Donald Low, the associate dean for research and executive education at the Lee Kuan Yew School of Public Policy wrote an article which was published on the Straits Times on Monday (‘Rethink house price policies’, 17 Nov).

In the article, he criticised the government for its misguided home ownership policy of fusing the goal of home ownership with that of asset appreciation.

“While house price inflation provides a boost to consumption because of the wealth effect, this benefit has to be weighed against its costs,” Mr Low wrote.

Not only do rising house prices cause anxiety for new households looking for a home, but they also have socially corrosive effects, Mr Low opined.

For example, if house prices increase more rapidly than wages over a sustained period, people may begin to view financial speculation or investing in property as a more reliable way of securing income gains than through their own labour.

Mr Low said that this shift in social attitudes with respect to making a quick buck through rental income and capital gains instead of wages will erode Singapore society’s work ethic.

It can even increase status competition and envy, and divert society’s resources from productive activities to less productive and potentially destabilising ones.

Mr Low argued that the government, in its eagerness to make Singapore a global city with liberal immigration policies for highly skilled individuals and open capital markets, its high-end private property prices will rise towards those seen in other global cities.

“These forces in turn exert upward pressure on mass market private home prices and, to some extent, HDB resale prices,” he said.

“Sky-high private property prices exacerbate the sense of inequality, reduce social mobility, and increase the risks of destabilising housing booms and busts. These structural changes suggest that a new paradigm in public housing is needed.”

Mr Low suggested that the new paradigm should include:

1. HDB to go back to its basics

Mr Low wants HDB to “once again embrace affordable housing for the majority of Singaporeans” as its primary mission. He suggested keeping the house affordability index – the ratio of house price to the buyer’s annual income – well below four, and preferably around three.

“A new four-room HDB flat in Pasir Ris is priced at about $300,000. This is five times the median household’s annual income of $60,000, well above what financial advisers consider prudent. Such flats should be priced closer to $200,000,” Mr Low argued.

“In a similar vein, entry-level three-room flats should be affordable for the 21st-30th percentile of households with annual incomes of around $40,000. This suggests a new flat price of around $120,000, which was the price of such flats about a decade ago.”

Mr Low added, “Given the real possibility of slow median wage growth relative to house prices, the first order of business for the HDB should be to restore and sustain the affordability of housing for the majority of citizens.”

2. Govt to set a general house price inflation target

Mr Low wants this target to comprise of inflation targets for public housing and inflation targets for private housing.

“It is quite reasonable for the Government to consider adopting inflation targets. Not only is the Government the biggest landlord by far, but it also has a number of microeconomic and regulatory tools at its disposal to affect the rate at which home prices are increasing,” Mr Low said.

3. Rethinking public housing policy in the context of demographic and economic changes

Mr Low feels that the government should focus its shift from enabling asset accumulation to helping Singaporeans unlock and monetise their housing assets, due to the rapid ageing of the population

At the same time, slower income growth and relative wage stagnation for a sizeable segment of the workforce highlight the need for more social transfers.

“No longer can public housing serve as the de facto instrument of income redistribution,” he noted.

Who is Donald Low?

Mr Low is Associate Dean (Research and Executive Education) at the Lee Kuan Yew School of Public Policy. Besides leading the School’s executive education efforts, he also heads its case study unit.

His research interests include inequality and social spending, behavioural economics, economics and public policy, public finance, and governance and politics in Singapore.

Prior to his current appointment, he served 15 years in the Singapore government. During that time, he established the Centre for Public Economics at the Civil Service College of Singapore to advance economics literacy in the Singapore government.

Mr Low is also the editor of Behavioural Economics and Policy Design: Examples from Singapore (2011), a pioneering book which details how the Singapore government has applied ideas from behavioural economics alongside standard economics in the design of public policies.

His most recent book, Hard Choices: Challenging the Singapore Consensus (2014), raises searching questions about the long-term viability of many aspects of governance in Singapore, and argues that a far-reaching and radical rethinking of the country’s policies and institutions is necessary, even if it weakens the very consensus that enabled Singapore to succeed in its first 50 years.

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