Might housing buffer stock be an answer?

THE debate in Parliament on state housing saw a number of popular assumptions disproved by National Development Minister Mah Bow Tan. He showed, with figures, that purchases of resale flats by private property owners and immigrants were too few to have contributed to a price spike in the past year. As for the charge that ‘too many’ owners were living off the Housing Board by subletting while they camped in with relatives, the fact was that only 3 per cent of eligible owners did so. On persistent complaints that even first-time bidders were unsuccessful after the ‘umpteenth’ try, the truth was that there were umpteen rejections by finicky applicants who were also selective with the facts.

The minister’s responses should eliminate the unproductive aspects of the debate. Energy should properly be focused on refining stability of supply so as to avoid famine-and-feast situations that exacerbate impressions of flawed planning. Buyers are certain supply has been short. How else to explain the price spurt? Mr Mah explained that 25,000 flats would have been made available between last year and the end of this year. High application rates and multiple rejections by applicants, as he has often noted, mask the truth. Such back-and-forth can lead to a dead end. A practical approach might be to shorten the waiting period by making supply less time-inelastic. The build-to-order (BTO) scheme adjudged as the most efficient in meeting demand typically takes four years to complete, from the taking of bookings to occupation. Shaving off a year, or two if feasible, will remove much buyer angst. The Government campaign to steer the construction industry towards less labour-intensive methods, by using pre-cast components and modern processes, is a nice fit in this regard.

There was an overhang of 31,000 unsold flats following the 1997-98 Asian currency collapse. It took a decade to clear that. Pent-up demand after the Sars period and the 2008 banking meltdown created what now appears to be a supply shortfall. The experience of the dead-weight surplus should not discourage the HDB from holding an adequate buffer stock of flats to meet unforeseen demand spikes. Last year, there were about 2,000 surplus flats left over from various schemes like buy-backs and unallocated BTO units. That was unplanned. A variable buffer stock could be considered, in addition to shortened building time. Holding costs will have to be taken into account when considering the feasibility of this approach, but it may be a price worth paying.

Source: Straits Times, 10 Mar 2010