Wednesday, February 20, 2013

Ideas for a public housing policy

1. I like to give my views about what are the elements of a good public housing policy.  The Singapore Government is in a unique position to implement this pubic policy, as it owns 80% of the vacant land in the country.

2. The Government can set a policy to ensure that housing is available to the citizens at an affordable price, which I will define as 5 years of the average household income. Based on an average income of $60,000, the flat should cost $300,000. This can be for a size of 1,000 sf.

3. Smaller flats can be made available to poor families at a lower price, say $180,000 and $240,000.

4. Housing at these prices will be build by a government agency, i.e. the HDB, based on these prices. These prices can be adjusted yearly according to changes in the average income.

5. Those who earn over the average income can buy a home from the private market. They are also given the option to buy the public housing i.e. there is no income ceiling.

6. If the Government is willing to provide the public housing at the benchmark price to all families who opt for it, the price in the private market will not run off too far from the standard flat. Similarly, the resale market for the public housing will also not move too far off.

7. Instead of allowing the resale market to set the price for the new public housing, it should be the other way round, i.e. the benchmark price for new flats provided by the housing agency should influence the resale market.

8. Each family is allowed to buy a public housing at the benchmark price only once. If they wish to upgrade, they have to go to the resale market. As indicated, earlier, this market will not deviate much from the pricing of the new flats.

9. The housing agency should also build flats for rental to locals, who are not yet ready to commit to the purchase of a flat, or to foreigners working here. The rental rate should bear a reasonable ratio to the purchase price.

10. People who be encouraged to relocate closer to their place of work. If they sell their home and buy a new home, they should only be required to pay stamp duty on the difference in the value of the homes.  The transaction cost, i.e. agency and legal fees, should also be reduced.

11. Housing should not be allowed as a form of speculation or making profit. It should be a place to stay and to moderate the cost over the long term.


Spur said...

I'm afraid this will only happen if they is a change of govt. Or if there is a breakup among PAPies.

Actually $300K for a HDB 5-rm is already a hell lot of profits for govt. From HDB tender results, it only costs about $130K to build each 5-rm flat (including it's share of common facilities and amenities).

The land is basically free, as HDB doesn't sell the land to you when you buy a HDB flat, unlike for condos and other private property. That's why HDB buyers are legally known as LESSEES in all legal HDB documents, and you don't get a Title Deed even if you fully pay up your HDB flat. The HDB remains as true owner and is known as LESSOR in the legal documents.

Even 99-yr condo buyers are known as OWNERS in the legal documents. At least you're true owner for 99 years. For HDB buyers, you're not even owner for 1 second.

Therefore, land cost should not even be in the equation for HDB pricing, as the land is not sold to you anyway.

But HDB will complain about making "big loss", since it pays XXX millions to SLA for the land. But isn't this just an accounting gimmick? Left pocket to right pocket. If you move $100 from your left pocket to your right pocket, what happens? Your left pocket complains that it is making a loss of $100. But are you actually $100 poorer??

HDB should not even complain, since all the land remains in HDB ownership. Remember, you don't get any land rights when you buy HDB flat.

The only thing that govt can be justified to complain is that there is a HUGE opportunity cost -- e.g. it could have instead sold the land for HUGE profits to private developers to build condos, and shopping malls, and luxury office buildings, and then later collect BIG taxes from those companies in the office buildings and malls.

This is when a good govt is differentiated from a mediocre one. Good govts will have to finely balance land use to maximise peoples' benefits and productivity and economic returns.

From the way HDB is being priced, it is as if all the HUGE opportunity cost is already being passed on to the HDB buyers. Heads the govt gets big profits, tails the govt also gets big profits.

If the govt continues to have this KS mentality and continues to run S'pore like an MNC with overriding focus on balance sheet and profit/loss statements, then it will be kicked out.

Lye Khuen Way said...

As "Spur" commented, land cost in HDB context is a myth. Sure opportunity cost is involved and that is why we are so money-faced.

Life is more than materials.

Anyway, I rather we move progressively away from the buy and sell in the open market situation.

Let HDB earns its keep by buying back from those who want to give up their "bought" flats and "sell" them at pro-rated prices to those in need of one.

Is there a way to do it without hurting those who paid a king ransom these few decades ?

Let the highly qualified, talented civil servants crack their heads.
I believe they already have a "Black Paper". Just waiting to re print using non-black ink or paper, no ?

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