The purchase of a HDB flat by a household provides some degree of security in retirement. Once the mortgage is fully paid up, rental payments are no longer an issue.
However, let us not forget low-income Singaporeans who rent from the HDB at prices ranging from $26 per month to $275 per month on a long term basis. (http://www.hdb.gov.sg/fi10/fi10323p.nsf/w/RentDirectHDBRentDeposit?OpenDocument) They are arguably in the greatest need of housing security, but due to having made the choice (arguably of necessity since better options are closed to them) to rent, they will not enjoy the security of home ownership later in life.
I would like to sketch some highly tentative ideas that get these Singaporeans housing security in old age.
In paying for HDB flats, Singaporeans typically make monthly payments from their CPF accounts. Those who rent make payments in cash. It is clear that the cash flow situation is not too dissimilar. The end result of paying for a HDB flat is home ownership. Rental payments, on the other hand lead to no such security.
I imagine the creation of a "convertible rental" housing product that reduces to the current rental system when used for short term housing (say, three years or less) and provides housing rights of some sort that vest over some period of rental.
For instance, 30 years of rental (possibly non-contiguous) might, for example, gain a household the non-transferable lifetime right to be housed in a dwelling of the same size that they originally rented (or rented for at least 20 years) at no additional cost. However HDB would have the right to move ask them to move to another similar unit within the same area (given some notice, of course).
Example 1: Household rents a 2-rm flat for 10 years, stays with relatives for 2 years, and rents again from HDB for an additional 20 years. At the 32nd year mark (=10+2+20), the housing rights vest and the household may stay on without paying additional rent.
What this means is long term housing security for Singaporeans who are not eligible to buy, and flexibility for redevelopment and redeployment on the part of the HDB. The latter point is relatively clear so let me share my perspective on the former.
Some Singaporeans are rated as in eligible to buy HDB flats because their incomes are not stable enough. But if a household makes rental payments for (say) 30 years, one mighty say that their income was stable "in hindsight". That is to say they were effectively penalized because of the lack of perfect foresight. That "mistake" is certainly not a crime, but "in hindsight" there has been some "injustice" that excluded some households from homeownership because their incomes did not look stable enough. No one can be reasonably blamed for this "injustice", but it can be remedied by extending housing security to these households. This view might be unorthodox, but it is my perspective on why this is a fair and just thing to do. But "justice" aside, this proposal should mainly be judged on whether it is a scheme that promotes welfare at a reasonable cost and whether the positive social spillovers are sufficiently high.
Let me now touch on some concerns people might raise:
- Some may feel that the HDB should get an additional lump sum payment before such a housing right is granted, but that is equivalent to extending the required rental tenure.
- After running the numbers in detail, the required rental tenure may depend on the payments made, but the variation should be "incentive compatible" with increasing household productivity. (See http://jeremy-chen.org/blog/201309/income-ceilings-and-their-severe-incentive-flaws-why-no-competent-economist-would-have for more on incentives. In this setting, the problem is more difficult than it looks at first glance.)
- If such a right is granted to a "household", what happens if it breaks up? Case by case treatment may or may not be the sensible way to go.
In any case, introducing such a scheme can make an impactful and positive difference in the lives of lower-income Singaporeans, providing some modicum of security in old age.
Jeremy Chen
*Article first appeared on https://www.facebook.com/notes/jeremy-chen/extending-some-retirement-sec...