Affordability of HDB flats – a response to Minister of National Development

Posted: 14th November 2010 By Admin

By Hazel Poa

Two measures of affordability was offered by Minister Mah in his article “Are HDB flats affordable?” which appeared in Today Online on 12 Nov 2010.  The first was the housing price-to-income ratio (or HPI), which compares median house price to annual household income, and the second was the debt-service-ratio (DSR), which looks at the proportion of the monthly income used to pay mortgages.

Let us first consider the HPI.  From 1990 to 2009, median household income increased from $2,296 to $4,850[1] – an increase of 111%.  Over the same period, resale flat prices increased by 342%[2].  The affordability of HDB flats has certainly deteriorated very significantly over the past 19 years.  It now takes a median income household more than double the time to pay for the flat.

Next, we consider the suitability of the debt-service-ratio (DSR) as a measure of affordability for national planning purposes.  There are several shortcomings, the most serious being a pre-qualified sample – the DSR is calculated based on existing home owners.  These are people who can afford to buy the flat.  Those who cannot afford to buy a HDB flat would not have bought one and hence would not be captured by the DSR.  The loan application process would also have weeded out those whose DSR would exceed the “30-35 per cent international benchmark for affordable expenditure on housing”.  Under such circumstances, it would be quite difficult for an examination of the DSR to turn out with an “unaffordable” rating, no matter what the price level.  For example, if good class bungalow owners use only 15% of their income to service their mortgages, can we conclude that good class bungalows are very affordable? 

The DSR is a reasonable measure to assess if a particular person/family can afford to buy a particular property, but to use that as a gauge of affordability for the general population leaves much to be desired.

While it is true that increasing subsidies for HDB flats require some reallocation of resources, it is interesting to note that the first 3 options that occurred to the Minister for National Development are: (1) cut education budget; (2) cut healthcare budget; and (3) increase taxes.  The Reform Party is happy to offer some other options for consideration: (1) cut defence budget; (2) reduce the payments made by HDB to SLA for the purchase of land to build HDB flats – to the best of our knowledge, these payments go eventually into the reserves which is not used to fund any public sector services or projects; and (3) cut ministerial salaries. 

Apart from increasing subsidies, prices of HDB flats can be managed by
(1)  a better management of the supply:
       •  Adjusting the supply based on factors like number of marriages and immigration
       •  Setting an acceptable band for resale prices relative to median income (for example,
           50 times of median income plus/minus 20%), then increase supply if prices go
           above the band and decrease supply if prices go below.  This is similar to the way
           MAS manages the Singapore dollar exchange rates.
        •  Cutting down the waiting time for new flats by building in advance, not Built-To-
        •  Manage any temporary excess/unsold new flats by renting them out

(2)  Mortgage regulations that takes into account specific factors in Singapore like the
       existence/non-existence of a pensions system or social safety nets.  This is to pre-
       empt situations like retirees with no/little savings despite our CPF system because all
       their CPF savings went to pay for their flat.

In addition to a prudent but active management of HDB flat prices, affordability can also be enhanced by targeting specific trouble spots like upfront payment for first-time home buyers.  This can be done by adjusting the allocation of subsidies.

If elected to government, the Reform Party, being keenly aware of the limitations of relying solely on a few quantifiable measurements, will strengthen our decision making process by listening more intently to the voices of the people, and qualifying our national policies accordingly

[1] Department of Statistics – Top-line Indicators
[2] Resale price index 1990(4Q)-34.1, 2009(4Q)-150.8, source: HDB

36 Responses to Affordability of HDB flats – a response to Minister of National Development

Joe chua on

Indeed a tough problem to resolve as hdb price is soaring high for young couple to purchase. However, over the years is the trend similar to some Asian countries like hk or Taiwan? Maybe possible to find out what is their measure to cope with increasing price and compare their wages against ours. It will be easier to see the issue from big picture.

Ron Lim on

What does it matter if the situation is the same in Taiwan or other countries? What is important is our country for our people! Sure, we can learn from them how to manage BUT I believe we are the leaders in public housing, so I doubt we can find an answer elsewhere. What Hazel has written and her alternative solution for funding sounds very reasonable and practical. Looks like there is hope for Singapore with the opposition parties after all, despite what the PAP likes to say! More original thinking and less protective of their own turf.

Madison Chua on

I love your proposal, especially when it comes to cutting the ministerial salaries.
Cut, cut, cut!
And oust Mah right away. If anyone’s poll numbers are lowest in Singapore (if polls are even conducted), I am pretty sure Mah Bow Tan’s poll numbers are dismal to say the least.

fpc on

Great analysis.

I wonder why S’poreans get con so easily?

T on

Who got conned? You? Not me. Not many people I know. Just that there is very few avenues to air opposing views.

cannot-vote on

Not conned. Many of us stayed in GRCs. I have not voted once in my entire life, except the vote for President. So we had no choice but see mistakes passed by the government into law. No chance to argue as the mainstream media companies are compliant to PAP’s preference to give only positive news of PAP. Go for it, Reform Party and other like-minded parties. Make a difference for us!

sgcynic on

Mah Bow Tan would cut the budget for education and heathcare instead of defence. Now we know which are the sacred cows.

J c on

Commendable analysis. I think this sort of writing style is balanced and backed up by figures, which is much more mature than taking potshots at the government. Keep it up.

Joe chua on

Imagine 8 years ago as a job starter, I bought my flat for $220k 5 bedroom and household income 6k. Now $400k to get 5 bedroom, is double the price and installment loan for newly web to clear. My concern is the take home pay is far to slow to catch up with property price and that will cause many delay in marriage.

Bobby Tan on

Mr Mah is dishonest not to mention maybe CUT DEFENCE spending…which is the largest widest deep hole of Public Taxes being sunk into unfathomable depths….Cut Defence spending by 50% and We have another $5.5million!

Shame on the Minister of National Development for trying to hoodwink honest working citizens who earn a FRACTION of his salary paid by Taxpayers

gewatchdog on

Very credible proposal compare to MBT just defending his affordability equations and increase future supply through BTO rations will only make the price going even highly pyschologically as each BTO is many times over-subscribed as this BTO rationing will make many people not needing the flats now to jump into the queue.

Bill on

Sporeans should give RP a chance to represent them in Parliament. This post was written by a rational person who can be trusted.

matthew on

someone should debunk the “affordable housing” by exposing the exorbitant profits HDB are making off those who need a simple roof over their heads. what we need is a leaked documenting of the costing used – start by getting some numbers from the contractors awarded the construction of HDB blocks.

Viktor Ye on

The above suggestion is a viable policy change.


I’m not sure if you know there is “NO CAP ON NO. OF EMPLOYMENT PASS HOLDERS (PMET) A COMPANY CAN HIRE” – Straits Times 13 Nov 2010 – HOME page B1. I was *shocked*. Given the finite size of Singapore, more foreigners being given employment pass would mean demand for property (rental/purchase) will go up. Prices of private property will continue to rise. And HDB will claim that its flats are affordable compared to private property. If the root cause is not understood and resolved, the government has no solution. There must be a cap on the foreign population.

defennder on

Hi Hazel,

This is a very good post. I haven’t considered the debt-service to income ratio argument until you mentioned it above. Now that you’ve exposed the fallacy in Mah Bow Tan’s argument I wonder if he’ll release statistics showing how many of those who applied for HDB flats were turned down because they were deemed unable to service the loan? Maybe once those figures have emerged (if at all), we’ll have a better idea of how affordable HDB flats really are.

googoo on

All of you to understand that the power lies in the bottom 30% of the digital divide, the elite and the beholden takes 1/3 will vote PAP, the disgruntled like you 1/3 and the fight is in the hearts and minds of the clueless bottom 1/3 of the digital divide. Like the Gutenberg printing press which destroyed the Monarchy in Europe by convincing the farmers and serfs to change their minds, all of you should instead of complaining, use some rubber gloves and print out 100 copies and distribute at the bus-stops every day. Soon this is float back via their RC net work and they will have to come up with better ideas.

sarah on

Goes to show that the smartest people do not come from PAP as the PAP has been claiming for the past 45 years. Great job, RP. I am voting for you in the coming elections and I hope more of my fellow Singaporeans would do likewise.

MBT u ar talking cock on

MBT, I do not understand your bull and cock story. I only know that I am still cannot afford to buy an expensive HDB flat with my salary.

francis on

This is a really hard to fight, because, in the first place it is all fallacy.

There is no transparency on how much it costs to build a flat, after-all we are importing lower wage “foreign talents” to built them. To price a HDB flat which is supposed to be public housing based on commercial terms, it is all wrong.

Joe Chua on

Don’t be too bother to spend time digging analysis that cannot be obtained or rather focus on solution to the existing problem. If the recommendation make sense, these analysis will be surface to the people.

– Art of War.

Frederick on

Hi Hazel

Your reasoning is very convincing. I like your proposals. They make sense.

However I disagree with your first point on HPI. You cunningly selected the period from 1990 to 2009, a period which shows the greatest difference on price increase over income? Why not show us from 1997 to 2009? Or 1985 to 2009 or others. I believe that whichever perpective, one wants to portray, figures are plucked to suit one’s case.

Another point you could have highlighted is the openly published tender results on construction cost in HDB websites. My estimates are that a 4-rm flat in Punggol cost about $204k. (An enclave of 494 units, all 4-rm flats was tendered at $102m ) Other results show similar figures. Higher subsidy or discount are given to smaller flats based on psf. The first DBSS in Tampines was given an open choice to build any number of 3, 4 or 5 rm flats. The developer chose to built almost all 5-rms, a small percentage 4-rms and a handful of 3-rms. HDB wised up. Subsequent DBSS were specifically allotted number of 3, 4 or 5 rms. That shows based on psf, the discount or subsidy is higher for smaller units therefore less profitable for developers.

defennder on

Hi Frederick,

I’m certain Hazel did not mean to be “cunning” or otherwise. If you look at HDB’s website, the earliest data on resale prices accessible dates from 1990. No conspiracy here.

Hazel Poa on

Dear defennder,
Thanks for jumping to my defence. Appreciate that! 🙂

Dear Frederick,
defennder is right. I am afraid I am rather hampered by the limit on the statistics that I have access to. Sorry!

Tan Kuan Han on

Hi madam, thanks for your the great article. I learnt much from it. 🙂

” Setting an acceptable band for resale prices relative to median income (for example,50 times of median income plus/minus 20%), then increase supply if prices go above the band and decrease supply if prices go below.

This is similar to the way MAS manages the Singapore dollar exchange rates”.

Anyway, I will just like to ask you whether the above point stated is just a simplified interpretation of a more detailed scheme.

Eg. instead of an immediate commencement of increasing supply upon “reaching 50 times of median income plus/minus 20%”,

it will be more of an indicator of a possible lack of supply to meet current needs; and only upon confirmation, start looking into building more flats?

This is because there are out-lier cases in our property market at times where flats are sold at a premium way above current market rates.

Just an example. (Been studying HDB resale prices for personal purposes. ;] )

Also, with all due respect, using MAS ‘s monetary policy as an example seems weak.

One can keep spare dollars in our reserves ready for circulation into the market but, I think keeping spare flats ready for circulation upon lack of supply may be a tad difficult.

Hazel Poa on

Dear Kuan Han,
Thank you for such good questions. Let me elaborate.

The resale price to be kept within a band that I have in mind is not the resale price of any single transaction, but rather a composite price based on multiple transactions, e.g. like the resale price index compiled by HDB.

Secondly, you are absolutely right that the MAS analogy is not very strong. How astute of you to pick that out! I must admit that my purpose of putting in that statement is not very noble. It was intended to pre-empt ardent PAP supporters from crying foul at my proposed “distortion” of “free market forces” with a subtle reminder that they do it too. But you couldn’t let me get away with that, could you?! Are you in fact an ardent PAP supporter? 🙂

Jokes aside, I appreciate your taking time to read my article and making that effort to write to me where you felt I was lacking. I consider you as doing me a great service. Thank you and keep the criticisms coming!

Lawrence Yong on

Hi Hazel

Great dissecting of the stats, especially that of the DSR, which you astutely pointed out the survivorship bias and hence insuitability as a gauge. Quite rightly, DSR is a gloss and it wouldn’t have captured the problematic cases.

With regards to your suggestions on adjusting supply based on factors like number of marriages and immigration, I wonder if it is in practice an easy feat. Forecasting is after all more an art than science, and they are seldom spot on. Witness the COE quota restrictions now to correct previous years’ allotments.

I also agree with Kuan Han that HDB supply management cannot parallel MAS exchange rate policy. Flats are physical assets, one cannot instantaneously pump or
withdraw them from the market. Further, I’m not so sure if it’s efficient use of taxpayers money to maintain inventories for future demand. Also, renting out the excess might have other ramifications – it’d be tricky. Who qualifies? For how long? What price? Will they alter Singaporean demand to own flats? Will they lead to other loopholes? Etc

Difficult to please all I guess.

Frederick on

To ‘defender’

Thanks. The word ‘çunning’ used is truly inappropriate, it is used as a pun for effect. Apologies to Hazel. In fact I admire her article, it comes wholesome- criticism followed by counter-proposals and supporting statements.

To Tan Kuan Han

The proposal on ‘band of resale price against the income medium’ has its merits if the following are observed:

1. The various ministries/depts are closely coodinated e.g Home Affairs Ministry must control the intake of foreigners. In our current chaos of runaway prices, our Govt leaders are surprised by the nos. of the FTs /PRs intake that skewed the housing demand incl HDB. MCYS to be consulted on the racial, cultural distributions, etc ENV on eco matters.

2. The birthrate glint from 23 yrs ago and the ROM figures must be closely monitored together with the number of PRs approved yearly(or even monthly) from ICA to better ensure the amount of flats to be built. The present system BTO proves it is unable to handle the supply side esp the resale HDB market.

3. Tab on economy to guage the mood.

Hazel Poa on

Dear Frederick,
I was intending to act all indignant and self-righteous at the utter humiliation of being labelled “cunning”, all ready to protest my innocence and defend my integrity, until Kuan Han caught me out and all the wind went out of my sail. It seems I was not all that undeserving of that label after all! : <
So no offense taken (since none can be taken).
On a more serious note, you have made some pertinent points for me to think about. Hope to see more comments from you.

Hazel Poa on

To all who commented,
Thank you all so much for your comments, criticisms and pats on the back. Your encouragements make me stronger, and your criticisms make my ideas stronger. I have never believed in a perfect proposal. Every proposal has its benefits and its costs. When I cannot see the downside, I get worried, so I especially welcome and value criticisms. Please help us make our proposals better. The day when I start to believe that I know better than anyone else, I will join the PAP. 🙂

Singapore web designer on

Great article you wrote here. Thorougly enjoyed it! You had me from the start – keep it up, Thanks for sharing your thoughts. Your article was very interesting. Great write up! Need more like it! Wish to hear more like this!

NMR on

WOW …great article … how heartening to know we do have you type of educated /qualified saviours, whom we badly need, to create an awareness, as a voice for the not-so educated and lower income group and help Reform the policies of HDB to suit the general public.

Bobby Tan on

We need data for the :
a) So called cost of land from SLA to HDB
b) The cost of HDB (Salaries and cost of operation)
c) Cost of infastructure
d) Cost of building (constructing) of HDB Flats

We can then analyse what cost and which cost if INFLATED for the Right Pocket to the Left Pocket and passed on to the hapless citizens.

Those citizens 35 and below should now decide they neeld a strong opposition in the Parliament ….better still have a new government in Parliament and put PAP into the Opposition Benches.

Not only Housing is involved; Transportation, Medical and Health Care, Educaion, Defence….spending and the Health of the CPF itself

The important questions and right questions must be put to the responsible Ministers.


Lawrence Yong on

Hi Hazel

I would like to seek clarifications on RP’s take on housing.

1. Does affordable housing equate to low cost housing?
2. Does RP subscribe to the notion of HDB being an appreciating asset?
3. Do you think housing will be a contentious issue in the coming election, given that in my humble opinion that a good majority are already vested?

dave on


have a look at this link.

[quote]In January 2006, the first DBSS plot at Tampines was sold for $113.65 psf per plot ratio (ppr). The developer estimated break-even cost at about $240 psf. The units were eventually sold at $300 psf – 25 per cent higher than break-even cost.

The second land plot at Boon Keng was sold for $233.74 psf ppr to Hoi Hup. Analysts calculated a break-even price of $400 psf. Units there are being sold for $520 psf ppr – 30 per cent higher than estimated break-even cost.[/quote]

The following points are true.
a. HDB prices their public housing using market prices.
b. DBSS vs public housing is a 30-70 ratio. BUT the prices of DBSS is at least 1.5 to 2.5x the price of public housing. If HDB is also taking DBSS data -given it’s also public housing (semantics) then expect future public housing the (70%) to continue to only go upwards.
c. If we take the first DBSS project at tampines.
– Number of units -616, (2,4,5 bedrooms)
Sim Lian won the bid at 113.65 psf ppr –
Sim Lian break even is 240psf
Units sold at 300psf.

Tampines Avenue 5 site, released under HDB’s DBSS, with a higher-than-expected bid of $178.13 million, or $261 per sq ft per plot ratio (psf ppr). [/quote]
At $261 psf ppr, Sim Lian will have to sell three-room flats for $380,000 to $400,000, and four-room flats for $530,000 to $550,000, said Mr Mak.[/quote]
Five-room units would have to be pitched at between $640,000 and $670,000. [/quote]

Have a look at the quantum!!!!
The government is not helping by creating this DBSS concept. It’s HDB with limitations of HDB.
Secondly by doing this, HDB / SLA takes the first cut of the cake (Tender bid). I wonder how much HDB pockets and how much SLA pockets.
Thirdly DBSS pricing skews total public housing – given its higher prices, which will inflate the prices of even normal HDB statistically, it would also endup raising the prices of normal publich housing given how HDB prices their ‘affordable housing’

If we look at the costings – estimates
For Sim Lian – their material costs/ manpower etc minus their land cost would equate to about – 127psf.
So if we take a 1,000 unit (4 bedroom) the price would be – 127,000K. Even this number is on the high side given – the material difference, the density of the flat (as dbss uses land for carparks, recreation etc etc).
So is our public housing affordable?? 🙂 Is it a subsidized price?
I’d let the rest of you do the sums.


Reform Party should be voted in to manage Mr MBTs failed policy of HDB. Because a failed policy can actually create the downfall of the people of SINGAPORE within this generation and the next generation.

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