Means testing or Mean Testing? Are Singapore's housing grants unfair to middle-income families?

Singapore's public housing system is often lauded as a model of efficiency and affordability. However, when it comes to housing grants, particularly for the middle-income group, one cannot help but question whether the current system is truly fair.

The disparity in grants between different income groups, especially those buying Build-To-Order (BTO) flats versus resale flats, raises concerns about whether the middle-income segment is being systematically disadvantaged.

The Middle-Income Squeeze

The Enhanced CPF Housing Grant (EHG) is structured in a way that gradually decreases the grant amount as household income increases. While this might seem equitable on the surface, the steep reduction in grants for households earning between S$4,000 and S$9,000 reveals a deeper issue. These middle-income families receive significantly less support despite still facing substantial housing costs.

For instance, a family with a monthly household income of S$1,500 can receive up to S$120,000 in EHG, making a substantial difference in affordability. However, as income rises, the grant amount rapidly declines. A family earning S$5,000 receives just S$65,000—nearly half of what lower-income families receive. For those earning between S$8,501 and S$9,000, the grant amount is reduced to a mere S$5,000.

According to the Singapore Department of Statistics, among resident-employed households, the median monthly household income from work (excluding employer CPF contributions) grew by 10.8 per cent in nominal terms, from S$8,904 in 2022 to S$9,646 in 2023. This places the middle-income range squarely within the median income bracket, yet these families continue to receive significantly less support through housing grants.

This "middle-income squeeze" leaves families in this income bracket in a precarious position. They earn too much to qualify for substantial grants but not enough to comfortably afford rising housing costs, particularly in a high-cost city like Singapore.

The disparity in grant amounts becomes even more glaring when considering that these middle-income families, while receiving minimal grants for BTO flats, could potentially receive up to S$110,000 in grants if the family that doesn't exceed S$14,000 in household income opts for a resale flat instead.

This discrepancy suggests that the current grant structure may be inadvertently favouring wealthier households.

The Unfairness of "Means Testing"

The term "means testing" is often used to justify such disparities, suggesting that those with higher incomes should receive fewer subsidies.

However, this principle seems to be turned on its head when it comes to housing grants. Why is it that those who can afford to buy more expensive resale flats are receiving significantly more grants than those opting for BTO flats, which are typically seen as more affordable options?

Consider a household with an income of S$9,001 to S$14,000. If they decide to purchase a resale flat, they can receive up to S$110,000 in housing grants, comprising the CPF Housing Grant (CHG) of S$80,000 and the Proximity Housing Grant (PHG) of S$30,000. On the other hand, if the same household opts for a BTO flat, they would receive no grants at all.

This stark contrast highlights a troubling aspect of the current system: higher-income households buying resale flats are awarded significantly more government support than those purchasing BTO flats, which are meant to be the more affordable and accessible option for Singaporeans.

One particularly puzzling aspect of the current grant system is the Proximity Housing Grant (PHG) and the CPF Housing Grant (CHG), which are only available for those buying resale flats.

The government promotes the PHG as a way to encourage families to stay close together and support each other across generations, yet it is unclear why this grant, along with the CHG, is not extended to those purchasing BTO flats. The absence of these grants for BTO buyers adds to the sense of inequity.

In this context, the system appears less like "means testing" and more like "mean testing," where middle-income families are left with fewer resources to purchase their homes. This approach not only places a heavier financial burden on these families but also raises questions about the equity of the entire housing grant system.

The Consequence of the Sliding Scale and Loan Restrictions

The sliding scale of the EHG, while intended to provide more support to those with lower incomes, inadvertently penalizes middle-income families who do not qualify for sufficient grants yet face the same challenges of homeownership.

For example, a family earning S$9,000 receives just S$5,000 in grants—a negligible amount compared to the S$110,000 a resale flat buyer in the same income bracket might receive through other grant combinations.

Adding to this burden, the recent tightening of the HDB loan-to-value (LTV) limit to 75% further complicates the situation for middle-income families.

With a lower LTV ratio, these families now have to come up with a larger downpayment, which is particularly challenging given the reduced grant amounts. This combination of lower grants and higher upfront costs places middle-income households at a significant disadvantage, making it more difficult for them to finance their homes.

Reverse Means Testing?

Arguably, the system as it stands resembles a form of "reverse means testing," where wealthier families benefit more from government subsidies than their lower-income counterparts.

A family with a household income of S$9,001 receives no grant if they purchase a BTO flat, yet the same family could receive up to S$110,000 in grants if they choose a resale flat—provided they can afford the cash for the downpayment, which can run into hundreds of thousands of dollars in the resale market. This discrepancy suggests that the current grant structure may inadvertently favour those who are better off at the expense of those who are less financially secure.

The intent behind Singapore's housing grants is to make homeownership more accessible and affordable, but the current system seems to fall short of this goal for middle-income families, with the distorted public housing system being patched up with grants and subsidies.

The significant disparity in grant amounts between BTO and resale flats, coupled with the exclusion of the PHG and CHG for BTO buyers, raises serious questions about the fairness of the system. The added pressure from the tightened LTV limits only exacerbates the financial burden on these households, making it even harder for them to achieve affordable homeownership.

As Singapore continues to refine its public housing policies, it is crucial that the needs of middle-income families are not overlooked.

These families, who are often squeezed between the lower-income groups that receive more substantial support and the higher-income groups that can afford private housing or resale flats, deserve a fairer share of the pie.

It is perhaps time to re-evaluate the current grant system to ensure that it truly supports all Singaporeans in their journey to homeownership rather than disadvantaging those in the middle of the BTO market.