Jeremy Chen
In his letter ”
Dual public housing system would not be feasible” (
Today, Nov 13), Mr Lewis Kwong said the open market (OM) “would probably collapse over time” because everyone would want to buy Non-Open Market (NOM) flats.
This would be unlikely as there are restrictions governing NOM flats. For example, NOM flat-owners cannot concurrently own private property and NOM flats can only be rented out under special circumstances (such as if the owner is post overseas due to work).
However, if OM prices are reduced “over time”, as the writer foresees, this is not an undesirable outcome. Public housing prices would be affordable and, more importantly, remain stable making the housing system sustainable.
Over the long term, if Singaporeans choose NOM flats over OM flats, it would be a choice made entirely by buyers. Such an outcome would mean that NOM flats serve their interests better than OM flats.
Mr Kwong says that housing is not only for accommodation but also a lifetime investment against inflation. He also writes that no one wants to pay interest on a housing loan if he/she cannot make a profit on his/her property.
Under the
SDP plan, NOM owners would pay significantly less for their flats. The capital that is freed up can be used not just for investment against inflation but also to start a business, fund their children’s education, save for healthcare needs, etc.
In other words, Singaporeans can have the security of having a roof over their heads for life while having the necessary funds for investment and retirement.
In contrast, profits from the resale of public housing is far from certain. For that to happen, HDB prices would have to keep increasing, which is impossible. It was irrational optimism that led to the housing bubble in Japan two decades ago and more recently in the US. When the bubbles burst, these two countries suffered severe recessions from which they have yet to fully recover.
In Japan, the collapse was due to decreasing demand led by demographic shifts. Notably, the number of Singapore residents of ages 30 to 49, the main buyers of property, will decrease to 91.1% of its current number in 10 years and to 81.6% in 20 years. This similarity should raise red flags.
Would the Government need to raise taxes or run deficits to pay everyone if they converted their OM flats to NOM ones, Mr Kwong asks?
No. OM flat owners paid for the land “cost” (which the Government did not pay any money for) and the money has gone into the reserves. Returning this amount of money to the owners who convert their OM flats to NOM ones would, therefore, neither require the Government to raise taxes nor run deficits. All it requires is the Government returning the money from the reserves to their original owners.
Mr Kwong states that land costs in public housing is akin to taxation in that it funds public expenditure and that “all governments have to collect more tax if they cannot collect on land costs.”
This is not true. Land costs are paid into the reserves which are invested (mostly overseas). We already have a myriad of taxes and fees that are adequate for our national budget (income tax, road tax, COEs, GST, etc). There is absolutely no need to use land costs as a form of tax.
If the Government needs revenue from the sale of land, it can sell it to private residential and commercial property developers. It must not charge land cost to buyers of public housing.
We agree with Mr Kwong that the devil is in the details. This is why we have delved into them to ensure that the SDP’s housing plan is fiscally sustainable and improves the lives of Singaporeans.
Housing A Nation: Holistic Policies for Affordable Homes (pdf) is available for download here:
http://atomic-temporary-180715253.wpcomstaging.com/_ld/0/7_Housing_a_Natio.pdf
Jeremy Chen is pursuing his PhD in Decision Science at the NUS and is a member of the SDP’s housing policy panel.
Dual public housing system would not be feasible
Today
13 Nov 2012From: Lewis Kwong
I refer to the report “SDP launches policy paper on housing” (Nov 5). It is good that the Singapore Democratic Party and others are thinking of alternatives to solve the problem of high home prices.
However, a dual public housing system cannot work. Who would want to enter the open market if they could buy new flats under a Non-Open Market scheme at a lower price? The open market would probably collapse over time.
Housing is not only for accommodation; for most people, it is also a lifetime investment against inflation that they think they can sell at a later stage. Some might say that we should not make money on public housing, but who would want to pay mortgage if they know they cannot make any profit when they need to sell the property? I would rather rent.
Secondly, on the suggestion that existing flat owners could opt into the scheme and receive the price difference for the flat, what would happen if everyone wants to do so? Would we need to raise taxes or run deficits to fund this?
Many people look at land cost as a profit for the Government. However, one has to view it as a kind of tax on property owners. Roads need to be built and repaired. The public service must be paid.
All governments have to collect more tax if they cannot collect on land costs. Which is more equitable, to tax property owners or to tax the poor without property?
It is good to try to help in solving problems, but the devil is in the details.