Low-value property will sustain poverty

Dear Straits Times,

I refer to the 18 Apr 2011 letter by Mr Wong Hin Wai.

Mr Wong claims that it is not possible to determine HDB flat affordability on a single factor such as median income since 80% of Singaporeans live in HDB flats. I disagree. It need not be the only factor but it can be an important one. If 50% of Singaporeans find HDB flats outgrowing their wages, isn’t that a clear indication that flats are becoming unaffordable?

Mr Wong also claims that pricing flats on median incomes encourages ‘have nots’ to own a home. Why should that be so? If an item is priced such that 50% of the people find it affordable, why would it encourage 100% of the people to buy it? Shouldn’t it only encourage 50% of the people to buy it?

Mr Wong says Singapore’s public housing is based on market pricing. But are we a competitive market with competitively determined prices? No, there is only one supplier of public housing so ours is a monopoly market commanding monopoly prices from the people.

Mr Wong refers to HDB resale flats obtaining a free ride on rising property prices. But there is no free ride in this world. HDB resale prices can’t go up without people paying more for them. The gain by HDB resellers will be the loss by those who bought resale flats at higher prices.

Mr Wong refers to the government subsidising first time flat buyers. But government subsidy is only $40,000 whereas HDB resale prices have gone up by $150,000 already over the last four years. More like the people subsidising the government instead.

Mr Wong says giving Singaporeans low value property will perpetuate poverty. That is not true. When prices don’t rise, resellers don’t gain but they don’t lose either. A high value property may bring prosperity to the property owner, but it also brings poverty to the buyer. So in the end, there is no net gain for the country, only a wealth transfer from home buyers to home owners.

Mr Wong says value of flats depends on the economy. But during the global financial crisis, flat prices actually went up instead. Thus, economy is just one of several factors affecting flat prices. The most important and the most fundamental factor is still demand and supply.

Mr Wong prefers not to poison the water one depends on to live. But one man’s poison is another man’s meat. Stable home prices may be poison to Mr Wong but it is meat to all future home buyers, including Mr Wong’s children.

Mr Wong calls for the opposition to not destabilise the fundamental. He doesn’t realise that the fundamental is fundamentally flawed. The government’s call to raise our wealth through raising flat values is fundamentally flawed. Rising property values also means rising property prices. The increase in housing value of one generation is also the increase in housing liabilities for the next generation.

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3 Responses to “Low-value property will sustain poverty”

  1. Laoshi Says:

    Very much in agreement with your article except for the part about Mr Wong’s children. I am absolutely sure that his children would be able to afford the most expensive properties in Singapore or in any other countries!

  2. Wong Hin Wai Says:

    Your serious discussion deserved a point by point reply.

    1. The median of incomes of individual wage earners is actually a fallacious indicator of affordability of HDB flats. Just for argument sake, I gave a response to the original WP’s thesis granting it a validity it did not deserve. No individual can buy a HDB flat alone. It’s always combining two or more individuals forming a household unit. The combined incomes of 2 individuals or more can easily exceed $3,000 per month with the exception of destitute families or families consisting of all extreme low-wage earners. Do our sums and the issue of affordability disappears.

    2. Indeed you observed rightly why a market economy does not attract private housing developers to provide the same class of housing if there is real profit to be made. The answers speaks for itself. Public housing is a natural monopoly because only a generous fool would want to volunteer his service to get whack.

    3. If someone gets a subsidised HDB as a first-timer and 5 to 10 years down the road the resale flat more than doubled its value because of the market mechanics of private property benchmarks, is that not a free ride? You need not worry about the buyers of resale flats as they have probably made fortunes elsewhere and willing to settle in a HDB property. Worrying too much for other people will only make one into a soft-headed busybody.

    4. If there are young couples who are ready to buy HDB resale flats but are disqualified to buy directly from HDB because of exceeding the combined income limit of $10,000 per month, let me congratulate them. They still got a $40,000 free lunch. These are not destitute or poor people.

    5. Let’s face it. How many of wage earners will ever earn a million dollars through salaries in their life time? Don’t be jealous of those who do. By rising property prices, many people including clerks can become half or full millionaires in their life time if they start owning some housing properties early in their life. If everybody carefully minds his own economic destiny well, we should not be worrying for others who dance away their fortunes elsewhere like splurging on fancy cars or buying branded items. So if somebody plonks $100,000 on a car would you complain that the car dealer is overcharging?

    6. If your observation is correct, and the economy doesn’t lie, where in the world is there local demand for resale flats if our citizens are not able to pay after making the calculations. If you rely trust demand and supply, you shouldn’t be complaining.

    7. A good sound bite, but you are wrong. Even you depend on this market economy like it or not, and if you ruin it you’ll go down with it. I am fully confident my children will make it on their own with their skills and knowledge. If they cannot afford a palace, they can start with a new 3-room HDB. No sweat, no gain.

    8. Another nice sound bite. The fundamental I mentioned was about trusting the market economy as the first principle. You shifted the goal post for fundamental to mean raising flat values. And of course, rising property values means rising property prices as what else can it be? How else you think billionaires are made if John Rockefeller’s wealth remained in 1900 prices?

    • trulysingapore Says:

      1. HDB resale flats have increased by $150,000 on average over the last four years. Divide that by a family income of $3,000 and we get 50 months or slightly more than 4 years. So the family actually has to work an extra four years just to get the same flat. can you imagine? An extra four years of slogging for nothing. Is that fair? That is not fair.

      So even when you consider household income, the picture is not pretty over the last four years.

      2. You admitted that our housing monopoly is not a generous fool. The people needs to know this. Our government is lying when they say they try to subsidise us like generous fools. They should be upfront about it. They are squeezing all they can from the people.

      3. It is not a free from the perspective of the society as a whole. Someone will always end up paying for rise in resale flat price. You’re being cavalier when you brush off buyers as having made their fortunes elsewhere. When supply is tight, even the most expensive flats people will also buy. I don’t mind being a soft headed busybody as long as it helps seek redress from the govt who is the hard headed bully.

      4. Resale prices have gone up by $150,000 over the last four years. The $40,000 ‘free lunch’ is not free after all but more than paid for.

      5. The issue of minister’s million dollar salaries is not about jealousy, it is about decency. The government loses moral high ground when it pays itself obscenely. The clerk becoming a half millionaire means someone else will end up paying an extra half a million more. The riches of one impoverishes the other. The govt of a nation would recognise the futility and unfairness of this and put a stop to it, not encourage it.

      6. Courts thrives by selling much of its merchandise through hire purchase. What is unaffordable if paid in full at one go becomes affordable to many poor people when paid in small instalments over a long period of time. Similarly, a flat may seem affordable when paid over a long period of time. Only when one reaches retirement does one find that one has sunk too much money into the house with no money left for retirement.

      If it is competitive demand and supply, definitely won’t complain. Because it is not competitive demand and supply but monopoy supply and demand, there is cause for complain.

      7. I am not wrong but you are. The market economy that you refer to is not the one that operates our housing market. The market economy refers to a competitive market where there are many sellers and many buyers. Our housing market is a monopoly market that deviates much from the behaviour of the true market economy. Monopoly markets are distorted and there is a dead weight loss to society.

      Even if your children can make it with skills and knowledge, they will do even better if they pay a fair price for their housing.

      8. You can’t even tell the difference between the competitive market economy and the monopoly market. No shifting of goals posts. Whatever issues discussed here are pertinent and they are interlinked too. Rising property values means rising prices too. Property onwers earn at the expense of property buyers. Rockefellers’ wealth was contributed by the multitude of future buyers who bought his properties.

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