SINGAPORE — On Monday (6 Feb), Mr Leong Mun Wai of Progress Singapore Party (PSP) proposed two schemes, the “Affordable Homes Scheme” and the “Millennial Apartments Scheme”, in the opening address to his parliamentary motion as solutions to the problems of Singapore’s public housing perceived by the PSP.
The non-constituency member of parliament said that the public housing of the Housing Development Board (HDB) has become a national malaise which robs young Singaporeans of the financial security they need to be enterprising risk-takers and build Singapore into a competitive information economy and the old Singaporeans of their well-deserved retirement.
Mr Leong said that PSP, in its motion, believes that the Singapore public housing policy needs a reset, while the Government’s contesting motion filed by Mr Desmond Lee, Minister for National Development suggests that there is no need to review its current housing policies.
But he noted, “It is clear that the Government is not confident that Singaporeans believe in its housing policies since the Government has been running extensive advertisements in the mainstream media to illustrate the affordability of BTO flats. If HDB flats are truly affordable and accessible, Singaporeans will know it, there is no need to explain it.”
“If Singaporeans are not satisfied, the Government should be proactively reviewing its policies and telling Singaporeans what corrective policy actions it will be taking to resolve housing problems. There is no need for advertisements. Singaporeans should be treated like citizens, not consumers.”
Mr Leong pointed out that the problems with Singapore’s public housing started in the 1990s when the Government started to treat the HDB flat as an “appreciating asset” where it embarked on “a new phase where the government increases your asset value through the Asset Enhancement Programme”.
“Since 1990, the HDB resale price index has increased by seven times as a result of the asset-enhancement policies of the Government, but the median monthly household income has only increased four times.”
“As a result, the heavy burden of homeownership of today robs young Singaporeans of the financial security they need to be enterprising risk-takers and build Singapore into a competitive information economy.”
Concerns Singaporeans have over public housing
In his speech, Mr Leong cited concerns and issues that Singaporeans face over public housing:
- Due to the backlog and limited supply of flats, many first-time buyers have no choice but to buy a resale flat. Build-to-Order (BTO) prices must eventually keep pace with the increase in resale prices over the long term, with many predicting that the $1 million BTO flat will appear soon.
- While most homebuyers need not pay cash to service their monthly mortgages, which can be covered by their CPF savings, this comes at the cost of depleting their CPF savings. Currently, high HDB flat prices caused by rising land cost are raiding the CPF savings of Singaporeans while HDB pays S$3 to S$4 billion in land cost into the Past Reserves each year.
- By 2030, almost half of the HDB flats will be more than 50 years old and the prices of these HDB flats are expected to decline sharply, accordingly to empirical valuation models. In the local context, limitations on loans and CPF usage will start to affect the prices of flats above 40 years of age, which coincides with the time when retirees want to monetise their flats.
- Shortage of BTO flats and high resale prices have impacted the total fertility rate.
To address these issues, PSP proposes two schemes to address the concerns of Singaporeans over public housing.
Affordable Homes Scheme
The “Affordable Homes Scheme”, based on a deferred land cost idea first proposed by PSP member, Dr Tan Meng Wah in 2013 when he was a research fellow with the Institute of Policy Studies at NUS, is designed to allow a Singaporean to buy a new flat at a “user price” which is equal to the construction cost plus a notional location premium.
If a Singaporean stays in the same flat his entire life, he will only pay the user price. This user-price concept was first suggested by Mr Yeoh Lam Keong, the former Chief Economist of GIC.
At the point of purchase, the “land cost” for the flat will be made known and recorded with the HDB. If the Singaporean sells his flat in the resale market after the Minimum Occupation Period, the citizen will have to pay this land cost with accrued interest based on historical mortgage rates to the Past Reserves before pocketing the net profit; hence the citizen ends up paying the full price of the flat.
“We believe owner-occupied public housing is a public good that should be treated as a form of essential public infrastructure, like schools and hospitals, where land costs are not charged because it is treated as State Land. We believe that land used for owner-occupied HDB flats should be treated in the same way as schools and hospitals,” said Mr Leong.
Hence as long as Singaporeans are leasing HDB flats for owner-occupation, they should not have to pay for the land cost. They should only pay the land cost when they take the HDB flats to be an investment and sell it for a profit.
Mr Leong emphasises that the Affordable Homes Scheme will take care of the Singaporeans without hurting the Past Reserves.
PSP does not envisage a precipitous fall in the resale prices because of several reasons.
Mr Leong puts it to three reasons; the persistence of backlog of housing demand, the supply of resale flats will be lower in the future as the owner-occupation intent strengthens, and new sellers will not sell their flats unless the price is high enough for them to earn a profit which reduces available supply of resale flats and support resale prices.
Furthermore, he noted that if the Government provides more certainty on the future of existing HDB flats by releasing more details on VERS, that will further support resale prices and help the market transition to the scheme.
Millennial Apartments Scheme
The Millennial Apartments Scheme will have the Government keep a large stock of quality rental flats to provide young Singaporeans who desire more space and more independent living with more housing choices.
It is proposed that the main supply of the Millennial Apartments will come from prime locations near the Central Business District. These locations are currently highly sought after by buyers driven by the profit motive, but it is more equitable not to sell all the HDB flats in prime locations but keep a larger portion of them for rental so that a broader range of Singaporeans can access these flats.
The Millennial Apartments will be smaller and quality flats on affordable leases of 2 to 5 years for young families or groups of singles, which would be attractive because they are close to the workplace, have good amenities for families and even have vibrant nightlife spots.
Concentrating young Singaporeans together will allow those who are single to have more opportunities to socialise and perhaps marry, while those who are already married will have more time for their families because they live near their workplaces.
Mr Leong said that the HDB can also develop a network of shops around these Millennial Apartments to allow a more diverse range of businesses to operate near the Central Business District at lower rents, allowing the CBD to be economical productive day and night.
Emphasising that the two schemes will not “raid the reserves”, Singaporeans could look forward to affordable owner-occupied public housing and having enough to retire without having to downgrade their HDB flats to the Government.
He added that HDB flat buyers will have more choices to choose what best suits their life plans and aspiration, whether to buy or to rent, to be an HDB occupier or an investor and others. While at the same time ensuring that the resale market remains buoyant although less speculative.
