Second Minister for National Development Indranee Rajah systematically dismantled the housing policy proposal delivered by Progress Singapore Party’s (PSP) Non-Constituency Member of Parliament Mr Leong Mun Wai in Parliament today (Feb 7, 2023).
In essence the housing policy by PSP is a “prepaid rental scheme, where the user pays rental upfront, and has the option to own the flat by paying a deferred land cost”, she explained.
However, the more alarming thing left unsaid by the PSP is that its proposal does not safeguard the interest of current or future generations.
“Instead, it will erode our shared reserves,” said Minister Indranee.
A policy proposal which is too good to be true
Here’s a summary of NCMP Leong’s housing policy proposal.
Allow Singaporeans to buy a new flat at a “user price”, that is set based on “construction cost and a “location premium”.
If the individual stays in the same flat for their entire life, they would only need to pay this “user price”.
However, if the individual were to sell their flat in the resale market after the Minimum Occupation Period (MOP), they would have to pay the land cost that HDB had recorded at the point of purchase along with accrued interest.
Singaporeans now and in future have to bear the cost
But what is the catch?
If the individual decides to sell their flat in the resale market, and the property has appreciated at the time of sale, then the State would be getting less than fair market value.
Moreover, since not every one will sell their BTO flat, the State would only partially recover the total cost of land used for public housing.
“No matter which way you look at it, PSP’s proposal involves selling State land cheaply,” said the minister.
But land has value and if it is given away cheaply or at zero cost, someone still has to bear the cost, explained Minister Indranee.
“What Mr Leong has not told you is – you are all paying for it. The cost is borne by all other Singaporeans – each of us in this generation, as well as our children and grandchildren.”
Here’s how Singaporeans will pay the cost
First, Singapore gets less investment returns for funding other things like healthcare, transport, education, and defence.
Since State Land is part of Singapore’s Reserves, giving it away for free is the same as drawing from our Reserves. The money that the State gets from selling the land does not get invested and Singaporeans get less public funds for things that matter.
“To make up for what the NIRC (Net Investment Returns Contribution) cannot now fund, we would have to either raise taxes or cut spending.”
Second, Singaporeans who choose not to sell their flats will enjoy a large subsidy at everyone else’s expense.
Under the PSP model, those who choose not to sell their flats will enjoy a large subsidy at everyone else’s expense.
While it is right to encourage Singaporeans to settle down in their flats instead of selling their house for capital gains, in real life, many Singaporeans sell their flats because they have genuine needs, like catering for a bigger family or downsizing for retirement.
“They may have to sell at a price lower than the original land cost, and would lose out,” said Minister Indranee.
“If you’re a HDB owner today, you should think what PSP’s proposal means for you. Essentially, there will be a new precinct right next to you with flats of similar attributes, but much cheaper. Please consider what this might mean to your property value. Also consider: Is it fair that by policy design, somebody else gets the same flat as you but at a much cheaper price.”
Lastly, BTO flat applicants will face lower success in getting a flat, longer waiting times, and greater uncertainty.
PSP’s proposal will drive up demand for BTO flats sharply and more Singaporeans will join the BTO queue.
PSP’s proposal is not good housing policy
At its heart, the question is whether PSP’s housing policy proposal is good policy.
Under PSP’s model, there are no grants and subsidies. Those who need to sell their flat due to genuine needs may have a smaller uplift.
But is it enough to finance another flat?
Minister Indranee contrasted that with the PAP Government’s homeownership model:
“This is unlike the current HDB homeownership model, which enables Singaporeans to own their flat at an affordable price, and benefit from our overall economic growth when they subsequently monetise it.”
The PSP’s proposal also runs the risk of destabilising resale and property market when BTO demand rises sharply.
This is why PSP’s housing policy proposal does not work.
Image via: Nathan Oh on Unsplash