Singapore Population White Paper – A White Paper that Raises More Questions

I am amused by all the debates on the population white paper in the parliament and the Ministers back-paddling and insisting that a population of 6.9 millions is the “worst case scenario”.

Inside the white paper, there is nothing to say that the scenario is the absolute worst. It is simply a projection base on current growth policy and trajectories. The fact is, the lower end of the projection correspond to 6.5 millions which is an equal strain to the scarce land resources in Singapore.

What I find amusing is that for a country with relatively low birth rate and the population is expected to shrink, we are scrambling to find the right answers to prevent a 6.9 millions population. The entire episode becomes rather laughable as we are so focused on economic growth that we lose sight of what is truly important.

Economic Growth or Singapore Core?

The white paper mentioned a lot about getting people into the workforce. No doubt this move would reduce our reliance on foreign workers but it also has an increased social cost. By attracting mothers and grandparents into the workforce, we are in essence creating a barrier to childbirths by making the opportunity cost higher (they can now choose to work). What is Singapore’s strategy? We cannot be wishy-washy if we want to increase birth rate.

Land-scarce Singapore would be hit by higher accommodation cost when we require more workers. Accommodation is a basic need that is low on the Maslow’s hierarchy of needs. With rising accommodation cost, it would be more difficult for couples to have children as well. Moreover, when couples are older and have higher income, the opportunity cost of having children also increases. The risk cost of having children also increases with age and that is another factor that would lower birth rates.

As population size increases, there would be less resources for amenities and it is also likely that couples of childbearing age stay increasing further from their parents. The increased cost of child-care is not addressed in the population white paper as well.

To summarize, the strong Singapore Core is actually a misnomer. The strategy that the government is adopting seems to me a strong ‘naturalized’ Singapore Core. The government seems to be using immigration to mitigate a falling fertility rate rather than to address the problem.

Economic Growth Versus Real Income and Welfare

Interestingly, the Government keeps harping on how the population policies would benefit Singaporeans and help them realize their aspirations. Yet, there is no way in their white paper or any speeches that well articulate these aspirations.

When I was young, I was brought up with old adages such as “money is not everything”, “there is more to life than work”, etc. Sadly, the cost of living has risen considerably while income has not risen by much. The consumer price index may be marginally high but that is because the price of some basic necessities (eg sugar and rice) has not risen by much. However, on big-ticket items such as vehicles and accommodation, the prices had soar through the roof. Hence real income increase isn’t all that ‘real’. Money may not buy happiness but the lack of money in this high-cost country can definitely make many miserable.

We often talk of GDP growth in Singapore and Dr. Amy Khor has emphasized that cutting growth rate would hurt Singaporeans as companies are feeling the strains of the tightening foreign worker policies. However, the Government has not demonstrated the benefits of the incremental products these companies has on the economy. Does increasing foreigners and increasing the GDP translate to an increase of GDP per capita for Singaporeans? If the increase in total wages isn’t going to benefit Singaporeans, why should they care?

Moreover, there are many things that GDP cannot measure. It cannot measure the quality of family bonding, parents teaching and tutoring their children and many other important things in life. Asking grandpa to work and employing a domestic helper to look after a child would increase productivity and income but would lead to a loss of welfare for the family.

Increased Productivity For Business Versus Efficiency At Personal Expense

So far, all the talks are focused on productivity and how the increased productivity would benefit Singaporeans. However, business productivity comes at huge expense on personal level. Overall efficiency of people decreases dramatically as population size increases.

When the population size increases, there are many unintended social costs. Longer time wasted in commuting due to traffic jams, inability to board public transport made people spend more time for the purpose of work. Due to the control of vehicles by ERP, some of them may choose to go to work a couple of hours ahead of time and not return home until it is rather late. That results in a decrease in overall efficiency of Singaporeans and the productivity per hour (inclusive of travel and wait time) actually decreases. Even for those who are taking public transport, the commuting time may increase due to overcrowding. Moreover, commuting to work in a sardine-like manner instead of comfortable seats and ample spaces drains energy from commuters.

Due to the greater cost imposed on our personal time, Singaporeans are finding it more challenging to maintain work life balance and therefore even more unlikely to have children which result to a further reduction in birth rate.

In Conclusion: Not Everything That Counts Can Be Counted

Mr Khaw had even resorted to emotional blackmail recently by stating that if we do not adopt the policies, he would not be able to deliver the promise of 200,000 new home. The truth is, we do not need another 1.5 million foreign workers to build those 200,000 homes. Even if we take the lower range of the target, we do not need another 1 million foreign workers to build 200,000 new houses. Housing and development need to be planned. The population white paper suggestion is to maintain that number of foreign workers as part of Singapore’s overall population. What jobs would the foreign workers be doing when those 200,000 homes are built? Apparently, the number is still required in 2030 long after the houses are built.

He hit the nail when he said that it should be people first and not growth first. But, the plea does not suggest that he has given serious thought this white paper and think if it is really a people first policy and planning guide. If we increase the number of people in the countries by so many, 200,000 homes will not be enough. Do we need another 1.5 million homes? Where do we find the land? How many more workers do we need to build those homes?

Some of us still remember the good times not too long ago. A time when grandparents can leisurely teach their grandchildren; when parents can coach their children in sports or personal life,; amateurs doing crafts or sports or people volunteering themselves in society. There is no monetary exchange and all these do not contribute to the productivity numbers but they contribute greatly to the welfare, culture and soul of Singapore.

To sum up, not everything that counts can be counted. Welfare cannot be counted by our GDP alone. Neither can the quality of our lives. In blind pursuit of growth, seemingly good policies can turn out to have disastrous effects on our society as the welfare is neglected. The Government seems to equate benefits and aspirations solely on monetary returns and therefore did not comprehend the ground sentiments.

Keeping Singapore’s Roads Safe

Today, I read the news of two young boys killed on the road by a cement truck and somehow, my mood was terribly affected. Two young lives were lost tragically. Though some may blame individuals such as the driver involved in the accident, but I feel that such traffic accidents are often results of structural problems with our laws.

Why would a person speed or drive recklessly? The answer is very simple. The human brain is a master of trade-offs without us even realizing. Driving within speed limits is time-consuming and therefore costly. Driving carefully requires energy that could be devoted to daydreaming, talking on the phone or chatting with passengers. There is a price to pay for driving carefully and within the speed limit.

Our laws met out punishments for those who speed or drive dangerously. Unfortunately, the punishments are merely a slap on the wrist. One could speed up to 40km/h and get away with a small fine of less than $200. The demerit points hardly come into people’s mind at all. For a person with a clean record, they could easily speed and get away with a meager fine and then start paying attention to his points. 8 points is insufficient to make anyone sweat over his driving license.

Why are people unafraid of the demerit points and fine? The answer is simple. The expected rate of getting caught is very, very low. If the probability of getting caught for speeding is one out of every 500 trip (it is very possible to escape getting caught for the entire year, driving 2/3 of all days in a round trip), the actual price to pay for is less than 1/500 x 200 (40 cents). If the cost of speeding per trip is only 40 cents, many people would not bother to drive safely as the time or energy saved is worth a lot more than that.

One may argue that not everyone who drives knows statistics and is able to calculate the actual cost of speeding. However, I would argue that our human brain is capable of making such decisions intuitively. Go into any public car parks and one can easily verify that there are many people who do not put parking coupons. Why is that the case? By the same logic, if one is caught every 20, the cost of not putting a coupon is 1/20 x 30 ($1.50). The cost is roughly the cost of putting coupons. For people who are staying beyond a couple of hours, it makes sense to cheat. However, one hardly sees people parking in unauthorized lots (loading and unloading or handicap lots). The risk of getting caught is exactly the same as before (1/20) but the cost of getting caught is way higher (1/20 x 150 or $7.50). The cost is therefore big enough to be a deterrent to many.

Logic tells us that when the probability of getting caught is low, the penalty should be harsher. People have ways to estimate the expected value of penalty in their heads and the actual penalty is way lower than the stated penalty (as one can easily get away). To keep our road safe, we need to relook at our arcane traffic laws and the penalties.

Here are my proposals:

Issue Vocational Driving License
A lot of accidents are caused by professional drivers (heavy vehicles, taxi drivers, bus drivers, delivery drivers etc.). The key to ensure compliance is to make the expected cost of speeding and reckless driving higher than their alternatives. If professional drivers are required to have a professional driving licenses that are revoked when they speed more than 20 km/h or are caught with dangerous driving, we can almost be certain that they will comply as their livelihood depends on it.

Regulate Trucks and other Heavy Vehicles
Many heavy vehicle drivers are paid by trips. Unfortunately, such practices incentivize the drivers to speed as they can complete more trips within a given day and thereby making the roads less safe. To solve the problem, we could regulate the companies’ practices to ensure that each driver cannot take more than a certain number of trips per day. In fact, to ensure that drivers do not speed, one could even offer incentives to encourage them. If the drivers are paid for by duration of the trip (subject to a cap), one could expect the drivers to drive slowly as speeding would cause them to earn lesser. This compensation structure could be enforced by LTA.

Increased Penalty for Speeding and Dangerous Driving

Hiking the fines for undesirable driving habits is a sure way to curb irresponsible driving. When the expected cost for non-compliance is sufficiently high, people would start modifying their behavior.

Hopefully, with better laws and enforcement, our roads would be safer.

Singapore Government Debt – A Cause for Alarm or a Misunderstanding?

The recent general elections had roused the citizens of Singapore and many are now actively scrutinizing politics and policies in Singapore. It came as no surprise that the Singapore Government Debt became a hot issue discussed widely in social networks. A quick search in Wikipedia shows that Singapore is ranked #9 in the world in terms of public debt to GDP ratio. That certainly triggered widespread hysteria and panic. There were even suggestions that our Government had been secretly losing money through bad policies and investments and are hiding the truth from us. However, the debt is easily explained and there shouldn’t be any reason to panic yet.

A main bulk of the Government debt are in the form of security bonds called Singapore Government Securities and the Central Provident Fund Board (CPF) is the main holder of these bonds (See Singstat). Hence we can say that Singapore Government do not really owe other countries or private entities a lot of debt but they owe CPF quite a substantial amount of money. Why then, one may ask, does the Government need to borrow so much money from CPF?

The answer is an ingenious plan by the Government to create a money flow cycle to fund public housing. CPF was created as a pension funds and the funds belongs to the contributors (CPF Board acts like a bank in this case) and not the Government. In order for the Government to use the fund in CPF, they have to ‘borrow’ from it. When Singapore was separated from Malaysia Federation, there were fears that Singapore would not make it and that fear could trigger a mass exodus. Hence the Government borrowed money from CPF by issuing bonds and used the money to developed public housing through Housing Development Board (HDB). People who have invested in housing and a home would stay committed to Singapore. The houses were then sold to the people at a comfortable rate to repay the debt and interest owed to CPF board. The cycle continues to present day and as the Government invests more and more on public housing, it borrows more from CPF and that explains the high public debt.

Exhibit 1 – The money flow cycle between the Government, CPF Board and the People

Although the diagram is a very simplified version of the actual but complex system, it suffice to let the public know that Singapore Government is not in the unenviable position of other Governments who are servicing high Government debt. Singapore has very prudent fiscal policies and there are no structural budget deficit and Singaporeans can at least be assured that their they are not burdened by debt which would be financed through heavier tax in the future or through inflationary policies.

We can now see that the huge Government debt is no cause for alarm. However, what the Government should do better is communication. Without explaining the details of the debt, people who are not well-versed in economics or do not know the intricate details of the funding model for our public housing project would be confused and shocked.

Singapore’s Public Transport – The Problem With Monopoly

There have been a lot of talk on Singapore’s public transport and while the Government’s keen to keep the status quo on their policies and stance, they are facing increasing pressure from opposition parties to nationalise public transport or to liberalise the public transport. Mr Lui, our Minister of Transport has retorted that liberalisation would lead to cherry-picking and nationalisation would lead to inefficiency. While his arguments may carry some weight, the current system is not exactly flawless as well. In fact, the current systems are presenting the very problems that he is trying to avoid in his arguments against NSP and WP.

The operating cost of public transport goes up as they supply more services. Cost comes from fuel, wages, capital assets etc

Exhibit 1: The operating cost of public transport goes up as they supply more services. Cost comes from fuel, wages, capital assets etc.

In exhibit 1, we can see that an operator’s cost would increase as they try to increase the amount of services. When an operator increases the frequency, it will increase the operating cost and it is not in the best interest of the company. The best way to have maximum profits is to squeeze as many people into as many buses/trains as possible and hence achieve the greatest efficiency of low operating cost and maximum passengers. In a perfect competition, this is not possible. Other suppliers of transport would sense an opportunity and provide services as there is profit to be made. The price and amount of services provided by the suppliers would stabilise at p1 and q1 where the operating cost of the company matches the price that the consumers would pay for public transport. At equilibrium, suppliers will not increase any additional frequency as incremental cost is more than what the passengers would pay for. Below equilibrium, the companies would still increase the frequency to capture a bigger part of the market.

Companies that innovate in perfect competition would be able to make a profit or increase market share and hence introduce the drive to cut cost

Exhibit 2: Companies that innovate in perfect competition would be able to make a profit or increase market share and hence introduce the drive to cut cost.

In the world of perfect competition, this is where the drive to innovate and cut cost kicks in. A company that has a lower cost structure would benefit at equilibrium price as they are able to either expand the market by producing more services than their competitors at any given price or produce the same level of services and make a profit from the price difference. In exhibit 2, a company with a lower cost can maintain status quo in the market and make a profit or can increase the market share while still meeting cost expectation. Without any competition, there is no real urgency to cut cost or innovate. The companies can easily pass the cost to the consumers as the consumers have no choices but to accept the cost. Even though Singapore has Public Transport Council (PTC) that regulates fare increase, the Council’s hands are quite tied as they are required to keep the companies viable.

Monopolistic practices will incur deadweight loss to the economy. Companies with monopolistic powers do not need to cut average cost to increase profits and may do so by reducing supply

Exhibit 3: Monopolistic practices will incur deadweight loss to the economy. Companies with monopolistic powers do not need to cut average cost to increase profits and may do so by reducing supply.

In monopoly, in order to make profits, the company, there is no real need to increase average operating cost. To make profits, companies can opt to decrease overall cost instead by reducing supply. This would lead to a larger profit. See exhibit 3. However, this leads to a deadweight loss to the economy. As services become increasingly scarce, they are able to price higher and cramp more people into the cabins. Even if we argue that PTC is there to moderate the price, there is also the emotional price that is not as clearly understood. Once the overcrowding or the waiting time becomes longer, people would feel that the services are overpriced and would opt for alternative (taxi, hitching a hike, buying personal transport or even walk). This deadweight loss to the economy is illustrated in the exhibit 3 and is considered a loss of welfare.

From the above analysis, we can see that having a monopoly (the current cartel behaves like monopoly) would result in complacency and do not result in cost savings. Companies will choose the path of least resistance and the easiest way to reduce cost in the example is to reduce services rather than to innovate to increase profits. Hence, the argument that profit seeking privatised companies would seek to lower cost is no longer valid in this case. In fact, the very reason for the application for fare hike is that the firms are unable to keep cost down.

Secondly, the argument of cherry picking by companies during liberalisation is also not valid. As we can see from the lack of services, the transport companies are trying to produce as many cherries as possible by reducing services and packing as many people as possible. In this case, our current companies are not just cherry picking, they are actually growing cherries.

In conclusion, there must be a way to fine tune our public transport policies. Mr Lui hit the nail when he commented that services must be improved. However, the inaction from the Ministry to translate it into actual policies to prevent our cartel of public transport providers from flexing their monopolistic powers is sadly disappointing. By spending time rebutting oppositions without providing real solutions to fix a broken system would definitely lose the nation’s support.

Public Transport – Does Nationalisation Solve our Problem?

Singapore public transport companies have again submitted a request to hike fare to the Public Transport Council (PTC). That, of course, drew a storm of protests amongst the already price-sensitive residents of Singapore who had been hit hard by the ever rising consumer price index. There had been calls for nationalisation of public transport while PAP had been stanch in defending the privatisation strategy and policy. Does nationalisation really solve our problem? If it doesn’t, what else can we do?

Unfortunately, after examining the merits of privatisation and nationalisation, the merits of privatisation prevail. Nationalisation is actually a populist policy that does not solve the crux of the problem. Nationalised entities normally would have higher cost structure due to the lack of need to innovate and compete. Though the cost of national transport could go down, the market is not working at maximum efficiency and there is lesser excess wealth generated by the entire economy due to high operating cost. Hence, the PAP is right with their privatisation policy.

However, in order for the invisible hand of the market to work efficiency (to avoid market failure), our Government must start to introduce competitors into the market. We should not allow companies to have monopoly power in this industry or the drive to innovate to provide additional utility or to reduce cost would be subdued. Allowing fair competitions would mean that all infrastructure build by the Government would be accessible to other transport operators as well.

The process of introducing competitions would take a long time and could not be done overnight. What the Government can do is to introduce fair competition policies to prevent the existing state-linked companies from drowning the new entrants. Before the market is operating efficiently, there is a need to regulate the industry even more tightly so that the existing transport companies do not abuse their monopoly power.

The profitability of privatised company would be scrutinised closely by investors. However, regulations are required to be in place to check on these companies. We cannot benchmark other privatised companies currently to do asset valuation. As other private companies have serious competitions and other risks involved, we must give a significant discount on the returns of the money in the future to factor that risk. Yet, public transport is a basic utility and without serious challengers to the monopoly, the risk is minimal and the returns are considered ‘safe’. Investors should know that buying the stocks of our public transport companies are likened to buying ‘Government bonds’ and hence there is no real need for matching or even exceeding payouts of other companies in general. Armed with this argument, PTC would be able to push back on demands to hike fare when the companies are making decent profit margins.

Secondly, as the companies enjoy monopoly power, the consumers are left without a viable option for low-cost transport. It is hence very important to ensure that the companies provide these utility exceptionally well. We have heard complains of atrocious services such as long waiting time, dangerous driving or overcrowding. These complaints are never taken seriously by the operators as they know deep down that the consumers would have no choice but to put up with them. It is therefore essential that these are set as KPIs and with penalty for non-compliance.

Thirdly, the Government must regulate the companies to provide services to all parts of the island. Excuses such as certain stations are not profitable should not be used as arguments to keep the said stations closed. In a competitive environments, companies would never had used those arguments simply because competitors would venture in at operating cost to earn goodwill of the customers and that goodwill could translate into profits for other routes. Lack of competitions means that this has to be regulated to ensure that no one is left behind (literally).

In conclusion, I challenge the Government to open up the market. Privatisation does not mean creating a monopoly whose sole purpose is to make supernormal profits. In order to reap the benefits of privatisation, we not only have to do it, but more importantly, do it right.

High HDB Price – Is there a Hidden Agenda?

Our Government had claimed that property prices are rising due to overwhelming demand and the increasing cost of HDB is due to the tag to resale prices which are all due to natural market forces. However, HDB, EC and DBSS prices are all in part controlled by MND, the Government has in fact monopoly power and are the price setter and not price taker. Is there a reason for the high prices?


Let us go back to the fundamentals of prices. Demand and supply of the housing would determine the price of housing. Supply is determined by the Government through the sale of land which is part of a rigorous planning in the Urban Planning Masterplan. Demand is reasonably straightforward which can be determined by our population growth. Our population growth is reasonably steady and in fact declining and the current growth is fueled mainly by immigration. Hence, we can see that the Government is in fact controlling both predominant factors of pricing. Hence, it can be concluded that the price is not due to ‘natural’ forces but is in fact, a byproduct of detailed planning. So why is our Government not controlling the prices?


  1. GDP Growth as a KPI

    As GDP growth is a KPI for our Government, all policies are aimed at increasing the GDP. However, increasing GDP would mean that the total income for the country has increased and the total amount of goods and services in the countries had also increase. Anecdotal evidence tells us that we have not progress much as a nation and the amount of goods and services had in fact not increased visibly. Some would even argue that our quality of life had decreased as they find it harder and harder to cope with increasing prices. Yet, the consumer price index (CPI) showed only very moderate growth (sometimes slightly on the high side but never alarming). One would argue that without real increases in goods and services and a rising wage and hence money supply, the rise in CPI would be substantial. The paradox could hold one of the key behind the lackluster effort in curbing rising housing cost.


    Fundamentals of economics tell us that inflation is influenced directly by money supply. A greater supply of money than the available goods and services would mean that the price of goods and services would go up and vice versa. Hence, public housing is an effective way to control the money supply. The rising cost of property sucks in the excess money in the market and hence reduces the money supply in the market.


  3. Property prices to safeguard the position of the ruling party

    I would like to thank Jimmy Lee for providing this insight. In essence, if the housing prices are low, people would store excess money in commodities and funds. If most people’s wealth is not tied to the property, then they do not suffer severe material losses if property prices drop. The threat of property prices dropping should the electorate votes for opposition party would be irrelevant when that happen.


    In contrast, the high housing prices would mean that a huge bulk of average Singaporean’s viable asset would be in their property and the threat of property prices dropping would resonate.


  5. Discourages savings

    Singaporeans having too much liquidity could be a bad thing for the Government. When saving increases, it becomes increasingly more difficult to control the money supply in the market as it would be harder to predict what people would do with the excess money. Moreover, excess money could lead to people investing in foreign countries and could lead to migration which goes against the Government’s goal of increasing the population size.


    The Government’s policies on CPF and MediSave etc. clearly demonstrated the Government’s beliefs that the average Singaporean has no ability to financially plan for himself and requires a heavy hand to micro-manage their finances. This view could also explain why there is a need to discourage saving and force Singaporeans to ‘save’ through the ownership of properties. Excess money could breed mischief or mismanagement, so say the elitist.

Goods and Services Tax Waiver for Basic Necessities – A Plausible Solution?

Workers’ Party had revived the argument on waiver for Goods and Services Tax (GST) waiver for basic necessities during the election. Though Mr. Low Thia Khiang was not able to out debate the articulate Christopher de Souza, it does not imply that the suggestion is flawed. Let us examine this proposition in details.

In a situation without any taxes, the invisible hand of the market would push the market to equilibrium, which happens to be the most efficient level the market is operating. Whenever the Government impose a tax, any economics students would be able to tell you that the tax would impact both the seller and the buyer regardless of whether it is a sales tax or purchase tax. However, who actually bears the burden of the tax and what is the deadweight loss of the tax to the economy?

Basically, taxation has a cost in the economy that is not so apparent to many who do not study economics. Taxation dulls market activities. Hypothetically, selling a cone of ice-cream at $1 would allow the shop to have 100 sales a day. If the Government impose a 20 cents tax on ice-cream, then the burden would be shared by both the consumer and the producer. The producer would have to charge more but receive less. They would not be able to charge the full 20 cents to the consumers as that would cause the demand of ice-cream to drop and hence they have to lower the price slight. In this example, there would be people who would normally do not mind paying extra 5 cents for the ice cream and shop do not mind selling the ice-cream for 5 cents less. Now the cost of the tax is 20 cents which means that either the shop must sell at a discount of more than 5 cents or the consumers must pay for more than 5 cents to make the revenue for the Government. Both the consumer and the shop ended not doing sales and the Government ends up not collecting taxes.

The above scenario is what we called a deadweight loss of taxation as the tax cause the market to generate fewer activities and hence people are worse off. The greater the size of the tax, the greater the deadweight losses are. In theory and practically, we cannot expect the Government to continue increasing GST as a method to raise revenue as the revenue from tax would decline after a while. In the above example, we can also examine who would bear the burden of the tax more. Looking at the illustration Exhibit 1 below, we can see that an inelastic demand, characterised by consumers not able to adjust their habits easily with the changes in prices, would mean that the consumers would bear the burden of the taxes more. Basic necessities such as rice, sugar or other items are considered inelastic as people would still need them to survive and their consumption pattern do not vary significantly with the change in prices. Hence, the cost of the taxes hit the consumers more in this case and hence the burden on our poor would be inevitable. However, when the demand is elastic, for luxury goods, as people normally would substitute them with inferior goods when taxes are high, then the burden would be more on the producers.


How elasticity of demand and supply shifts the burden of tax

Exhibit 1

We can see that reducing or waiving taxes for basic necessities do make some economic sense. Firstly, it reduces the deadweight loss of taxation especially on basic necessity and that would certainly increase the welfare of the people. Secondly, the taxation of other goods, which are consumed by people who have excesses, would still enable the Government to collect revenue and channel some of that revenue to the poor as debated by Christopher. This could be in fact, a win-win situation.

Flash Floods in Singapore – An Act of God or Poor Planning?

In the past one year, Singapore had experienced numerous occasions of flash floods. During those episodes, people were inconvenienced and some of them suffered material losses. Recently, a 15 year old boy drowned as he unwittingly stepped into a drain which was concealed by the muddied water. Supporters for the Government had defended them by calling the complainers nasty names for blaming the Government instead of God for the heavy rain. The complainers insisted that the Government is at fault. Who should we really blame?

Let us examine the very nature of rain and drainage. In a normal piece of land, whenever there is rain, water would seep into the ground. There are permeable layers under the ground and water flow either downward or horizontally along certain routes till they merge with some streams and rivers. As our do not permit water to rush through it unopposed (think of pouring water through a basin full of sand or hot water through a coffee sock), the amount of water that the ground can collect before overflowing would be limited. Hence, it is correct to say that too much rain could cause flash floods which would be an act of God.

However, even if the rain volume is less than the volume that triggers flash floods, flash floods still can occur. That is the price we have to pay for urbanisation. Whenever we build roads concrete flooring, these artificial floors are unfortunately not permeable. Since water cannot seep underground or through the drainage (natural streams and rivers) that was formed through years of work by nature, they need to flow along the artificial flooring to the lowest point where they can escape. We can now do an experiment. If we pour a bucket of water into the sand, the water would most likely disappear without a trace in a second. If we instead pour water into an aluminium tray with a few holes (to simulate some amount of natural ground, water would flood the tray and escaping slowly into the ground through those holes. In this case, the same amount of water is used and emptied at the same rate but with very different result. This shows that poor planning can also result in flash floods.

As we widen more and more of our roads and build more and more pavements and other non-permeable flooring, we had effectively caused our areas to be prone to flash floods. Whenever we start developing the area without proper planning for drainage, this would occur. No doubt one could argue that such volume of rain would have caused a flash flood nonetheless as our canals (former streams and rivers) had also overflowed. I would like to point to the fact that our ground can actually hold a tremendous amount of water (thick of wet sand) and only excess water would seep through to the rivers in the past. With the built-up area, water were emptied into the canals and drains quickly from the non-permeable surfaces while a huge part of the land below the roads and buildings remained dry (it would take a while for them to soak up the water). That caused a bottleneck and hence flooded our canals and drains. We have to relook holistically at our drainage and not resort to some stop gap measures.

There had been several projects undertaken by the Government to raise the height of the roads (notably in Bukit Timah and Orchard Road) after the past couple of floods. However, if we do not address the drainage problem, the higher roads would only lead to flooding problem somewhere else as the water that were unable to escape to the ground previously would end up flowing downwards and cause flooding at newer locations (evident from the recent Tanglin flood).

To conclude, though the heavy rain can be attributed to Act of God, the flash floods themselves are probably a planning oversight and are totally preventable and regrettable.

Housing Matters Part II: Does Changing the Income Ceiling Solve the Affordability Issue?

The income ceiling, which is a means test, by the HDB is very much debated by various people. In the past, PAP had been unyielding in maintaining that $8, 000 per month. However, due to widespread discontent on the affordability of housing, they have now suggested raising the income ceiling to $10, 000 monthly. However, is raising the income to $10, 000 based on solid research and good fundamentals or is the move simply a populist move to placate the crowd?

Firstly, we need to examine the role of HDB. HDB is meant to provide affordable and quality housing for Singaporeans. With limited land area, the Government is extremely stringent in deciding the purpose of each plot of land, be it commercial or residential. Hence, the Government’s policy has a direct effect on the type of residence our residents have. If the Government decides that 30% of our housing would be private, in effect, it would have to provide public housing for 70% of our residents.

Looking at the key indicators of resident households (click here), we can make some analysis. A majority of the residents stay in HDB (62.1%). Taking 62.1 percentile of the income for the various groups, I have the following figures from 2009 salary (2010 not available yet):

Age 25-29  $3, 150
Age 30-34  $3, 890
Age 35-39  $4, 340

These figures give us another insight. If the Government wish to maintain status quo for the ratio of public to private housing, then the affordability issue is certainly nothing to do with income ceiling. They would need to address the cost of HDB rather than tweaking income ceiling which clearly do not affect most of our citizens. In fact, the adjustment of income ceiling only masks the affordability issue. Using the same argument, a couple from the age group of 25-29 who are earning approximately $5, 000 would now be able to purchase a new HDB flat. These people according to statistic represent the top 8.3% of their cohort. Making HDB affordable for the top 10% earners is certainly nothing to be proud of.

However, if the Government decides that the prices of private housing is getting increasingly unaffordable and there is a requirement to build more public housing rather than private housing, then they should determine the new ratio and use the percentile to work out what the income ceiling should be rather than setting an income ceiling arbitrary.

Housing Matters – What can Mr Khaw do?

One of the causes of widespread unhappiness in Singapore is the rising cost of housing, especially HDB flats. Mr Mah, the former Minister for National Development (MND) who looked after the HDB failed to placate Singaporeans with his asset-enhancing reasoning. For a couple of years, he had tried various market cooling strategies that had failed to simmer the boiling market. All eyes are now on Mr Khaw, the new Minister of MND who has a mammoth task ahead of him. While he needs to address the concerns of young home seekers, he must take care not to burst the property bubble. Most populist policies would send the prices tumbling and would have long term repercussion.

Before we even begin thinking about strategies to cool the market, we must start from the basics. We must first question the rational of having houses to begin with. I know this may sound silly but in reality, a percentage of our houses are not bought to house people but rather became an investment to make the rich even richer. In a country where food is scarce, one would question the morality of hoarding food supplies as an investment when people are starving. Therefore, in the same argument, where land is scarce and housing is considered a basic need, there should be policies to inhibit properties as a form of investment.

  1. Restrict the sales of property to residents only
  2. Unlike other countries where there are vast land waiting for development and foreign investments are necessary to secure capital for development, Singapore has the opposite problem. In a land scarce island, we already have difficulties supporting the basic needs of our own residents and we do not require foreign investment for development.

    If we restrict the sales of properties to only residents (Citizens, Permanent Residents and EP holders), we would potentially cool the market as developers would price the private properties more sensibly as there would be lesser demand from the mega-rich from foreign lands treating our apartments or houses as investment. This would in turn affect the public housing property prices. After all, why should we let foreigners who have no interest in Singapore profit at our own residents’ expense? However, we should not go the extreme and deny foreigners and permanent residents from having a place of residence as they have legitimate reason to reside in Singapore and are actively contributing to our economy. Populist policies that are xenophobic would end up hurting the economy and Singaporeans.

  3. Tax heavily on second property
  4. Though Mr Mah had initiated some market cooling strategies, a report by OCBC suggested that almost half of Singaporeans own more than one property. Obviously decreasing the amount of loans a person can take did not stop the wealthier half of the population to buy properties as investment, hence driving up prices. Luxury tax in this case would be justifiable so that people do not use housing as a form of investment.

  5. Allow provision for home upgrading
  6. The current market cooling measures hurt a group of home owners who are seeking to upgrade their home as they would require more cash on hand in order to purchase a second property. We could address this issue using taxes for second property and waiver of taxes if the second property owners give up their first property within six month of their new purchase, or within six months upon receiving a TOP on property under development. This would allow HDB owners who had over the years become more affluent to move out of HDB and free up the cheaper housing for the rest.

  7. Remove the peg of new HDB flats to resale market
  8. The pegging of the new HDB flats to resale market had been a policy which had caused the prices to rocket. People are willing to pay a premium for ready-made houses instead of waiting and balloting. The premium is always a certain percentage higher than subsidised new HDB flat price. When market forces drive up the resale prices, demand for resale flats would drop and the prices would stabilise after a while. However, if we peg the new flats to a higher resale price, it would cause a shift in the demand market (due to the higher new flat pricing, the premium of resale flat is now acceptable) and equilibrium would never be achieved.

    We assume that people are willing to pay a premium for resale flats due to either close proximity to their parents, no waiting time or fully renovated houses. If they are willing to pay up to 250k more on resale prices, then the market will overheat until equilibrium occurs. As housing is a basic need, people have no choices to buy houses regardless of price and the only factor is affordability. If the new HDB prices are peg to 75% of a resale unit (discount given by Government), we see the following below.

    Current Price: 200k & Resale Price (extra 250k): 450k will lead to New Current Price: 337.5k & New Resale Price: 587.5k…

    With this policy, equilibrium would be reached, assuming that the premium stays constant, when the HDB prices reach one million for resale and 750k. In reality, people would probably pay a percentage above the new HDB prices while keeping an absolute number (such as 250k in the example) in mind.

    Without bursting the property market, the government could start pegging the price of a new HDB flat to a lower percentile of the existing resale prices. If the peg is low enough, the reverse of the above illustration will happen. The price of the resale will drop which will lead to a lower new HDB prices. An equilibrium stage will be reach when the resale market prices do not fall when the Government lower the HDB prices. This would reflect the true demand for resale marketing instead of the artificially inflated prices due to our policy. This is also the point when the Government must stop the peg to resale prices as this policy is not sustainable.

    In the next 50 years, we would see a majority of the HDB flats going into the twilight years of their lease. Common sense would tell us that the prices would fall drastically as the houses would serve only short term needs (just like a long term rental) rather than a retirement home. Pegging the new HDB prices to the falling prices of older flats would make no sense by then. To prevent a drastic policy u-turn and be perceived as opportunists to make the most money out of our citizens, MND should take a long term view of its pricing policy now.

Before ending off, I would want to caution the Government that housing is a basic necessity and it should not be viewed as an investment asset. While the idea of asset-enhancement may seem like a good idea, we must be acutely aware that most of these assets would devalue sharply near the end of their 99 years lease. Looking far ahead, we could see young couples who spent their entire CPF on houses that would have minimal years left in their lease by the time they retire. That would leave them vulnerable as our life expectancy increases and our birth rates decline. Immigrants are not a solution to the problems. They may sustain our economy but they are definitely not going to look after our aged.


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