THE Housing Board has stressed that new flats are affordable because first-time buyers use on average less than 30 per cent of their household income to service their housing loans.
To shore up this finding, the board has also compared average prices of new flats launched from January to August this year with the median household income of first-time applicants, to show how buyers will spend an average of 22 per cent of their monthly income servicing a 30-year-loan on their properties.
The fundamental problem with this data is that it does not take into account home-seekers who fall through the cracks of the HDB system, argues real estate academic Lum Sau Kim from the National University of Singapore.
As those who feel they cannot afford these homes will not apply for them in the first place, their income data may not show up in the board’s statistics.
Dr Lum says: ‘It is not enough to look at people within the HDB system. We should also be looking at those outside the HDB system and asking why they are not able to access it.’
In response, HDB deputy chief executive Yap Chin Beng says that using the income profile of applicants – and not the general population – is the best way to capture the financial circumstances of home-seekers that will take into account their preferences for a certain type of flat.
The other grouse that critics raise is that the HDB’s affordability data is calculated based on the assumption that home loan repayments are pegged to a 30-year tenure, the maximum allowed under the board’s loan rules.
According to the HDB, 56 per cent of flat owners taking its loan chose the 30-year loan tenure this year.
In the 1980s, the HDB set its maximum loan tenure at 20 years. That limit was revised upwards over the years, to make flats more affordable and also because people are living longer and retiring later, says Mr Yap. He notes that commercial banks these days set even higher maximum tenures.
To get a sense of how affordability of flats has changed over the years, Insight requested figures showing the price to income ratio of HDB flats over time. This figure, typically derived from dividing the median home price by the median annual household income, is a back-of-envelope gauge of affordability.
When the HDB compared the average selling price of its new flats in non-mature estates to the median income of first-time applicant households, the ratio for four-room flats increased from 4.7 in 2000 to 5.5 this year. This meant it had become less affordable for applicants over time. The trend was the same for five-room flats which showed the ratio growing from 5 to 5.6.
The HDB, however, says that the comparisons of the ratios over time are ‘not appropriate’. It says: ‘Singapore’s developments, including economic opportunities and infrastructure, have improved over the years. It is only natural that our assets have appreciated in value over the years to reflect these multidimensional improvements.
‘In addition, flat prices may fluctuate in the short term, depending on prevailing economic and market conditions. The recent fluctuations in asset and equity values are not unique to Singapore.’
Finally, it notes, improvements in the design and quality of flats, as well as government investment in infrastructure like linkways and landscaping, have also raised the value of properties.
So are there better ways of calculating affordability?
Dr Lum believes so. As it stands, Singapore’s growing income gap may mean that the financial difficulties of the lowest income groups are not captured adequately by average or median income figures.
She suggests a more targeted approach: Calculate how affordable the flats are to households disaggregated by deciles or 10 per cent cohorts of the nation’s income distribution.
‘We really need to correctly determine affordability for the groups that we wish to target for receiving public housing assistance.’
Calculations for housing affordability could also take into account associated costs like conservancy charges and property tax, with adjustments for household size.
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As it stands, Singapore’s growing income gap may mean that the financial difficulties of the lowest income groups are not captured adequately by average or median income figures.
Source: Straits Times, 17 Oct 2009
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