Time To Raise The $8,000 Income Ceiling For HDB Flat Buyers?

Source : The Sunday Times, September 9, 2007

THE economy is booming and property prices are heading north. Although the housing market moves at a frenetic pace these days, one thing has stayed the same for more than 12 years now - the $8,000 ceiling on monthly household income for those buying new Housing Board flats.

Of late, some people have wondered if home prices are getting out of reach. The Government appeared to try to tackle those concerns last month by expanding the pool of low-income households which qualify for extra housing aid.

Households earning up to $4,000 a month, instead of up to $3,000 previously, are now eligible for grants of as much as $30,000 to buy their first home. With this change, more people now qualify for the aid, and households already qualifying will now get an even bigger grant.

But what about the $8,000 income ceiling? Will it be raised too? The current cap has not changed since it was last raised from $7,000 in December 1994. For most of 1992, it stood at $6,000.

Yet many things have changed since 1994.

Data from the General Household Survey, which is conducted once every 10 years, shows that the proportion of resident households earning $8,000 and above every month has nearly doubled from 10.85 per cent in 1995 to 19.9 per cent in 2005.

This means that the proportion of households qualifying to buy new flats shrank by roughly 9 percentage points.

More recent data from the Department of Statistics shows that the proportion of employed households earning $8,000 or more stood at 23.4 per cent last year.

This means that the proportion of households not qualifying for new public housing is even bigger when we factor out the number of households made up of unemployed people, who probably would not be in a position to buy homes.

And in real terms, taking into account inflation, $8,000 in 1994 had the same spending power as $9,110 in July.

Meanwhile, the price index of HDB resale flats grew 36 per cent from 1995 to June this year.

New HDB flats are the cheapest homes in Singapore, a refuge for home seekers feeling the heat from the buoyant private and HDB resale market.

So the real question for policymakers is this: Have market conditions changed sufficiently since 1994 that households earning somewhat more than $8,000 now need the option of buying new HDB flats?

One can tell what a difference that option makes by comparing the prices of flats within one area. A batch of new four-room flats in Sengkang were offered at $145,000 to $200,000 in May. Resale four-room flats in the same area, for the period from April to June, changed hands at a median price of $245,000, notably higher.

In the more volatile private market, prices of 99-year leasehold condominiums - a typical choice for many home buyers who could otherwise have picked HDB flats - grew 11 per cent between the third quarter of 1999 and the second quarter of this year. Given the massive slump that followed the 1997 Asian financial crisis, there’s a chance they could be cheaper now than they were in 1994.

But families with only a little more than $8,000 in monthly income may not be in a strong position to buy a home for $600,000.

New HDB flats, by comparison, are a ’safer’ choice. Although their prices generally follow market trends, it is understood that the changes are moderated by the Government in order to keep public housing affordable.

The Singaporeans caught between public and private housing are the proverbial ’sandwich class’ - not well off enough to cruise into private housing but not poor enough to be entitled to much government aid.

Is housing becoming less affordable for them? Are they left with the option of spending an increasing - or perhaps disproportionate - part of their income on housing?

If so, is it time to adjust the $8,000 income limit to put them back under the HDB umbrella?

After all, a household earning above $8,000 a month is not just barred from new HDB flats, but also disqualified from subsidised housing loans and housing grants of up to $40,000 to buy resale flats. (Those earning not more than $4,000 a month are entitled to additional grants, as explained above.)

The HDB does ‘exercise flexibility on a case-by-case basis’ for home buyers whose household incomes marginally breach the limit.

But rather than bending the rules occasionally, perhaps it should be reviewing the limit instead.

For if encouraging home ownership is a key strategy to root Singaporeans to Singapore, then shouldn’t the Government be concerned about the increasing proportion of Singaporeans possibly finding homes less affordable?

Public housing here plays a different role from that in other countries, where it is often merely a roof for the poor. In Singapore, more than 80 per cent of the population live in HDB flats. These properties are seen not just as a store of value but also a source of retirement income.

To be fair, the HDB has to perform a delicate balancing act. It cannot lift the income ceiling by too much lest demand for resale flats collapse. This would depress the value of what, for many people, is their single biggest asset.

But perhaps the balance has now swung too far against the middle-income group.

It could have been something on the minds of policymakers when they recently decided to raise the income limit of families receiving aid for their children attending independent schools. From next year, the ceiling will be set at $7,200 monthly, almost double the current cap.

The HDB income ceiling question rings even louder these days as the Government looks at ways of getting its rapidly ageing population to save enough for retirement.

An obvious way of doing so is simply by not overspending on housing in the first place. And that can best be done when someone actually has the choice of buying the cheapest home available.