Are HDB flats needed in prime areas?
By Feily Sofian,
Lin Zhiqin
/ The Edge Property |
There has been no new public housing project in the city centre since The Pinnacle@Duxton. This could change, with the government deliberating the injection of HDB flats in prime areas such as the Greater Southern Waterfront. The area refers to parts of Pasir Panjang and Tanjong Pagar that will be freed up when the ports are relocated to Tuas by 2027.
Sellers at The Pinnacle@Duxton have reaped a windfall, as prices have spiked more than 150% since the development’s launch in 2004. The spike in prices raises questions about equity. Some people are ineligible to apply for public housing, while others may fall under the income ceiling but not be able to afford these prime flats. Balloting may be fair, but those who were unsuccessful still missed out on the windfall.
The equity issue continues on a macro level. Public housing development takes land away from higher- value uses such as commercial and private housing. This implies lower revenue from land sales and property tax that could be invested and spent on public goods.
We might also take a step back and reflect whether having public housing in the city centre is imperative in building an inclusive society. In many countries, gentrification — a trend in which the middle-class and affluent displace poorer residents in a popular location — drives lower- income residents to marginalised neighbourhoods with substandard infrastructure. In Singapore, however, each town is served by quality schools, transport infrastructure and other amenities. This levels the playing field for lower-income households. The high percentage of population housed in HDB flats also dispels any stigma attached to public housing. Therefore, residents living in HDB flats are not marginalised, although more could be done to aid those living in rental flats.
Lee Nai Jia, head of research at Edmund Tie & Co, says: “At this point in time, I feel HDB has done a wonderful job and we have achieved a state that most people want to emulate. We should focus more on allowing companies to grow by having subsidised rents.” Lee made the comments in his personal capacity.
The decision to introduce more public housing in prime areas should perhaps hinge on other benefits, while inclusivity becomes the positive spinoff. Policymakers may consider some of these advantages in their cost-and-benefit analysis.
--thisisapagebreak
One of the benefits of introducing public housing in the city centre dovetails nicely with the government’s push to go ‘car-lite’
The perks
One of these benefits dovetails nicely with the government’s push for Singapore to go “car-lite”. Decentralisation brings jobs closer to homes and alleviates congestion in the central area. In the same vein, the government could also bring homes closer to jobs and ease burdens on road and rail infrastructure as well as reduce fuel consumption. This is somewhat similar to managing the urban sprawl that afflicts many cities.
However, public housing in the city centre must be large enough for the masses to reap the benefits. It should not be a one-off launch exercise for the sake of inclusivity.
The less quantifiable effect is improved health as a result of less stress associated with commuting daily via crowded public transport.
Introducing public housing is also an efficient mechanism for rejuvenating a town with younger households. Again, this is unique to Singapore, as public housing is not perceived as a negative that will drag down a neighbourhood. In turn, the larger resident population would draw a diversity of amenities.
Sing Tien Foo, associate professor at National University of Singapore’s Department of Real Estate, says: “Bringing public housing to the Greater Southern Waterfront will bring agglomeration benefits to the area, such as critical mass in the population that would attract and sustain good local amenities including eateries, shops and schools.”
Even the affluent segment of the population would gain from the diversity in amenities. Several stalls at hawker centres, for example, have made their way to the Michelin Guide.
“The population in the downtown CBD including the Marina Bay area is not yet dense enough to bring the agglomeration, which could also add vibrancy to the area,” Sing notes.
A public housing population could ultimately lead to more optimal land use. Today, the CBD plays host to a working population that is most active during lunchtime and for a short duration before and after knocking off from work. Most eateries and retail outlets do not operate on weekends.
--thisisapagebreak
Ensuring fair play
Discontent about the prime HDB flats issue is likely to stem from those who could not secure a unit because of luck, eligibility or the high price tag, as well as the potential windfall for owners who sell these flats in the resale market.
Edmund Tie’s Lee says, “These homes are randomly assigned to people who qualify, and they get to enjoy the capital gain and subsidies. These subsidies are implicitly paid via taxes by people who could not purchase a flat because of income status or luck. In other words, those successful at balloting get to profit mainly because of luck and not because of hard work.”
He also gave an example of a budding doctor and his wife who may get a flat in the prime areas, whereas a low-income sweeper may not be able to afford one because of his income. “The doctor may earn 100 times more than the sweeper in the future. What happens is the budding doctor gets to earn attractive returns while the sweeper probably ends up having a house that yields smaller returns,” he says.
NUS’s Sing says, “The government will have to ensure that buyers will not use affordable public housing for speculative gains, and that prices will not climb too high and ‘crowd out’ low- and middle-income families.”
An option that is being considered is a shorter lease period for HDB flats in prime areas. Shorter leases would reduce the prospect of reaping large profits from the resale of these flats because potential buyers would find it more difficult to obtain financing for a flat with a short balance tenure. It also lowers the entry price for lower-income households.
Still, it may not be adequate in dampening capital appreciation. The average price for old three-room resale flats in the central region rose 48% trough-to-peak from $228,000 in 1Q2009 to $337,000 in 2Q2013. These were for flats with a tenure starting in 1970 or earlier.
Their price appreciations were on a par with the HDB Resale Price Index, which increased 49% over the same period, although the former involved flats that were more than 40 years old and may require substantial renovation. Thus, new four- and five-room flats in prime areas may command superior capital appreciation despite their shorter tenure.
“Along with a shorter lease, having a longer Minimum Occupation Period could help reduce the large windfall for sellers,” Sing suggests.
Shorter leases and a longer MOP would differentiate the public housing offering from those by private developers, to avoid adverse impact on rents and prices for the latter. It would also deter rental investors from competing with genuine owner occupiers.
Both Lee and Sing also suggest the possibility of using levies to ensure equity. This method would be a means for the government to recoup some of the value of the land if it had been offered for tender on the open market instead of being used for public housing. The levy could apply to all subsequent resale transactions.
In short, there are spillover benefits of having HDB flats in prime areas on top of building an inclusive society. Policymakers will need to tread a fine line, however, to ensure this initiative to be inclusive does not become a divisive issue.
This article appeared in The Edge Property Pullout, Issue 743 (Aug 29, 2016) of The Edge Singapore.
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