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Commentary: Supply-demand imbalances in HDB market will need time to clear

Two motions on public housing policies were debated in Parliament on Monday. NUS’ Sing Tien Foo weighs in on the discussion of affordability and accessibility.

SINGAPORE: The high ownership rate in Singapore has been underpinned by the two fundamentals of public housing policies: Affordability and accessibility. The Government and opposition party Progress Singapore Party (PSP) tabled two motions on Singapore's public housing in Parliament on Monday (Feb 6).

They may not disagree with each other in the intent of the motion about the need to provide "affordable" and "accessible" public housing to residents. However, they differ in their views about how they can better help young families realise their housing aspirations.

Around 10 MPs spoke on Monday. The debate continues on Tuesday.

The two terms are conceptually different and mutually exclusive. The affordability issue concerns how families can afford to pay for flats without overly burdening them financially. However, the accessibility question is more complex, which may imply that subject to meeting the eligibility criteria, will families be able to get housing flats of their choice, and how soon will they be able to get them?


Are Build-to-Order (BTO) flats priced out of reach for the masses? The pricing of BTO flats is the key concern on housing affordability. High resale housing prices cause significant inflation in land prices in the surrounding neighbourhood, especially in mature housing estates.

PSP argued that high land cost is the reason for high BTO prices in mature housing estates. It said that the Government could further lower the BTO prices if HDB could purchase land from the state at historical prices. 

The Government explained that BTO pricing is decoupled from resale housing prices. National Development Minister Desmond Lee explained that BTO prices are set to ensure that most households can afford to pay for the flats. Based on the mortgage servicing ratio of 25 per cent, close to 70 per cent of BTO flats launched in 2022 were affordable for households with a median income of S$8,400 per month, he said.

The Housing and Development Board (HDB) incurs losses when selling BTO flats below land and construction costs. The subsidies that keep BTO prices affordable will increase significantly in a rising housing market. The HDB's financial deficit in supporting the home ownership programme rose sharply to S$3.85 billion in 2021, almost double the S$1.953 billion deficit recorded the previous year.

If HDB were to reduce BTO prices while keeping the same BTO supply, its fiscal deficit would widen even further. The Government may have to allocate more fiscal funding to support the public housing programme at the expense of other public services. Otherwise, the supply of new BTO flats may have to be cut if the fiscal resource is finite, which could further aggravate the supply-demand imbalances.

Pricing is a blunt tool that could distort the distribution of limited resources. Lowering BTO flat prices could improve affordability levels for low- and median-income families. High-income families with a monthly income ceiling capped at S$14,000 will also benefit by paying the same prices for the BTO flats.

Low- and median-income first-time families are more constrained by the affordability issue in the BTO market. A direct approach to supporting these families is to channel more Enhanced CPF Housing Grants (EHG) targeting these first-time families.


Accessibility is more strongly felt in tight markets with shortages in housing supply. When more people compete for a small supply of BTO flats, the chance of getting a BTO flat is likely lower.

In 2022, the application rates of first-timers for some four-room BTO flats in mature estates, such as projects at Dakota Crest in Geylang and Sun Plaza Spring in Tampines, were more than 16 times. For every flat allocated in these projects, 15 other applicants were unsuccessful and left disappointed in the BTO exercises.

The construction delays caused by the pandemic further compounded the accessibility problem. Due to the labour crunch and disruption to the supply chain, some BTO projects launched during the pandemic will take longer to complete; for example, the Queen's Arc project in Queenstown, launched in August 2021, has an expected completion time of about five and a half years.

Unlike in the private market, prices will need to increase steeply to clear the supply shortage. However, HDB did not increase the prices of BTO flats during the COVID-19 pandemic.

Instead, it ramped up more supply to fill the demand gap. It also plans to launch some flats with a shorter completion time of three years or less to further reduce the wait time for first-time families. The imbalances in the market will still need time to clear.

The supply-induced accessibility issue could be resolved by building more BTO flats to allow young families to get their flats faster and quicker.

However, suppose accessibility is due to mismatched expectations, where families are determined on getting BTO flats in selected mature estates. In that case, the BTO supply may not solve the accessibility issue for these families, and they may have to find suitable alternatives in the resale market.

Affordability and accessibility issues in the public housing market are not persistent and could change quickly with the turn of the market cycle. Therefore, policy interventions will not be static and should constantly be reviewed to meet changing aspirations and needs of the people.

Sing Tien Foo is the Provost's Chair Professor at the Department of Real Estate, NUS Business School, National University of Singapore. The views are the author's and do not represent the views of NUS and its affiliates.

Source: CNA/aj


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