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S'pore scores in efforts to improve home affordability
[SINGAPORE] Singapore homes remain "severely unaffordable" despite efforts to improve affordability, a survey has found. But the city-state achieved "stellar results", unlike Hong Kong and Vancouver, where home prices have spiralled out of control.
The 10th Demographia International Housing Affordability survey, which studied housing prices in 360 metropolitan markets across nine nations, including Australia, Canada, Ireland, Japan, New Zealand and the US, rates housing affordability based on the median multiple. The latter is the median house price divided by the gross annual median household income of specific markets.
It believes that if housing exceeds three times the annual household incomes, institutional failure at the local level results and there are "serious political impediments that need to be addressed with respect to land supply and infrastructure planning, provisioning and financing".
The survey rated Singapore's home affordability at 5.1 in the third quarter of 2013. A multiple of 5.1 or more is "severely unaffordable", while one below 3 is considered affordable.
The most affordable major cities were in the US, Ireland and Japan, each of which had a moderately unaffordable rating. Canada was rated "seriously unaffordable", along with the United Kingdom.
The survey noted that housing in Singapore - which boasts of an overall 88 per cent rate of home ownership, the highest in any place in the survey - is three times as affordable as Hong Kong. Hong Kong, Vancouver and Honolulu have the least affordable housing markets across nine nations in the survey.
The median home price in Hong Kong rose from 13.5 times in 2012 to 14.9 times last year - the highest recorded and least affordable in the 10 years of the survey. Again, Vancouver was second only to Hong Kong, with a median multiple of 10.3, followed by Honolulu at 9.4 times.
It also noted that restrictions on foreign ownership may have shielded the Republic from the cost escalation that may be occurring from globalisation of property markets in places, such as Vancouver, coastal California, Hong Kong and London. However, with severely unaffordable housing, Singapore has not been as successful as might have been hoped, according to the Belleville, Illinois-based consulting company.
"In some years insufficient supply was produced, which resulted in the now elevated costs," it said. "But, by comparison to metropolitan areas that have followed the British urban containment model, Singapore's results have been stellar. Housing affordability has virtually spiralled out of control in places like Hong Kong, Vancouver, San Francisco, San Jose, Sydney, Melbourne, Auckland and London, reaching levels of 7.0 to nearly 15.0."
The report acknowledged Singapore's focus on maintaining an adequate supply of affordable housing: "This is virtually the opposite of urban containment regulatory regimes, which (seek) to severely limit land supply and to virtually ignore the housing affordability impacts."
"Land use regulations and the availability of trunk infrastructure heavily constrain the supply of developable land," Alain Bertaud, senior research scholar at the Stern School of Business at New York University, wrote in the introduction to the report.
"There is no silver bullet to increase the supply of affordable housing. But if planners abandoned abstracts and unmeasurable objectives like smart growth, liveability and sustainability to focus on what really matters - mobility and affordability - we could see a rapidly improving situation in many cities."
Housing mobility allows households to move to the location that best maximises their welfare. Affordability is the ability of any urban household to rent a dwelling for less than 25 per cent of its monthly income, or to buy one for less than about three times its yearly income.
The twin objectives of maintaining mobility and housing affordability should drive the design, financing and construction of trunk infrastructure.
"Here is a new simple job description for urban planners: plan the development of trunk infrastructure to maintain a steady supply of developable land for future development, but leave land and floor consumption per dwelling to the market," said Mr Bertaud, a former principal urban planner at the World Bank.
Within a few hours of its release, the survey drew criticism from New Zealand Property Investors Federation executive officer Andrew King.
Mr King argued that houses in New Zealand (also ranked "severely unaffordable") could seem to be less affordable than other countries' because prices included a larger land component and high building costs.
The high prices of New Zealand houses had a lot to do with the tax regime being favourable to home ownership and property investment compared with other forms of saving or investment, he said.