Beyond Home Ownership: Supporting Diverse Aspirations Through Rental Housing

Mdm Deputy Speaker, I would like to first declare my interest as an equity research analyst in a financial institution covering the real estate industry.

Mdm Deputy Speaker, home ownership has been the hallmark of our public housing system. These were the words of former Minister for National Development, Mr Mah Bow Tan in a 2010 commentary and were similarly echoed by Mr Bobby Chin, Chairman of the HDB in the HDB’s FY18 annual report.

Fast forward to 2021, as we grapple with the age of disruption, the complexities of the future economy and transitioning to a post-COVID-19 world, it is imperative that we take stock of our housing situation and approach to housing, such that they continue to meet the housing needs and aspirations of Singaporeans.

On that note, Mdm Deputy Speaker, I just have one ask from this Adjournment Motion: that the Government significantly increase the stock of rental flats across flat sizes, thereby creating a viable and expanded public rental scheme, with an emphasis on ensuring that our lower- to middle-income households’ housing needs are well looked after.

Let us first take stock of the existing housing model in Singapore today, particularly as it relates to rental housing. When HDB first started building flats, it built rental flats. From 1960 to 1965, there were 42,408 rental flats versus only 2,967 home ownership flats, given the Government’s home ownership scheme really only started in 1964.

After decades of pushing for home ownership, when HDB resumed the rental building programme in 2007, only 1-room and 2-room flats were built. As at the HDB’s latest annual report, there were about 63,773 rental flats as of March 2021, compared to 1.02 million sold flats, out of which a dominant 97% of the flats are 1-room and 2-room flats.

HDB rentals today take on three different forms, the Public Rental Scheme (PRS), Interim Rental Housing (IRH) and Parenthood Provisional Housing Scheme (PPHS). The vast majority of flats, however, relate to the Public Rental Scheme.

Flats under the PRS in its current form are supposed to be heavily subsidised to cater to Singaporean households who, in the HDB’s words, have no other housing options. Another eligibility criterion is the low total household gross income threshold of not exceeding $1,500 per month, with monthly rents for a 1-room flat ranging from $26 a month to $205 a month and a 2-room flat from $44 a month to $275 a month.

Interim Rental Housing is similar to the PRS in that it is for low-income households with no family support and no other housing options, where the HDB will consider offering IRH on a case-by-case basis.

Lastly, the PPHS was part of the enhanced Marriage and Parenthood Package and helps to temporarily house families as they await the completion of their new flats. Rents are between $400 and $500 for 2-room flats, $600 to $900 for 3-room flats, and $1,500 for 4-room flats, depending on their location.

Fundamentally, I believe that there needs to be a greater diversity of housing options but, more urgently, the key problem, in my view, is that there is a severe shortage of HDB rental flats in its various forms today and supply is simply insufficient to meet current demands.

As I have noted earlier, there were 63,773 rental flats as of March this year, the vast majority of which would comprise 1-room and 2-room flats under the PRS. Worryingly, there are only about 1,600 rental flats under construction, which will be completed progressively by around 2025. In response to my Parliamentary Question (PQ) in May earlier this year, Minister Desmond Lee noted, and I quote, that: “There are currently about 31,000 1-room and 31,000 2-room flats. We have sufficient supply for households who need these flats”.

However, I understand from another PQ filed by Member Ms Nadia Samdin that the average waiting time for a rental flat has lengthened to about five months. I understand from a fellow Workers' Party Member of Parliament that HDB shared in a reply in late May that HDB is facing an island-wide shortage of 1-room flats and that all four zones are having an estimated waiting time of about six months from date of registration.

I recognise that part of this is also related to COVID-19-related constraints, such as taking up a longer time to spruce up flats that have been returned to the HDB before they are let out to new tenants. I am sure Members of this House would have received many requests by your residents to assist them with an appeal for a rental flat from the HDB, just as I have. Again, in response to my PQ in April this year, Minister Desmond Lee shared that, from 2016 to 2020, HDB received an average of 7,500 requests regarding rental flats and only about 35% or an average of 2,600 such requests were successful each year.

So, while we may say that a wait time of two months pre-COVID-19 is “okay”, the eligibility conditions around public rental flats are highly restrictive. In fact, the total household income cap of $1,500 a month is even lower than the Average Monthly Household Income from Work of the lowest 10% of resident employed households! Just how many truly needy citizen families have we excluded as a result of the tight eligibility conditions?

A similar situation can be said for the PPHS. Again, in response to my PQ in May, there were 110 2-room, 570 3-room and 60 4-room flats for the PPHS, or a total of 740 flats. As the Minister noted, the supply of PPHS flats is limited and depends on the availability of vacant flats, such as those in vacated blocks not immediately needed for redevelopment.

I acknowledge that in HDB’s press release in August, the number of existing PPHS flats is now 840, with another 800 more flats to be set aside over the next two years. It is commendable that HDB is doubling the number of PPHS flats. In absolute numbers, however, we are dealing with a very low base today, given that the demand for such flats has far exceeded the limited supply.

The HDB also introduced a household income ceiling of $7,000 and switched to conducting PPHS exercises every two months instead of monthly to, and I quote, “provide PPHS applicants with a larger pool of flats to choose from. This will improve the applicants’ chance of securing a flat”. However, the number of flats available still appears to be very limited at 60 in October and with a very high application rate of more than nine times, given 544 applications received, indicating excess latent demand that cannot be met with the existing supply.

Other than addressing the current demand and supply imbalance, just simply, why rental housing though? Here, I would like to share five aspects on why creating a subsidised and expanded public rental scheme for the wider population would be beneficial to Singapore and Singaporeans.

Firstly, creating a diversity of living options would better support the diverse needs of our fellow Singaporeans, especially millennials who are faced with limited living options. Going for a BTO flat has been the avenue to provide couples an affordable home for their future families. However, even if one beats the odds of securing a BTO flat, application rates of between three and 25 times were seen in the recent August sale exercise. Also, the average waiting time for BTO projects has increased, from an average of three to four years in the past to four to five years for ongoing BTO projects. And as I have shared, the odds of securing a PPHS flat is equally low. Meanwhile, resale HDB prices are now 12.5% higher than what they were a year ago.

Singaporeans who are more financially well to do have access to open market HDB or private residential rentals or even accessing serviced residences and co-living apartments. The desire by millennials to have a space of their own is well reported, with a Business Times (BT) article dated 18 June highlighting that more Singaporeans are moving out of family homes into formerly expat-dominated co-living properties and serviced residences. On 11 September, Today published a similar article, titled “Affluent and craving space to grow, more single millennials leave the nest for greater freedom”. Should we not cater to the changing housing needs and aspirations of all our millennials today regardless of their income?

Secondly, adequately satisfying the housing needs of young couples could arguably be supportive of our fertility rate, which has been steadily declining and is now at a record low of 1.1. Undoubtedly, a good number of couples have been affected by construction delays in existing BTO projects; and with low odds of securing a new BTO project, given high application rates, without a place of their own, are left with no choice but to rethink their family planning decisions. We need to recognise that everyone’s circumstances change all the time and we should cater to Singaporeans’ housing needs across life stages, as people may decide it is most appropriate to rent or buy at different stages of their lives.

Besides, by providing young couples with an alternative to save up larger amounts of capital which would have otherwise been locked up in their housing asset, this might encourage them to start families at a younger age and be open to having more children.

Thirdly, on workforce flexibility. The need for a dynamic and flexible workforce today would mean that individuals may need to take greater calculated risks or seek alternative pathways to advance their careers. What we have not adequately considered is that individuals require the financial freedom to pursue these tough choices. Would you still take up that overseas posting or pursue further graduate studies if you are tied to a significant mortgage or if it means your MOP would have to be extended?

Capital is an essential source of economic growth and, more so than before, largely dependent on productivity. Allowing rental housing to play a bigger role compared to home ownership could free up capital for individuals and, arguably, result in less of a rentier economy in Singapore and encourage more to have an entrepreneurial mindset.

This brings me to my fourth point on having to adapt well to a major trend today: the rise of the gig economy.

According to MOM, there has been an increase in freelancers from around 200,000 in 2016 to 228,000 in 2020, a 14% increase over the past four years.

Many of these freelancers do not have a regular source of income, thereby suffering from income insecurity during times of economic crises. While it is important for freelancers to exercise financial prudence when calculating what they "can afford", it is not easy to determine with pinpoint accuracy their level of earnings even on a day-to-day basis, much less over the next few years; and signing up for a 25-year mortgage may not be the most prudent decision.

Fifthly, and, critically, we need to promote true inclusivity and get rid of the stigma of HDB rental housing.

In her book "This is What Inequality Looks Like", Assoc Prof Teo You Yenn described the poor design of rental flats and frequent observations of cramped, distinctively damp and pungent smell of poorly ventilated corridors. The design of new-build rental flats may have improved, but there still remains a stigma associated with HDB public rental flats, which does not necessarily go away even if the Government has integrated such flats within BTO estates or, potentially, in prime location public housing estates.

This is evident even in a number of replies to my appeals to HDB for a rental flat for my residents, where the HDB officer describes HDB rental flats as being, and I quote “heavily subsidised to meet the housing needs of poor and needy citizen families who are unable to afford home ownership flats, have no other housing options and no family support”.

Renting an HDB flat need not and should not be seen as a sign that you are poor and needy and our position on rentals need to reflect that.

Above all, I think one of the biggest misconceptions is that home ownership is superior to home renting and that money spent on renting is money down the drain.

To use an analogy from the insurance world: is a whole life insurance policy necessarily superior to that of term insurance? Certainly, with a whole life policy, there will be a cash value attached to the policy should it be cancelled or sold after a certain period of time. This is non-existent for a term life insurance policy. Yet, a common saying in the insurance industry is, “buy term, invest the rest”, where one separates the protection element in an insurance policy from the investment motive.

I believe the same can be applied to housing and the saying that “tenants pay subsidised rents but own nothing” is only a half-truth.

It is comforting to know that I am not alone in my views on this. On 18 October, BT ran an interesting article, “Renting can be a viable alternative to owning a private home in Singapore”. As the title suggests, the author ran a simulation and derived an outcome where, financially, the difference between renting and buying is negligible. But the math, however, need not be true only for high-end private residential property.

Singapore today has a high home ownership rate close to 90%, similar to China. This is significantly above that of the OECD average of 68%. Importantly, I highlight that within the OECD countries, Switzerland and Germany have the lowest home ownership rates of 38% and 44% respectively, while, at the same time, having one of the highest GDP per capita and Human Development Index (HDI) scores globally. The correlation between home ownership and the level of prosperity of a country may not be as clear-cut.

Home ownership is thus more of a preference than a superior option per se.

Quality rental housing need not be an oxymoron and, globally, it is already well demonstrated that rental housing can be affordable, desirable and effective as a means to house a population. Take Vienna, for example. About half of social housing units are owned directly by the municipal government and the rest by state-subsidised, not-for-profit co-operatives. Private developers who build affordable housing projects must allow the city to rent half of the new apartments to lower-income residents, while the developer leases out the remaining units. As rents are regulated by the city government, affordability and access are maintained, with social integration a natural outcome of such housing arrangements.

As shared by Mr Kurt Puchinger, former Director of Planning in the City of Vienna, "We don’t want to have a situation where you can identify the social status of a person by their home address". With the appropriate framework of rights and responsibilities in place, both the public and private sectors can work together to achieve our social policy goals.

Given the relative resilience of the residential sub-sector as compared to retail and commercial during the COVID-19 pandemic, I am confident that there will be no lack of interest by private developers to partner HDB in coming up with innovative Build-to-Rent housing solutions if the Government is willing to take this bold step in public-private partnership.

Nominated Member of Parliament Mr Cheng Hsing Yao, in his speech earlier this year, also suggested a Build-to-Rent model for Singapore, calling for the Government to encourage active and responsible participation by the private sector in this regard.

Looking at international case studies in Australia, the Queensland government is partnering the construction industry to deliver affordable rental housing through new Build-to-Rent developments – one of which is being developed by one of the Singapore-listed firms as well.

Even in China, where home ownership is one of the highest in the world, just like Singapore, the government has been encouraging the development of more rental-only projects through policy changes since 2018.

I acknowledge Minister Desmond Lee's comments at the Committee of Supply debates earlier this year that there is a rental market out there for people to rent smaller units, both in the private market, as well as in HDB flats. But the aim here is really to look at the aspirations of Singaporeans and see how we can provide the support for those aspirations through providing rental options from the HDB. We do not simply accept that Singaporeans can all purchase private property or resale HDB flats and stop launching new BTO projects, do we? Rentals of the HDB flats could then be priced at levels in between current HDB public rentals and HDB open market rentals.

Based on data provided by the HDB, median rental for a 3-room HDB flat ranges from $1,650 to $2,230 a month, with a rental yield of between 5.4% and 7.9%, based on median resale prices.

HDB open market yields are also significantly higher than those in the private residential market which are, typically, in the 3% range.

It is thus practical and important for HDB to provide rental options for the broader population, priced between that for public rental flats and open market rentals, as many of our residents find HDB open market rentals too expensive. This would also be no different from how PPHS flats are already being priced in principle and is simply just a shift from a home ownership subsidy to a home renting subsidy instead. This could also be restricted to Singaporeans, just like our current BTO and rental schemes today.

In addition, if home ownership is still an ideal the Government would like to champion, renters may be able to own their flats, albeit in a different manner. As it is, we have observed that the yields and yield spreads of residential REITs listed overseas are among the lowest among real estate sub-sectors, a reflection of the attractiveness of residentials to the financial markets and providers of capital.

The REIT market in Singapore today is the largest in Asia, ex-Japan, with a combined market capitalisation of about S$110 billion as at September. Just as how REITs allow for the fractional ownership of commercial property assets, the stock of HDB rental units can similarly be held in a REIT structure, be it a public or private REIT. This would also have the additional benefit of supporting the financing of the construction of new rental flats and is self-sustaining, reducing the cash costs on the part of the Government.

For Singaporeans, rather than take a 90% LTV loan for more than half our working lives, those who wish to can put up an amount of capital we are comfortable with into ownership of this REIT, with redemptions controlled to minimise speculation, just as how there are Minimum Occupation Period (MOP) restrictions for BTO flats today. Singaporeans can enjoy the benefits of renting, while also truly say that they own a HDB flat, or a part of Singapore's entire stock of HDB flats.

To conclude, Mdm Deputy Speaker, the idea of an expanded public rental scheme by HDB is not new. The Workers' Party has, in our 2019 HDB Working Paper, proposed the creation of a viable and expanded public rental scheme, which, in our view, is a realistic proposal to expand the universe of options for rental for those Singaporeans who want this option for a certain number of years.

Let us also remember that the concept of leasing is not new to HDB. The concept of owning a HDB flat is a misnomer where Singaporeans have signed with HDB a lease agreement and not exactly a sale and purchase agreement, albeit one which is for 99 years, lease payments are paid upfront and you are able to take out a loan to pay for it.

Further, the concept of having shorter leases is also not new. Today, elderly residents aged 55 and above already have the flexibility of choosing the length of lease on their 2-room flexi flats, ranging from between 15 and 45 years in five-year increments, as long as it covers them and their spouse up to the age of at least 95 years. It really is simply just a difference in mode of payment, where the lease payment is paid upfront, as compared to regular monthly payments in the case of conventional open market short-term leases.

What we need today is not just a ramp-up in new BTO supply, which, as I understand, is going to be more than 17,000 units in 2022, but one, a significant increase in the stock of rental flats today which only increased by a grand total of 438 in the last financial year; and two, the creation of an expanded public rental scheme by the HDB, whose mission is to provide affordable, quality housing and a great living environment which, dare I say, should not be constrained to simply building flats for sale.

Mdm Deputy Speaker, let us have the courage and ingenuity to go beyond the concept of home ownership and to evolve Singapore's approach to public housing to cater to the demands of the new economy, to build a more resilient and adaptable nation and to meet the housing aspirations of all Singaporeans.