We are all familiar with the low total fertility rate (TFR) in Singapore. As Minister Indranee shared with us on 4 Oct 2022 in response to my Parliamentary Question, many couples continue to aspire to have their own home before they start a family.
The affordability and accessibility of HDB flats therefore play a very important role in our TFR.
PSP contends that our current housing policies has delivered on either affordability or accessibility, but not both.
New flats are affordable after grants and subsidies, but not accessible due to the long waiting time. Resale flats are accessible but not affordable due to high resale prices.
This is the reality and predicament faced by young Singaporeans when they are looking at getting married and starting a family.
Let us look at these issues one by one. First, the waiting time.
MND tracks waiting time by measuring time from the point of successful BTO booking to the point of key collection. This waiting time does not include time spent on unsuccessful applications. But for young couples, the waiting time for HDB flats starts from their very first application, whether successful or not. There is some disparity in the concept of waiting time between the two groups.
As MND does not track the time from first application to key collection, it makes it difficult to grasp how long couples have to wait from the time they decide to get married to each other, to the time they get the keys to their first flat. All we have are anecdotes here and there, which build up the impression that our young people mostly feel that the waiting times for BTOs are too long.
It has been evident for a while that the BTO approach is not meeting the needs of young Singaporeans. The government’s launch of a small number of flats with a shorter waiting time, or SWT, is recognition of this. From 2018 to 2022, between 1000 to 2900 units of such flats were supplied each year. Under SWT, flats are constructed in advance before they are launched for booking. This is already a departure from the build to order approach. It is time to face up to the fact that the BTO approach is not satisfactory and start to build for projected demand based on factors like marriage rate and new citizens growth rate.
The government has the means to forecast and project. This should not be a major challenge. There was a lesson in the past for overbuilding but that should not stop us from exploring options to be proactive. Former Minister Mah Bow Tan changed from the Registration for Flats system to BTO because the registration queue fluctuated widely in the wake of the 1997 financial crisis. We agree that a registration queue that required no commitment is an unreliable indicator. However, annual marriage and new citizen numbers are relatively stable. In the 10 years from 2012 to 2021, the number of resident marriages each year ranged from 24,000 to 26,000 except in 2020, the year covid struck, when it dropped to 21,000. The number of new citizens each year is about 20,000. In addition, there is always a demand for rental flats to provide the buffer for any excess flats built.
In the meantime, efforts need to be made to accelerate building to clear the current backlog and shorten the waiting times for current and future cohorts.
The Minister has said that they have ramped up the BTO supply to launch 23,000 flats each year in 2022 and 2023, and are prepared to launch up to 100,000 units in total over the 5 year period 2021 to 2025 if needed. That’s an average of 20,000 units per year from 2021 to 2025.
This supply of flats pales in comparison to the past.
40 years ago, over the 5 year period from 1981 to 1985, HDB completed 189,000 units. That’s an average of 37,900 units per year. Can the Minister explain why HDB is not supplying more flats when it is possible to do so? Prime Minister said in his National Day Rally speech that “our problem is not finding the space to build enough flats”. So if land is not the constraint, what is causing us to be unable to build as fast as 40 years ago despite technological advancements?
As the saying goes, when there is a will there is a way. Does the Government lack the political will to tackle the low TRF problem we are facing? Our low TFR has resulted in our over-reliance on foreign manpower, which has brought along a whole suite of other issues like job competition, social friction and national identity. But I will not go into these issues today.
Increasing the supply of new flats would not only shorten the waiting time for future applicants, enable them to get married and start a family earlier, it would also spur economic growth at a time when global growth is slowing.
PSP therefore urges the Government to increase the supply of new flats in the immediate term.
Next, let us look at affordability.
MND has placed a full page advertisement in Straits Times with examples of different couples at different income levels paying for flats of different sizes to illustrate the affordability of new flats after government subsidies and grants. These examples illustrated how different couples are able to pay for their flats using only their CPF, with no cash payment.
What is not illustrated is what happens to retirement adequacy after paying for the flats using CPF.
In response to a Parliamentary Question from Jamus Lim, the Minister for Manpower replied that HDB flat buyers used 64% to 100% of their ordinary account contributions to pay for their HDB flats. This is especially serious for those in the lowest 20% in terms of income levels, where 96% to 100% of their CPF contributions into the ordinary account are used up to pay for the HDB flat. For the other income groups, close to two-thirds or more are used up. This adversely affects the adequacy of their retirement savings.
According to the Minister for Manpower, in 2021, 67% of our CPF members met the Basic Retirement Sum, which pays out about $850 per month. This payout is not enough to meet expenses. Researchers at LKYSPP and NTU conducted a study in 2017 – 2018 and estimated that the amount required is about $1,379 per month. With inflation, this amount must now be higher. And what about the one-third who can’t even meet the Basic Retirement Sum?
In conclusion, the affordability of new flats comes at the expense of retirement savings. At worst, retirees are unable to meet basic expenses. At best, retirees suffer a lower standard of living after retirement.
New HDB flats used to be even more affordable, under the previous generation of PAP leaders. But the prices of new HDB flats have been rising over the years. How is it still kept affordable?
There are two ways to achieve this. One, stretch the loan repayment over a longer period of time so that each instalment is lower and hence affordable. Two, by giving government subsidies and grants.
The first method worsens retirement adequacy because it means that CPF money is being drained for a longer period of time and the amount of interest to be paid also increases significantly with a longer loan tenure.
The second method provides an illusion of affordability by presenting a selling price after subsidies and grants that is lower. But where does the government subsidies and grants come from? From taxpayers. From the GST that we pay. From incomes taxes. From duties on liquor and tobacco, taxes on petrol and vehicles. So while the government subsidies and grants are not paid directly by the flat buyers, we are all indirectly paying for everybody’s HDB flats.
Furthermore, the government grants can create a price spiral.
As grants are also provided for resale flats, this increases the purchasing power of the buyers, hence increasing demand and therefore resale prices. When resale prices increase, to help first timers afford resale flats, grants will have to be increased. Thus leading to a price spiral.
Meanwhile, when resale prices increase, the Chief Valuer looks at recent transactions, and revises land prices upwards. This means HDB need to pay more to SLA to be put into reserves, and the price of new flats before subsidies increases. When the price of new flats before subsidy increases, either more tax revenue is needed to provide more subsidies and grants or flat buyers must pay more. Either way, the amount paid into reserve continues to grow larger and larger as resale prices increase, paid for by flat buyers and taxpayers.
In summary, the affordability comes at the expense of retirement savings and taxpayers who have to fund the government subsidies and grants for HDB flats.
PSP is therefore proposing a different pricing model for affordable housing as mentioned by my colleague Mr Leong Mun Wai earlier. In this model, new flats are sold to Singaporeans without collecting the land price upfront. However, if the flat is subsequently sold by the original buyers, the land cost will then be recovered from the resale price.
The objectives of this model is 2 fold. Firstly, to offer young Singaporeans new flats at a lower upfront cost. About 60% of the total cost of a HDB flat is land cost and the remaining 40% is construction cost. If land cost is taken out, the upfront payment will be significantly lower.
Secondly, to preserve the value of existing flats. One of the biggest problems in any attempts to offer new flats at lower prices is the uncertainty over the effect on resale prices. However, under this proposal, since land cost must be paid at the point of resale, this puts the new flats on par with the other flats sold earlier with land cost. This will serve to preserve the value of existing flats.
Another problem we are currently facing is the lease decay issue. As the remaining lease of a HDB flat gets shorter, the value of the flat drops. At the end of 99 years, the flat returns to Government and the value thus goes to zero. The worry is that flat buyers who used most of their CPF funds to buy the flat will be left with little retirement funds as the value of their flats go to zero. Under this proposal, with the land cost deferred, the amount of CPF withdrawn to pay for the flat will be much lower, leaving Singaporeans with more funds in their CPF. This will make the lease decay less of a problem.
HDB for Singles
Lastly, I wish to touch on HDB flats for singles.
PSP supports WP’s proposal to lower the eligibility age for singles to buy HDB flats to 28. In addition, we propose that singles be allowed to buy 3 room flats or smaller. Singles who own a 3 room flat will be able to get married immediately upon finding a suitable partner and even have children whilst applying for a bigger flat. Let HDB flats not be the reason for any delays in marriage and having children.
In conclusion, if we are serious about tackling the low TFR problem, we need to pull out all the stops. Our low TFR is not only affecting our economy, it is also affecting the make-up of our social fabric, the social support for the elderly and our national defence. This has been such a long-standing problem, and with the feedback that our young want their own homes before starting a family, why aren’t we taking decisive steps to address this? The supply target of up to 100,000 over 5 years from 2021 to 2025 is too modest. We should be increasing supply more decisively in the immediate term and change to a model of building for projected demand based on factors like marriage and immigration numbers, instead of the BTO approach.
Secondly, using government subsidies and grants to achieve affordability is not a silver bullet. As the Chinese saying goes, 羊毛出在羊身上。This means that what appears to be a benefit has actually been paid for in other ways. We urge the government to seriously consider the alternative deferred land cost model we are proposing. Thank you.
 HDB Annual Report 2021/22 Key Statistics
 https://lkyspp.nus.edu.sg/research/publications/details/1-379-a-month-needed-for-basic-needs-this-is-how-singapore’s-seniors-agree-on-this-baseline and https://www.straitstimes.com/singapore/study-finds-1379-a-month-needed-to-meet-basic-living-standard-for-single-elderly