young Singaporeans who cannot afford or who may have given up on buying a HDB flat and who are putting up at their parents’ flats.
In addition, every BTO project needs time to build. By the time you discover a surge in demand, it will take another 3 to 5 years to find the right balance again.
Singaporeans are forever grateful to the late Mr Lim Kim San for what he has done. From Wikipedia -
"In 1960, due to a rapidly increasing population, more than 400,000 people were living in over-crowded conditions in ramshackle “chophouse” buildings or in squatters with substandard living conditions. At this time, Mr. Lim was appointed to the Housing and Development Board (HDB). He had volunteered for the job and had not been paid for 3 long years! It was in this position that Mr. Lim oversaw the massive construction of high-rise, low-cost apartments that will eventually become the main source of housing for Singaporeans.
Mr. Lim was known for his organizing and planning abilities. He forwent a detailed planning stage and instead chose a "rough and ready" approach to work fast using rough estimates of the housing requirement. In the first two year of this crash program, over 25,000 units were built, more than what was built in the previous decade.
Mr. Lim defied all detractors, in particular those in the Singapore Improvement Trust, who said he could not build 10,000 units a year. A committee was eventually set up under Professor Lim Tay Boh to find out whether the HDB had the capability and the materials to reach the construction goal.
By the time Professor Lim's committee published its report, the HDB had already completed 10,000 units of housing.”
If Mr Lim Kim San could do it, why is Mr Mah blaming Singaporeans and blaming his job as an unpopular one due to limited land? The mess that Mr Mah has created is huge and we need someone more capable and responsible to make things right again.
Headline picture from Straits Times.