D Lim
I refer to Mr Mah Bow Tan’s rebuttal to WP’s proposal on pegging HDB prices to median salaries.
Let me preface my comment by saying that I have been an ardent supporter of PAP policies over the years, and I think they have done an exceptional job. However, for this particular issue, it appears that WP’s position is more intellectually pure than the PAP’s.
Indeed, Mr Mah’s response appears to be missing the woods for the trees. At the end of the day, we need to go back to basics – to what the fundamental mission of HDB is, and it is to provide affordable housing for the masses.
To determine the affordability of a house, we need to look at price vs salary. From this measure, HDB prices have become a lot more expensive over the years. For instance, in 1986, the starting salary of a graduate was about $1,400 per month (approximately), and a 4-room HDB flat cost around $65,000, resulting in a price to monthly salary ratio of about 46 times. Today, the average starting salary of a graduate is about $3,000 (generous estimate), and a 4-room HDB flat costs anywhere from $240k to about $572k (for the Peak @ Toa Payoh). This translates to a ratio of between 80 times to 190 times.
Hence, from an affordability perspective, HDB flats today are about 1.7 to 4.1 times more expensive than in 1986.
This has resulted in many people having to stretch out their mortgage payments to 30 years (even in one of the lowest interest rate environments in history) in order to keep mortgage payments at an affordable level. Prudent financial planning guidelines typically advise that if you have to stretch out mortgage payments to 30 years in order to afford the monthly payments, you are probably buying a house that you can ill-afford.
PAP’s primary argument is that the subsidy is in the discount to market pricing. Well, the problem with this is that market prices are not linked to salaries (as market prices are also heavily influenced by offshore liquidity and general investor sentiment). Over the last 10 years, we have all seen the market go astray, in various asset classes and in various geographies. Hence, without a fundamental link to salaries, it is difficult to ensure that HDB flats will remain affordable (in fact, given the above examples, it is arguable that they currently are).
In his rebuttal, Mr Mah’s principal point is that lowering the primary market prices would lower resale market prices. This response appears to be populist and scare-mongering in nature, and skirts around addressing the fundamental issue. Is it important that resale prices are maintained? As a flat owner, I would say ‘Yes’. However, is it more central to the mission of HDB than providing affordable housing to the masses? Well, clearly no.
Beside, the link between primary property prices and resale market prices is a tenuous one, at best. The resale market is driven by supply and demand. If HDB is able to flood the market with cheap flats, then yes, resale market prices will collapse. But as long as the demand tension dynamics remain unchanged, the resale market prices should still hold, regardless of where the primary market flats are priced.
Mr Mah’s other point regarding home buyers switching to new homes instead of resale flats is again, a peripheral point that can easily be addressed via policy levers (first time owner priority etc).
Finally, his point on this being an illegal raid on the reserves is irrelevant and unnecessarily confuses the issue. The government makes spending decisions every day on policies which are in line with its policy goals. If affordable housing is a policy goal, then such subsidy is a necessary means to achieve the
goal.
In summary, as a long-time PAP supporter, it is somewhat disappointing that Mr Mah has chosen to skirt the issue and serve up populist appeals with scare-mongering tactics, rather than to seriously address a serious issue for thinking voters.
