1 JUN 2024
Read an online article recently. The article “Is Your BTO Less Affordable Today? Let’s Dive into the Math for the Answer” from SG Matters compares the affordability of BTO flats in 1980 and 2021. It argues that, despite rising prices, BTO flats have become more affordable due to a higher increase in median household incomes. The analysis concludes that the price-to-income ratio has improved, indicating better affordability. It also discusses factors like Mortgage Servicing Ratio (MSR) and varying prices based on flat attributes and locations.
1. Ignoring Inflation
One of the most glaring issues with the article’s analysis is the failure to account for inflation. A dollar in 1980 had significantly more purchasing power than a dollar in 2021. Ignoring inflation skews the comparison, making it appear that incomes have risen more dramatically in relation to housing prices than they actually have.
2. Omission of Interest Rates
Mortgage interest rates play a critical role in determining the real cost of housing. The article doesn’t address the difference in interest rates between 1980 and 2021. Higher interest rates in 1980 could mean that, despite a higher price-to-income ratio, the actual financial burden of mortgage payments could have been comparable or even greater.
In 1980, the Central Provident Fund (CPF) contribution rates in Singapore were 25% for employees and 25% for employers, totaling 50% of wages. By 2021, the rates had been adjusted to 20% for employees and 17% for employers, totaling 37% for most age groups. These differences significantly affect disposable income and saving capacities, influencing the affordability of housing.
3. Simplistic Income Comparisons
The article compares median household incomes across decades without considering changes in household structures, such as the increase in dual-income households. This can be misleading because it suggests that household incomes have risen more significantly than individual incomes, potentially overstating the improvement in purchasing power.
4. Non-Housing Cost of Living
Affordability isn’t just about the cost of housing; it’s also about what’s left after paying for essentials. The article doesn’t account for the broader cost of living, which includes healthcare, education, and daily necessities. If these costs have increased disproportionately to incomes, then disposable income available for housing might actually be lower.
5. Government Policies and Subsidies
BTO flats are often subject to various government policies, subsidies, and grants that can affect their affordability. The article fails to mention these factors, which can significantly alter the out-of-pocket costs for buyers and their ability to finance a home purchase.
6. Sample Size and Regional Variations
Using national averages for housing prices and incomes can obscure significant regional variations. Housing markets can differ greatly within a country or even a city. For a more accurate picture, the analysis should consider regional data and variations in housing affordability.
7. Quality and Size of Flats
The article does not address whether the quality, size, and features of the 4-room flats have changed over time. If today’s flats are smaller or have fewer amenities compared to those in 1980, this would affect their perceived value and affordability.
8. Downpayment and Initial Costs
The initial costs of buying a home, including downpayments, have a substantial impact on affordability. Even if the price-to-income ratio has improved, higher initial costs could still make it challenging for first-time buyers to enter the market.
9. Economic Conditions and Job Security
Broader economic conditions, such as job security, employment rates, and economic growth, play a crucial role in housing affordability. The article overlooks these factors, which can significantly influence whether people feel financially stable enough to purchase a home.
10. Long-Term Financial Health
Affordability should also consider the long-term financial health and retirement savings of households. High housing costs might detract from savings for retirement, healthcare, and other future needs, impacting overall financial well-being and security.
Conclusion
No matter what the ruling government does or how hard they tried to present the affordability’ picture, a recent article below indicated mass majority of the citizen doesn’t agree with their statistics.
No million-dollar flats: 52% of S’poreans polled will pay only up to S$600K for Central location
The simplistic analysis of housing affordability presented in the article overlooks numerous critical factors. A comprehensive understanding requires considering inflation, interest rates, broader economic conditions, and the changing nature of household incomes and costs. By addressing these flaws, we can have a more accurate and meaningful conversation about housing affordability and the challenges faced by prospective homeowners today.