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?
- GDP Growth as a KPI
- Property prices to safeguard the position of the ruling party
- Discourages savings
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.
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.
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.
Posted on July 12, 2011, in What's Happening?. Bookmark the permalink. 3 Comments.
No hidden agenda. Construction costs have gone up tremendously since Indonesia banned sand exports. Main components – steel rebars, sand, granite aggregates & cement have all gone up last few years. (hint: PRC)
I do agree that the construction cost has gone up significantly but however, the price of housing had gone up even more
Explained by foreigners influx and HDB’s actions during Mah Bow Tan-years. The foreigners (I won’t called them Foreign Talent – a misnomer) came here, worked, generate enough CPF funds & got sick of paying rents. Doesn’t take rocket science to know that 2% return on CPF funds not going to make you rich. Some converted to citizens (to buy new HDB flats) while other PR’s (bought resale flats). Stay one room, rent out the rest – it can net you a return much higher than 2% plus cash in your pocket.
While foreigners were coming in droves, the HDB sat on their hands and did nothing. For a government that prides itself of economic & social planning success, it was a disaster! Basic demand/supply situation – limited supply of affordable public housing, huge demand (shifts the demand curve up) due to population growth (plus investment incentives >2% return). Price shoots through the roof!