Inflation has dominated the public and private conversations among Singaporeans in recent months. Rising costs of living and inflation were the top two domestic and global concerns among Singaporeans based on Blackbox’s latest study: ‘Emerging From The Pandemic: The New Mood In Singapore’. However, housing affordability concerns were not too far off and were one of their top 5 concerns.
Epitomising this inflationary pressure are the near constant news articles highlighting the latest record in Housing and Development Board (HDB) resale flats and private home prices. Resale HDB prices rose 2.6% in the second quarter of 2022, compared with 2.4% in the first quarter according to a July report by HDB. Meanwhile, private home prices rose 3.5% in the second quarter, almost five times that of the 0.7% increase in the first quarter.
In its latest survey, Blackbox found that Singaporeans are increasingly feeling that the city-state is becoming an unaffordable place to live for many people (81% share this sentiment), and nearly 1 in 2 (48%) Singaporeans surveyed feel that the Government needs to do better in tackling the crisis of housing affordability.
Why are housing prices going up?
Inflation has caused an upward pressure on housing prices recently, especially in terms of costs of building materials and manpower. Lockdowns both by Singapore and other countries have also contributed to the significant undersupply of construction manpower. Singapore’s construction industry is heavily dependent on foreign manpower, and the lockdowns have only hampered progress on existing and new housing projects.
Concerns about housing affordability came up much earlier though.
Prices of HDB flats in both mature and non-mature estates have increased by at least 15% since 2011.
The inability to meet housing demands has also contributed to the increasing housing prices long ago. Overall, the number of applications received per Built-to-Order (BTO) flat rose from 3.7 times in 2019 to 5.5 times in 2021. In essence, the demand for housing is approximately 5 times higher than supply for housing in 2021 with 2022 likely to see similar statistics as well.
Even as HDB ramps up BTO supplies, their efforts will have a lag period as it takes approximately 2-3 years for HDB projects to be completed. COVID-19’s restrictions have also meant that 2-3 years may not be sufficient time. Some Singaporeans have seen their BTO projects delayed by 6-7 years. HDB is unfortunately in a catch-up phase. 53% of polled Singaporeans expressed negative sentiments towards BTO projects being delayed by 6 to 12 months. Though negative sentiments are likely to climb if there are even further delays.
The reopening of Singapore’s borders, coupled with domestic situations in other countries, has made Singapore a popular destination for many foreigners. Despite cooling measures by HDB to taper off prices, demand for housing, especially luxury homes, has not dampened.
Rental rates have shot up too
As Singaporeans question the affordability of owning a HDB BTO flat with 66% of Singaporeans having negative sentiments about increasing housing prices, some have begun turning towards renting out spaces instead. 34% of Singaporeans believe that younger adults should be moving out and renting their own spaces. This is especially true among younger Singaporeans (aged 20-34 years), with 36% of respondents believing the rental trend to be a mostly good one.
However, the rental housing market has also seen its share of increasing prices in recent months. Rental market prices have increased for 17 consecutive months for condominium rentals. HDB rental rates in general for May 2022 rose 2.4% from April 2022 and 16.2% year on year.
The increased demand and prices for rental space has, unfortunately, cultivated a depressing trend—rental scams. Rental scams involving fake property listings or coercion to pay rents in advance for non-existent properties have cost 144 victims at least SGD 190,000 since January 2022. Some rental owners were even scammed by fake interested parties into paying for ancillary services such as movers’ fees etc. Rental scammers are taking advantage of the fact that Singaporeans are eager to secure affordable homes, highlighting the cascading effect unaffordable housing can have on unsuspecting Singaporeans.
The social compact and ‘flipping’
The focus on housing affordability both among everyday Singaporeans and the Government stems from an important social compact between the two parties. The social compact essentially ensures that Singaporeans continue to have access to affordable housing in return for support towards the Government. Home ownership is such a pivotal element of the Singaporean social compact that Singaporeans expressed dissatisfaction with regard to the ownership terms. While Singaporeans do not own their HDB flat in perpetuity, they do own the flat for its 99-year lease.
Beyond the political and emotive aspects, housing also has an important financial role for most Singaporeans. For most, HDB homes are the primary asset in a household’s finances. Much like any other asset, there is a strong desire among HDB owners to see their homes accrue in value. This directly feeds into the act of ‘flipping’ flats. The flipping activity is where Singaporeans receive an HDB flat, reside in it for 5 years then sell it for a profit. This is a common practice and has a direct upward effect on housing prices.
Home or Investment?
While increasing valuations for HDB flats would be good for owners, an increasing demographic of younger Singaporeans who may never own an HDB flat and non-homeowners in general are increasingly feeling like they are being left out of an important Singaporean experience. Some non-homeowners feel they are losing out on the financial benefits of flipping HDB flats while other Singaporeans are being denied the opportunity to build a home.
A tension has begun to arise as Singaporeans grapple between seeing their HDB flats as homes versus investing assets. HDB’s mandate as quoted by many younger Singaporeans is to provide affordable public housing for Singaporeans. Yet, with housing being the primary asset for so many Singaporeans, the notion of devaluing flats to make them affordable for the have-nots seems unrealistic.
Time to rethink ownership
Housing is an emotional topic wherein any policies to tackle affordability will be highly debatable. Housing affordability is not just a case of being able to pay the numerical amount for the HDB flat. It is also a question of the HDB flat being value for money.
One of the key steps necessary is to rethink the concept of ownership. Singaporeans should realise that their HDB leases, while long and therefore conceptualised as ownership, is not true ownership. Singaporeans are renting subsidised housing from the Government in reality. This is an important and painful mindset shift that Singaporeans will need to adjust to. Singaporeans’ behaviour, especially with flipping, stems from their belief in traditional ownership.
HDB may also need to introduce harsher cooling measures to ensure housing remains affordable, especially for younger Singaporeans who are already under pressure from existing inflation concerns. Clawbacks on HDB grants, increasing stamp duties, or even barring second-time buyers from applying for an HDB BTO flat might be some of the drastic options HDB might need to do to ensure that HDB flats are homes first, investments second.
To discover how Blackbox Research can help governments and policymakers tackle the ever-looming housing crisis being witnessed in many major cities around the world, write to us at connect@blackbox.com.sg for our latest insights and solutions.
Author: Blackbox Research Team
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