HDB flats: facts and myths

Dear Mr Mah,

I refer to your comments in parliament as reported by Straits Times on 6 Mar 2010.

There are not enough HDB flats to meet demand

You said it is a myth that there are not enough HDB flats to meet demand because the 13,500 flats built last year and the 12,000 flats to be built this year add up to be more than the approximately 23,000 flats in either Clementi or Jurong East. However, the 23,000 flats in either Clementi or Jurong East do not represent the demand for new flats. Ms Chua Mui Hoong reported in her Straits Times commentary on 11 Feb 2010 that there is a potential demand for 95,600 flats over and above those who have already clinched their flats or will be buying other properties. This demand for 95,600 flats far outstrips your supply of either 13,500 or 12,000 flats. Hence, it is not a myth but a truth that there aren’t enough flats to satisfy demand.

You said that the massive oversubscription of new flats is misleading because many applicants eventually reject the flats they were invited to buy. While it is true that applicants who reject flats available to them do not want those flats, it doesn’t mean that they don’t want a flat at the end of the day. They still want a flat and so they still constitute part of the demand for flats. Hence, the massive oversubscripton of new flats is indeed a reflection of the massive demand for new flats.

You said that only 6% of complaint cases from first time buyers are geniune. However, some of the examples you reportedly gave on 8 Oct 2009 were in themselves dubious. Your case study of Mr C rejecting flats facing the mosque may be unreasonable to you and the HDB but may not be unreasonable to Singaporeans who wish for a more quiet place.

HDB flats are unaffordable

You said there is the CPF housing grant of $30,000 or $40,000 and an additional grant of up to $40,000 for low income families. However, these grants are not even enough to make up for the more than $100,000 increase in flat prices across Singapore over the last three years. You said that the government disbursed more than $330 million in housing grants to more than 20,000 families. But a nominal increase of just $40,000 in the price of new flats multiplied by the 13,500 flats sold last year would have seen government coffers swell by $540 million. That easily beats the government grants that have been disbursed. Rapidly increasing flat prices have swelled government coffers a lot more than the grants that has been disbursed.

You said that our house price to household income ratio of 5.8 is low compared to London’s 7.1 and Hong Kong’s 19.8. However, the ratio for London was calculated omitting the 15% Londoners living in cheap rental flats while the ratio for Hong Kong was based on expensive Hong Kong Island alone which excluded Kowloon and the New Territories where the bulk of Hong Kongers actually stay. Hence, the ratios you quoted are flawed and unfairly skewed towards more expensive accomodation in those cities. Furthermore, the choice of highly expensive London and Hong Kong as comparison targets also serves to show just how expensive Singapore has become.

You said our monthly mortgage payment to household income ratio of 22% is lower than the affordability benchmark of 30% to 35%. But the international affordability benchmark is in essence an unaffordability benchmark that marks the level of absolute unaffordability much like the poverty benchmark of $1 per day marks the level of absolute poverty. Just as an income of $2 per day which lies above the poverty benchmark does not imply that there is no poverty, similarly, a ratio of 22% which falls below the affordability benchmark of 30% doesn’t imply that housing is therefore affordable. Furthermore, it is misrepresentative to base our affordability ratio on new flats only since the 13,500 new flats last year is only a fraction of the 37,205 resale transactions registered last year.

Your case study of Mr and Mrs S does not represent the average 4-room flat applicant which according to the HDB’s reply to the Straits Times on 12 Sept 2009, has a household income of $3,800 paying a monthly mortgage of $955 for a flat priced at $265,000. If we assume an average of four persons living in the household each requiring a monthly sustenance of $500 at a minimum, the family’s total basic monthly expenditure would add up to $2,955 leaving only $805 for all other purposes and for retirement funds for both parents. Is the measely sum of $805 sufficient for retirement and for all other purposes?

PRs push up prices

You said that PRs do not push up prices since they do not pay very high COVs. But that is not how PRs contribute to high prices. By simply taking up units, be it flats or private properties, PRs absorb the supply of available housing leaving less for Singaporeans. When supply is less, price goes up naturally.

Private property owners push up prices

You said that private owners do not push up HDB prices since they are involved in only 11 out of 58 resale transactions exceeding $70,000 in COV. But that is like looking at the tip of the iceberg and concluding that the iceberg is not very big. Beyond those 11 resale transactions are countless other transactions involving private property owners. Collectively, they soak up supply leaving less to be competed for by the rest. Greater competition for a dwindling supply naturally leads to prices being pushed up.

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