One of the members of the audience asked what is the solution for high housing prices and given that many people have committed to high prices how do we go about bringing it down. Various solutions offered were sell HDB flats at cost, form a different category of low cost flats and so on. I think the best answer was given by Dr. Chee when he suggested that we shouldn't try to formulate solutions without all the information at hand - get HDB to open the books first and enough intelligent people look at it and solutions will emerge. It is actually quite a hazard for opposition politicians to try to offer solutions to such a complex nearly intractable problem - they risk getting shot down and people poking holes ...it is not wise to offer yourself as a target when the problem is caused by 3 decades of PAP 'asset enhancement' polices. How do you bring down property prices now that they have already rocketed? Very often housing bubbles deflate on their own causing plenty of damage - e.g. US housing bubble, both the high prices and the subsequent sharp fall in prices caused a lot of pain. The main thing is not to let prices go out of hand in the first place.
3 decades ago, in the 80s, Singaporeans had a good thing going - until the PAP messed it up. CPF contribution was 50% and cannot be used for housing. HDB's mandate was to provide affordable housing so they had to supply affordable flat without people touching their CPF money which would have been more than sufficient for a proper retirement. The surge in property prices was caused by the CPF liberalisation (according to this research paper[Link]). The housing loans to GNP ratio went up from 0.1 in 1980 to a whopping 0.49 in 1997 [Link]- a 500% jump! So CPF was emptied for purpose of buying homes and households became highly indebted - now housing becomes intertwined with retirement. The household debt has grown to $150B as reported a few days ago and the President of CCS warned that Singaporeans are in a "precarious" situation. If not for these policies, Singaporeans would have affordable homes (HDB's mandate) and enough CPF to retire comfortably. The large amont of money we paid for public housing has mostly gone into GIC controlled by a small group of highly paid elites who operate with little transparency - even the late President Ong couldn't get them to open the books fully. How does such an oversized sovereign wealth fund build up by the blood and sweat of ordinary Singaporeans over several decades suppose to benefit the people?
" Housing booms thus create only an illusion of wealth...."
- Daniel Gros, Business Times 1 Jan 2011[Link]
High housing prices only benefit those who are rich and have a few properties which they can unload during the good times, the (smarter) speculators who time the market correctly and property developers whose revenues & margins increase with rising prices. The average Singaporeans family has and needs one home to stay in - they will only benefit if they decide to emigrate which is something many think of doing but most won't. High property prices take away the ability of Singaporeans to save for retirement and reduces disposal income that ordinary Singaporean families can use to improve the quality of their lives. So what can govt do about high housing costs? The govt itself has suggested building more rental flats or build a separate category of flats known as "no-frill-flats" for those who are too poor to buy at current prices. These solutions take care of the poorest of Singaporeans by giving them inferior housing to differentiate from already sold to Singaporeans at high prices. Should the HDB bring down the price of flats? No. The property is used as collateral for loans and people stuck at high prices will be in trouble if the need to sell when the loan is still large. Also, the high prices has created an "illusion of wealth", it is politically unwise shatter this illusion - the last thing Singaporeans home owners want to hear from an opposition politician is the plan to force down his home price. It is hard now to do what should have been done i.e. selling closer to cost, pricing it according to growth in median income to ensure affordability, managing supply well etc. The best the govt can do now is to supply the market with new flats , cool the market with measures and learn the lesson in the next business cycle not to try to boost the market by taking away the measures - remember when the market was still okay the govt liberalised the CPF further by allowing it to be used for the 20% downpayment[Link]. Other things the govt can do is lower the loan tenure - housing price level would be higher if loans can be 30 years vs 15 years - do it when prices threaten to rise and then leave these measures there when prices soften. A long term rise in housing price level much faster than inflation & median income growth is highly undesirable. The best we can hope for in the current situation is for income to catch up with the current price levels assuming the govt can keep the market "cool" over a long period and the global economy grows. The most likely scenario, however, is prices fall in the next downturn and if the downturn is bad, Singapore can experience some of the more nasty effects of housing downturns in other countries given the high level of debt here.
The issue of Workfare was also brought up during Face-to-Face. Gerald Giam of Workers party said that he thinks Workfare is workable but the govt insists that a large part of it goes into CPF and the average Workfare receipient gets only $80 a month. A number of bloggers have also step forward to support the principle of Workfare in the past few months. I want to take this chance to explain more clearly why I don't support Workfare as a long term solution vs minimum wages. Workfare is easy enough to understand-a large number of workers in Singapore no longer make enough for basic living and Workfare supplements their wages. The PAP govt fouls up its own solution by insisting that a large part of Workfare goes into the receipient's CPF account[Link]. But what really is wrong with Workfare? Singapore has a 3rd world wage structure and the biggest income gap among developed countries. That is why we have so many people who cannot support their families working full-time jobs. How did we end up with a 3rd world wage structure? Import of cheap foreign labor that depressed the wages of low income workers and kept industries dependent on cheap labor as a large part of our economy. Once there is cheap labor businesses stop investing to improve productivity and Singapore's productivity was just 1% a year for the last decade [Link][Link]. Workfare helps to entrench the 3rd world wage structure by forcing workers to work for low wages in menial jobs in order get their 'workfare'. It provides no incentive for businesses to improve productivity... businesses being able to get cheap labor will be less motivated to improve productivity. By supporting Workfare as a solution , Worker's Partywill take the pressure off the PAP govt to adopt policies that will move us away from a 3rd world wage structure and narrow the income gap. In the long run, if we do not change course, more people will fall into workfare which is actually a state of poverty (some call it slavery[Link]).
Something is wrong with our economic system if a man working full time does not make enough for a decent living and to support his family. All other developed countries have a narrower income gap and minimum wages. Being able to implement minimum wages says a lot about a govt and the economic system of a country - it has managed to keep the wage gap narrow, move away from industries dependent on low wages, and kept the cost of living contained so that the minimum wage is not disruptively high. Under the PAP we have none of these pre-requisites in place and if the PAP continues on the same path, we will move further and further away from being able to implement minimum wages. Supporting Workfare as a long term solution does not get us back on track to fix the 3rd world wage structure because it gives the PAP the license to continue importing more cheap foreign labor....because they can now argue that Workfare takes care all those whose wages are depressed due to their policies. Workfare over time will create a new and growing underclass among Singapore because it takes away the incentives for changes to our wage structure.