Affordability of Rising Public Housing Prices and Impact of Prices on Marriage and Fertility Rates

Ms Hazel Poa asked the Minister for National Development whether the Ministry has conducted or will conduct studies on the impact of rising public housing prices on marriage and fertility rates.

Thank you, Sir. This reply will also respond to the Member's question for 3 October on affordability benchmarks for public housing.

Sir, over the past two years, there has been strong, broad-based demand for housing, including in the Housing and Development Board (HDB) resale market. There are a number of reasons for this. First, we have seen more households forming as the echo-boomer generation – those who are in their 30s today – are getting married, especially with the easing of COVID-19 measures. Next, we also see societal trends shifting to smaller households, as young couples, singles, as well as adult children choose to buy their own homes instead of living together with their parents. These aspirations for more personal space may have been accentuated during the pandemic. Third, more homebuyers have also turned to the resale market because of longer waiting times for Build-To-Order (BTO) flats due to construction delays caused by the COVID-19 pandemic. Fourth, in the last two years, we have also seen more private property owners and existing HDB owners cashing out on their property and going into the HDB resale market.

To be clear, foreigners are not allowed to buy HDB flats and would not have contributed to the increase in demand for public housing. They also account for a small proportion of overall private residential property demand.

These demand factors, alongside the previous low interest rate environment that made it cheaper to service a home loan, have put upward pressure on HDB resale flat prices. Since the Government implemented a broad package of measures in December 2021, the HDB Resale Price Index has increased by 5.3% in the first half of this year. We understand the concerns about housing affordability and have, therefore, been carefully monitoring the housing market.

We are committed to keeping public housing affordable and accessible, to meet the housing aspirations of Singaporeans and to help Singaporeans own their own homes. This is a key longstanding national priority and provides the basic foundation for us to raise our families, bring up our children and build strong communities.

That is why we continue to build and sell new HDB flats at prices below the market as they come with significant subsidies. The average price for a new 4-room flat in a non-mature estate has remained relatively stable at $341,000 in 2019 and $348,000 in the first three quarters of this year. We have managed to keep prices relatively stable as market subsidies have been increased, to keep new flats affordable. Eligible first-timer buyers can also receive Enhanced CPF Housing Grants (EHG) of up to $80,000, with more help for lower-income buyers.

For new flats in prime, central locations, we have introduced the Prime Location Public Housing (PLH) Model which provides additional subsidies on top of the substantial subsidies already provided for BTO flats. This is to keep flats in such locations affordable for a wider range of Singaporeans.

The Member has asked if we should have affordability benchmarks and if these should consider families at the 30th percentile of income, instead of just median income. Sir, our affordability benchmarks do not only consider median incomes, as we provide a wide range of BTO flats for first-timer buyers with different housing needs and budgets.

Take, for example, a first-timer household earning about $5,000, which is slightly less than the 30th percentile of resident household incomes. They may buy a 4-room flat in any of the three non-mature estate projects in the recent August 2022 BTO exercise, namely in Jurong East, Woodlands and Choa Chu Kang. These projects come with typical prices comparable to, or lower than, the average price of BTO flats in non-mature estates at about $348,000. After factoring in the $45,000 in grants they would receive, they will need to use about 23% of their monthly income for their housing loan, which means that they will be able to service their mortgages from their monthly Central Provident Fund (CPF) contributions with no cash outlay. This also works out to a home price-to-income ratio of around five for this family, which means that the price of their home is about five times their annual household income.

For a first-timer couple who are both fresh tertiary graduates buying their first home, a typical combined starting salary would be about $6,500. They would receive $30,000 in grants and would only need to use 18% of their monthly income for their housing loan to afford the same new 4-room flats in any of the non-mature estate projects in the recent August 2022 BTO exercise, with typical prices comparable to or lower than $348,000. This works out to a home price-to-income ratio of around four for this family, and they would also be able to service their mortgage fully from their CPF contributions.

As a broad comparison, the ratio of the median home price to the median household income in other comparable cities, such as London, Los Angeles and Sydney are much higher, at between eight and 15 times. In Hong Kong, it is more than 20 times.

For resale flats, the Government provides significant housing grants of up to $160,000 to ensure that resale flats remain affordable for eligible first-timer families. We review our grants regularly to ensure that resale flats remain affordable.

Generally, the mortgage servicing ratio (MSR), which is the proportion of monthly income used to service mortgage instalment payments, has remained below 25% for most new and resale first-timer flat buyers taking on an HDB loan. This is well below the international benchmark of between 30% and 35%. This means that most first-timer buyers can service their housing loans using their monthly CPF contributions, with little or no cash outlay.

The Member also asked what the Government will do to ensure housing is affordable for Singaporeans in the wider Singapore property market. We have announced, on 30 September this year – measures to moderate demand in the HDB resale market to ensure that HDB flats continue to remain affordable, as well as measures to encourage prudent borrowing amidst the rising interest rate environment.

First, we introduced a wait-out period of 15 months before private property owners are allowed to purchase a non-subsidised HDB resale flat. This measure aims to moderate demand and slow the momentum of price increases in the HDB resale market, by deferring demand from private property owners, so that HDB resale flats will continue to be an affordable option for first-time HDB flat buyers. We intend for this measure to be temporary and will review this, depending on overall demand and market changes.

Previously, private residential property owners looking to buy a non-subsidised HDB resale flat do not have to serve a wait-out period, but they will need to sell their private properties within six months of the HDB flat purchase. In particular, the number of private property owners buying HDB resale flats has doubled in 2021 and the first three quarters of this year, as compared to 2019 and 2020. Overall, private property owners and former private property owners make up about one in 10 HDB resale flat buyers.

Private residential property owners, generally, have more financial means to buy resale flats, as compared to first-time home buyers or existing HDB-owners. Some might not even need to take loans to complete their purchase. They, therefore, tend to pay higher amounts of cash-over-valuation (COV) when buying HDB resale flats.

Having said that, we recognise that not all private residential property owners are in the same situation. Some seniors need to sell their private property and move to an HDB flat to strengthen their retirement adequacy. So, we are exempting seniors above the age of 55 who are moving from a private property to a 4-room or a smaller resale flat from the wait-out period.

We also know that there are private residential property owners, whatever their age, who face genuine housing needs or who have to sell their homes because of extenuating circumstances, such as financial difficulties. They should approach HDB for assistance, and my colleagues will see how best to support them on a case-by-case basis.

Next, we are also mindful of the challenges posed by the rising interest rate environment. From 2013 to 2021, we have had exceptionally low interest rates, especially from financial institutions. But market interest rates have risen over the last year, with further increases expected over the medium term. This will increase borrowing costs for those who are buying a home and also for those who are servicing existing home loans pegged to floating rates. Therefore, we have decided to move now to safeguard home buyers and ensure that they are able to service their long-term home loans.

We have thus implemented the following measures to tighten the maximum amount that can be taken for home loans and ensure prudent borrowing.

We have raised the medium-term rate floor used under the Total Debt Servicing Ratio (TDSR) and MSR frameworks to compute a borrower's maximum loan quantum for residential property loans granted by private financial institutions from 3.5% to 4% per annum. The actual rates that private financial institutions charge for home loans will, however, continue to be determined by them.

Next, HDB will introduce an interest rate floor of 3% per annum to compute a borrower's maximum eligible housing loan amount. This is 1% below the Monetary Authority of Singapore (MAS) rate floor for private financial institutions. This will reduce the maximum loan quantum for home buyers taking HDB loans but will not increase the monthly instalment borrowers have to pay, as there is no change to the HDB concessionary interest rate of 2.6%.

We have also lowered the Loan-to-Value (LTV) limit for HDB housing loans from 85% to 80%, so that home buyers borrow prudently in view of the uncertain economic outlook and rising interest rate environment. This is not expected to affect first-timer and lower-income flat buyers significantly, as they receive housing grants of up to $80,000 when buying a subsidised flat directly from HDB, or up to $160,000 when buying a resale flat, and can tap on their CPF savings to pay for the flat purchase.

These measures are necessary as property loans are long-term commitments and often a household's largest liability. The higher floor rates ensure that today's borrowers take loans that reflect the likelihood of rising interest rates and avoid overstretching themselves. If we do not move now, households may run into housing difficulties when they find it harder to service their housing obligations. This is already happening in other countries where we see home owners defaulting on their mortgage payments and losing their homes.

Beyond the cooling measures, we recognise that there is genuine demand from home buyers. We have, therefore, also increased supply in both public and private housing markets. For HDB, we have ramped up our BTO supply and are on track to launch 23,000 flats per year in 2022 and 2023, or a 35% increase from 2021. In November this year, we will launch more than 9,500 BTO flats. We are prepared to launch up to 100,000 flats in total from 2021 to 2025, if needed. We also endeavour to launch more projects with a shorter waiting time of less than three years where possible.

The supply of private housing on the Confirmed List of the Government Land Sales (GLS) programme has also been increased by 75% from 2021 to 2022. We are prepared to increase supply further to meet the demand for private housing, if needed.

The Government will intervene and do what is necessary, to ensure a stable property market and affordable public housing for Singaporeans. This has been our approach all along. We will do so decisively but also carefully, being cognisant of the uncertain global economic outlook and rising interest rates environment, which will affect home prices and contribute to uncertainty in our property market.

We will continue to monitor the market closely and adjust our policies as necessary on both housing demand and supply, to ensure that prices move broadly in line with economic fundamentals.

This Government is committed to the stability of the wider Singapore property market and to keeping public housing inclusive, affordable and accessible to Singaporeans.

Mr Speaker, many different factors affect marriage and fertility rates. These include shifts in societal norms and attitudes towards marriage and parenthood over time, and temporal factors such as the restrictions and disruptions caused by COVID-19.

While we have not conducted studies on the impact of housing prices on marriage and fertility rates, our regular surveys and engagements indicate that many couples continue to aspire to have their own home before they start a family.

We recognise these aspirations and preferences, that is why public housing policies are designed to prioritise and support first-timer families to enable them to have their own home and start a family.

For example, the vast majority of our BTO flat supply is set aside for first-timer families. The quota of 3-room and 4-room BTO flats in non-mature estates set aside for first-timer families, was increased to 85% and 95% respectively.

For mature estates, we continue to set aside 95% of BTO flat supply for first-timer families. First-timer families also have more ballot chances than second-timer families, to improve their likelihood of securing a flat.

In addition, the Government has put in place various grants and measures to help Singaporean couples own their first home. Eligible first-timer buyers who buy new flats can enjoy an enhanced CPF housing grant of up to $80,000, on top of the generous subsidies in new flat prices. Those who choose to buy a resale flat can enjoy housing grants of up to $160,000 dollars.

In 2021, about 7,000 families received grants for their resale flat purchase. We recognise the concerns of couples looking for their first home to start a family. To meet the strong housing demand, we have ramped up the supply of new flats to 23,000 new flats per year in 2022 and 2023, or a 35% increase from 2021.

We are well on track this year and home buyers can look forward to 9,500 flats being offered in the upcoming November BTO launch exercise.

We are prepared to launch up to 100,000 new flats from 2021 to 2025. We also endeavour to launch more projects with a shorter waiting time of less than three years where possible. We continually review our policies, to ensure that Singaporeans continue to have access to affordable public housing and to support Singaporeans in owning their first home.

Thank you, Mr Speaker. I thank the Minister for National Development for his reply. Housing in Singapore should be primarily for occupation, rather than for speculation and investment. I have two supplementary questions in line with this train of thought.

First, would the Government consider increasing property tax rates for non-owner-occupied properties? Second, would the Government consider higher Additional Buyer's Stamp Duty (ABSD) for those who buy more than one property in Singapore, especially for foreigners?

We, generally, do not discuss any impending or upcoming measures relating to the property market, in order not to cause people to read or misread signals.

So, generally, all these ideas have been raised before, different ways in which we tax property, tax rental income, increase ABSD. We have to look at the housing market, look at what drives demand, look at whether it is in line with economic fundamentals and decide what necessary measures need to be taken and if so, when.

Thank you, Speaker. Ministers Desmond Lee and Indranee Rajah both shared that the Government has taken active steps to increase the supply of public housing and I am sure this is well appreciated. I am wondering if they could elaborate on whether this will more than make up for the shortfall in inventory that resulted from halts to construction, as a result of the pandemic?

And my second follow-up is, whether the Ministry has an estimate based on their models of when they expect house price increases to moderate after the application of the recently announced cooling measures.

Mr Speaker, Sir, I have to answer the first question in two parts. First, with regard to delays in construction, what the Member calls "shortfalls in inventory" due to construction delays arising from COVID-19, and then the ramp-up in housing supply.

The construction delays impacted BTO launches that were set off prior to COVID-19. Their construction delays resulted in a lengthening of waiting times because of various factors, such as worker shortages, manpower shortages, material shortages, COVID-19 measures that stopped work during the circuit breaker and so on.

HDB is working hard with contractors to make sure that the construction of those projects remain on track, while ensuring that the safety and the quality of those projects are not compromised.

With regard to the broad-based demand that has arisen as a result of those factors which I mentioned earlier in my answer, that comes in the form of the 100,000 flats that we have committed to launch between 2021 and 2025, if demand is as such.

In terms of what impact these set of measures – both macro-prudential measures targeting interest rate floors, as well as the demand management measures with regard to the 15-month wait out period – we intend for the first set to reduce the longer-term risk to home owners and home buyers who take loans.

But for demand management, we expect it to have an impact in mitigating demand for resale flats.

But, as my colleague, Deputy Prime Minister Lawrence Wong had said before, one can never fully predict what can happen in the property market and we will continue to keep a close eye on the property market after these measures and in the mid to longer term.

I thank the Ministers for the answers. I appreciate that both Ministers have mentioned that there will be a ramp-up amounting to 100,000 new flats, from 2021 till 2025.

I think MND must have done some modelling in terms of demand and supply forecast. What is the meaning of these 100,000 new flats versus the demand that has been forecasted for each year, and how does that then meet or mitigate the challenges that we face in meeting the needs, especially, of first-time families and others?

So, what does the 100,000 new flats mean versus the demand forecasts that, I am sure, MND has done?

We keep track of the demand for housing, both in terms of the application rates, but we also look at household formation rates – we look at marriage rates, we look at demographic trends.

In terms of housing supply for BTO, we know that we have allocation of quota for different segments. For example, most recently, in the August BTO exercise, we ramped up the quota available to first-time flat buyers in non-mature estates, as my colleague, Minister Indranee Rajah said.

The 100,000 flats, if the demand persists, will be able to meet much of this demand, but remember that HDB BTO flats are not the only source of housing. There is, of course, also the HDB resale market, as well as the private property market.

Thank you, Sir. I would like to ask the Minister two supplementary questions. One is, just now when the Minister was quoting the affordability statistics across countries, did he consistently use the comparison for public versus public housing, or did some of the data come from comparing our public housing to private housing in Hong Kong, for example? That is my first question.

The second question is, I think the Ministers did not quite answer my colleague, Ms Hazel Poa's Parliamentary Question. There is a general feeling that the younger generation is quite seriously affected by the recent rise in the property market, especially over the last two years. So, are there any studies done to look at whether the younger generations are really affected and whether there are additional measures that the Ministry is considering?

Sir, I gave the home price to income (HPI) ratio as a broad comparison. Because, firstly, each country's property market is different. In many of the cities I have described, most of them do not have public sector housing the way we do, and certainly not covering 80% of Singaporean households. So, we are broadly comparing HPI for the Singapore property market, as well as for the cities concerned. So, these are broad comparisons.

Mr Speaker, Sir, I think the Member just rose to suggest that I had not answered the question. We have recently discussed this. I have actually answered the question but let me just take the Member through it.

The learned Member said that there is a general feeling that the younger generation are seriously affected, and whether there any studies done.

The questions asked by Ms Hazel Poa was not about the younger generation. The question asked by Ms Hazel Poa was whether there were studies conducted on the impact of public housing prices on marriage and fertility rates. So, not the whole-of the younger generation, but for marriage and fertility rates. Let us just get the question correct first.

Then, the second was, he had asked – because he said I had not answered – whether any studies are done. I had earlier said, while we have not conducted studies on the impact of housing prices on marriage and fertility rates, our regular surveys and engagements indicate that many couples continue to aspire to have their own home before they start a family.

So, it means we have not conducted studies, but we have done regular surveys and engagements which give us the indications that we need. And the indication is that couples would like to have their own home before they start a family.