ST : An asset which appreciates

Nov 18, 2010

An asset which appreciates

· What challenges do you see for public housing in the years ahead?

First, there is the question of how much resources we should put into this. Punggol 21 Plus, Dawson and so on look marvellous and we are very proud of these projects. But it costs money to do these things. Not just money to build the high-quality flats and amenities, but also the land we are setting aside to be able to deliver these standards, with spaces for parks and so on. So there is a significant economic cost to this, which we have to be aware of. I think it is a good investment in our social infrastructure, but we have to be conscious of the cost and the resources that we are putting into this.

Second, there is the question of income distribution. We need to be a lot more focused in the way we distribute the housing subsidy to Singaporeans. We did not use to be very discriminating about this, or precise in deciding exactly how much the subsidy should be. You bought a flat, at a discount from the market price, and if you live in it for 20-something years, it would have appreciated very substantially.

For example, a three-room flat in Ang Mo Kio in the 1970s cost less than $20,000. Today it is worth $250,000 or more. Most of the people who bought those flats in the 1970s in Ang Mo Kio were quite poor, and I think it is right that we have helped them to enjoy this tremendous capital gain over time. As the economy grew and Singapore prospered, this was how they could participate in the success of the country. It is their share of our success.

But now many families buying HDB flats are not poor. We have to make sure that what you get in terms of an implicit or explicit subsidy is appropriate, and commensurate with what people who are less well-off than you are getting.

If your monthly household income is $8,000, should you enjoy the same HDB subsidy as a $2,000 income household? I think the housing subsidy should vary with family circumstances.

In fact, we have already done that with the Additional CPF Housing Grant, which is now a maximum of $40,000 for those earning $1,500 or less per month. Over time, we probably will build up this. I think it is fair. Because if you are earning $8,000, you are not poor. You might feel entitled to some bite of the cherry, but I think it should be a somewhat smaller bite.

· Another major issue facing public housing is the ageing of Singapore society. How will public housing provide for this?

Yes, this is a major thing we have to think about. How do we arrange it to give people a way to cash out of their house in an orderly manner? Providing rental flats is a very disorderly mechanism for people to cash out. They sell their flats, take the capital gain, which they may then save or spend. But anyway, they come back to the Government and say give me a rental flat, I now have nowhere to live, or maybe even have no money left. And it defeats the whole purpose of the home ownership programme, because the HDB flat was meant to take care of you till your sunset years.

So what do I do? I can make it harder to rent a flat, to make sure the rental flats go to those most in need, or I can raise the price of the rental flat for those who are not actually poor. But the Government does not want to be your landlord; we would like you to be a home owner for as long as you live. That is why we have the Lease Buyback Scheme. That is why we have short (30-year) leases on studio apartments.

We have to get people used to this idea and create the incentives so that people see it as a natural arrangement. You might sell your flat, but you will still need some place to live in. So you should provide for your next 30 years. If you are 60, it may be another 20 to 30 years of life. Best to provide for that in advance, and not wonder every month where are you going to find money to pay the rent.

· Do you see any major challenges in trying to deliver on some of these policies, such as the ups and downs in the economy and financial markets?
Oh yes, it depends on how the economy performs. If you want to redevelop the HDB estates, you are talking about several billion dollars a year, times 20-25 years. That's a huge amount of money. We project that we can afford it, but it is far from a trivial commitment.

· Some people believe that as a society, Singapore has over-invested in housing. What do you say?

If you look at it purely from an economic point of view, then our quality of housing is very high, whether in terms of the quality of the environment, or square metres per person. But the political and social dividends have been considerable. If you left the low end to their own devices, without the compulsory CPF savings, poorer Singaporeans would not have put so much money into their house, they would have lived in much more miserable conditions, and we would have slums in Singapore. From their personal maximisation point of view, as rational consumers, that may be their personal choice. But in terms of the overall society, we would be far worse off to have ghettos and slums.

· It would be a very different society.

It would be a very different society. And if you allowed that to happen, there would also be a racial element, which you cannot run away from, which would be big trouble.

· As Prime Minister, how much is housing on your mind as a policy concern?

Housing problems are not so urgent (now) because we have already got the population housed, and many of the schemes are already there. But these issues are growing over time and need a long lead time to tackle, so you can't wait till they become urgent, because by then, to do anything will take at least another five to 10 years.

So you have to think about them progressively, and every few years take another step, and it takes several years to get that step implemented. And that is what we have been doing...

Building flats for Singaporeans is not just a matter of awarding the contracts and administering the construction projects. We have to get the scheme right and the incentives right, so that people respond in a way that is collectively constructive and sensible for us. And every time you think you have tweaked and got it right, you will find some unexpected consequences, and then you have to adjust your scheme.

As we free up the HDB market, it resembles more closely the private property market, where booms and busts are in the nature of the market dynamics. The HDB resale market is now already linked to the private market, because people who sell their HDB flats often aim to upgrade to a condo. So when the private property market goes up or down, the HDB resale market tends to go up or down too, and that can be very painful, in both directions.

We would like the HDB flat to be an asset which appreciates gradually from year to year, but we can't guarantee that in the short term. In the long term, HDB flat values should appreciate so long as Singapore prospers, and we have a good government. And that is what we must strive for.