TL;DR – In fact, our housing can be affordable.
We often hear people complain about how expensive housing in Singapore is. But, surprising as it may sound, housing prices in Singapore aren’t the least affordable in the world.
A study by Demographia, an urban planning consultancy, found that Hong Kong has the least affordable housing, followed by Sydney, then Vancouver. In fact, amongst the housing markets that were included in the study, housing in 28 cities, such as London, Auckland, and Toronto, were less affordable than in Singapore.
These rankings were taken off the 14th Annual Demographia International Housing Affordability Survey, where 293 metropolitan housing markets in nine countries were included. These nine countries were Australia, Canada, Hong Kong, Ireland, Japan, New Zealand, Singapore, the UK, and the US. Read more about the top 10 most expensive housing markets here.
How do we know whether affordable or not?
But that still doesn’t mean that housing in Singapore is affordable.
For that matter, how does the study conclude whether housing is “affordable”?
The study uses what’s known as median multiple. It’s the ratio of the median housing price to the median gross pre-tax annual household income. A median multiple of 3.0 and below is considered affordable. A median multiple of 3.1 to 4.0 is considered moderately unaffordable, 4.1 to 5.0 is seriously unaffordable, and anything above 5.0 is severely unaffordable.
Hong Kong has a median multiple of 19.4. That means that the median housing price in Hong Kong is 19.4 times that of the median income in Hong Kong.
And what about Singapore? Singapore has a median multiple of 4.8. Ah ha! That’s still considered “seriously unaffordable”!
Got to remember that we have CPF and grants
But but but we need to bear in mind two things.
First, it appears that the median multiple that the study calculated doesn’t include contributions to national insurance. For Singapore, our national insurance is CPF. And employers contribute a significant portion to our CPF. And we can use our CPF to pay for our housing.
Second, the overall median multiple that the study calculated for Singapore doesn’t take into account grants provided for HDB flats.
Having said that, the study did have a section that discusses the grants available to Singaporeans buying HDB flats. It says:
“As in other nations, the Survey does not account for these grants in measuring Singapore’s housing affordability. This would be virtually impossible, because of the difficulty of obtaining comparable data and the complexity of evaluating uniquely designed home ownership incentives.
However, it is noted that the practice in Singapore may be substantially greater than in other nations, which would seem to have a positive influence on housing affordability.”
The study also highlighted that the midpoint of prices of HDB flats after grants is under 3.0 times the median household income. Furthermore, the average size of the HDB flats, at 90 square meters (970 square feet), is larger than the average size of flats in Hong Kong (which is only 44 square meters) and new flats in UK (which is 84 square meters).
Which means our housing actually is quite affordable
In other words, while overall housing in Singapore before HDB grants and employers contribution to CPF are taken into consideration may fall under the “seriously unaffordable” category, that isn’t really true. Or at least that isn’t the full picture.
HDB flats, where more than 80% of Singaporeans live in, are actually quite affordable.
And before you start on the whole “But no one really owns HDB flats because they only have a 99-year lease”, Hong Kong flats have an even shorter lease of only 50 years.
And seriously, in land-scarce Singapore, do we really want HDB flats to be freehold?
That means that people who are rich today would get to pass on bigger flats to their children forever more, while children of Singaporeans who are poor today would never be able to get bigger flats. That would severely restrict social mobility. Is that what we want?
So. The bottomline is that most Singaporeans should be able to afford to get a flat in Singapore where they can live in for their whole lives and still pass on a little value to their children.
Sure, it’s not a perfect system. But it’s not as bad as some people would like us to believe. Read the full survey report here.