Trapper's Swamp

After the recent barrage of discussion about rising HDB prices, Miss Mabel Tan has decided to write to the government mouthpiece and declare the problem to be one caused by "unrealistic expectations".

My family is an example of how HDB policies have helped us improve our standard of living and how gradual price increases have helped my family upgrade our housing status.

Unlike other countries, Singapore has a unique public housing policy where the Government not only helps most of us buy our first home, but also ensures that the increasing value of our property will enable us to upgrade to the next level when we are ready.

When I got married eight years ago, I lived with my parents-in-law for a few good years before we bought our own place. Young couples these days complain they are being priced out of the HDB market. But it is their unrealistic expectations that have caused this.

A word of advice to these young couples who plan to start their own families and move on to the next stage of their adult life: Instead of blaming others for not being able to own their own place (with the size and location they want), perhaps they should be more mature and realistic in their expectations.

In life, we must learn to adapt and not just live within our means, but also make the most of what we have.

I can sum up the entire letter in three phrases: "be happy with your lot", "stop whining about affordability of public housing", "we coped and benefited, why can't you?". My initial response was "on which planet do you spend most of your time?" (I <3 Barney Frank), but it is too easy to dismiss her letter with snark, so lets take a closer look at what she said.

Her family managed to upgrade from "a one-room flat to a three-room and finally to a four-room flat in Choa Chu Kang", to Miss Tan a glowing testament that HDB policy worked for her and her family. In her rush to praise HDB, she has forgotten that the young couples she is wagging her finger at did not have that luxury of selling an existing unit. The trouble is with the next generation of flat seekers being priced out of the market.

Miss Tan has also conveniently omitted the fact that HDB stopped building three-room flats in new estates until they reinstated the program in the last couple of years, which means that new estates - ones that Miss Tan advocate for current flat-seekers - are filled with four-room flats that command an unrealistic premium because they are pegged to private market prices.

The latest batch of premium flats in Punggol - not a "mature estate" by any means - comes with a top price of S$322,000. I paid S$176,400 for mine in Sengkang, and was considered extremely lucky among my peers; I still consider that amount to be ridiculous for public housing that you are effectively only leasing from HDB. Is that an acceptable price for first-time flat seekers? It is a great price for the seller, be it HDB or the previous owner, but terrible news for young couples.

Miss Tan is "bemused" by this reaction from young couples because she has yet to feel the pain of not being able to land an affordable home even in a new and pretty remote estate, a bemusement that was reinforced by her family's upgrade path. But her short-sightedness is evident to me, as it will be to her when her children grow up and are made to pay these kind of prices for public housing. What will she say then?

Mr Ng Kok Lin's reply to Miss Tan's letter illustrates her faulty logic.

Let’s say for simplicity’s sake, Ms Tan’s parents’ flat appreciated from $30,000 to $300,000, that’s a cool $270,000 that Ms Tan’s parents pocketed over the years without doing anything. But what about Ms Tan and her siblings?

If the price had stayed at $30,000, Ms Tan and her siblings would have been able to snap up units at $30,000 each only. But because of asset inflation, Ms Tan and her siblings now have to fork out $300,000 each.

In fact, Ms Tan and her two siblings would have to fork out a total of $900,000 instead of $90,000. Collectively, they would have paid $810,000 more. The extra burden of $810,000 that Ms Tan’s generation has to bear far outweighs the gain of $270,000 that her parents pocketed.

So that is the truth behind the fallacy of asset appreciation. We can of course adjust all prices for inflation but what this simple example illustrates is this: the so-called gain from asset appreciation of one generation will be borne by the future generation.

Miss Tan also made the claim that young couples have "unrealistic expectations" that price them out of the market. Given that S$322,000 price tag on a flat in Punggol, she is the one being unrealistic about the flat prices. We no longer live in the days of the S$90,000 four-room flat. HDB uses an arbitrary number to determine affordability of flats, which is 30% or less of household income used to service their housing loans, and Miss Tan have bought into that completely.

The upper household income limit for flat "ownership" eligibility is S$8,000; a more realistic figure for household income would be about S$5,000, making the 30% "affordability" margin to be S$1,500 per month. For public housing. On a 99-year lease.

Miss Tan, your unrealisitic expectations are fuelled by blind faith and short-sightedness, and while the irony of your children being priced out of HDB flats may enrich my schadenfreude, I wish they wil never have to "enjoy" such a dose of reality.