In his May Day speech on 1st May, Deputy Prime Minister Lawrence Wong declared that Built-To-Order (BTO) flat prices have kept pace with incomes, thereby maintaining affordability.
With the long-standing mantra of public housing affordability under scrutiny, his words warrant closer inspection.
According to Mr Wong, who doubles as the Finance Minister, a four-room BTO flat in a new town cost about S$40,000 in 1980 when the median household income was around S$900. Presently, the price of a comparable flat in a non-mature estate such as Bukit Batok is S$350,000 — a nearly ten-fold price increase since 1980.
However, he was quick to add, “the median household income has risen ten times too, from S$900 in 1980 to S$9,000 today.”
On the surface, these statements seem to suggest an equitable increase in both housing prices and incomes. But a glance at historical data presents a somewhat different picture.
Archival evidence suggests that in 1980, a new 4-room HDB flat in a non-mature estate was sold at $27,100, not the S$40,000 claimed by Mr Wong.
The Ministry of Finance in 2015 also reported the median income of households was S$990, not S$900.
Let’s fast forward a decade to 1990. The median household income then was S$2,296, and a new 4-room flat in a non-mature estate cost S$60,150 (average – Hougang from S$56,700 to S$63,600).
A comparison of these figures with present-day equivalents demonstrates that while the median household income has increased by a factor of 3.9, BTO prices have risen by a staggering factor of 5.8.
This disparity becomes more pronounced when accounting for the employer’s CPF contribution. With the 1990 CPF rate of 20%, the median household income would effectively be $2,755. In this context, the increase in the median household income over the years only amounts to about 3.3 times.
A fundamental question thus arises: Have incomes really “moved in tandem” with BTO prices as suggested by Mr Wong? Furthermore, is public housing becoming more or less affordable?
Let’s resort to internationally recognized metrics for housing affordability. Demographia International defines housing as “affordable” when the house-price-to-income (HPI) ratio is 3 or below. Ratios above 3 are categorized as progressively less affordable.
Using the $900 median income mentioned by Mr Wong, the affordability of HDB flats in a new town in 1980, as measured by the price-to-income ratio, was calculated to be only 2.5. As for 1990, applying the median income of $2,755, the HPI for a four-room HDB flat was a mere 1.8, making it even more affordable than in 1980.
Today, however, the ratio stands at 3.2 using the Bukit Batok example cited by Mr Wong. This ratio places it in the “moderately unaffordable” category.
The cold, hard numbers don’t lie. While a new 4-room HDB flat in the new towns of the 1990s was indeed affordable, the Bukit Batok example at the current price of S$350,000 falls into the “moderately unaffordable” bracket.
We can’t escape the conclusion: despite incomes rising over the years, the rate of increase has not kept pace with the rise in BTO prices, challenging the claim of maintained affordability.