How Singapore tamed house prices and deflated their housing bubble

by Rebecca Macfie / 31 August, 2016
Auckland isn’t the only city to have faced a housing bubble.
After peaking in 2013, residential property prices have fallen for 11 consecutive quarters. Photo/Getty Images
After peaking in 2013, residential property prices have fallen for 11 consecutive quarters. Photo/Getty Images


There’s nothing unique about the pressures on Auckland’s housing market, says economist David Skilling, the former chief executive of the New Zealand Institute who now advises governments globally from his base in Singapore.

House prices in small, open economies such as Sweden, Switzerland, Denmark and Singapore have all been pushed up by very low interest rates, upward exchange rate pressures, low inflation and foreign money looking for safe havens following the global financial crisis. All have put in place measures to try to dampen prices, but Skilling says Singapore has been the most effective.

The island nation – a far more land-constrained city than Auckland – was hit hard in the financial crisis, but between 2010 and 2013, house prices overheated. Skilling says the Government responded by introducing policies targeting both supply and demand.

On the supply side, the Housing and Development Board – the state agency responsible for the bulk of residential development – significantly ramped up the construction and sale of units. The board has been responsible for the development of affordable housing since Singapore’s independence in 1959, and Skilling says it has mass construction of standardised high-rise apartments “down to a T”.

Photo/Getty Images
Photo/Getty Images


The Government, which owns all the land, released additional blocks onto the market, with construction done by a handful of big private property developers. “It happens quickly and at scale, and there are a lot of foreign construction workers … immigrant labour from China, Bangladesh and the like. So capacity constraints are removed by that type of construction and the fact they are very open to bringing people in.”

Some are now worried about an overhang of housing supply, with the latest data from the Urban Redevelopment Authority showing almost 9% of private units were vacant in the June quarter.

The Government also rolled out an increasingly tight suite of policies to restrict mortgage borrowing. In 2012, it limited mortgages to 35 years, and in 2013, it tightened loan-to-value ratios to 50% for people with one housing loan and 40% for those with two or more loans. Debt-to-income limits were also imposed.

Stamp duty was ramped up, with a 16% duty imposed on those who sold a property within a year of purchase. Those buying second and subsequent properties pay duties of 7% and 10% respectively, and foreign buyers pay a 15% stamp duty.

The Government’s goal was to “skew the incentives” in a way that reduced the demand for property.

After peaking in 2013, residential property prices have fallen for 11 consecutive quarters and are now 9.4% lower than in the third quarter of 2013. “The Singapore way is not to crash the market,” says Skilling. “It’s to do it in a very calibrated way.”

He describes the combination of demand and supply-side measures as a “scissor” action. “You can’t just operate one blade without the other.”

He’s concerned that the heavy focus on housing supply in the Auckland market will overshadow the need to work the demand-side “blade” through further Reserve Bank-imposed macro-prudential tools. Although loan-to-value ratios have been repeatedly tightened since they were first introduced in 2013, Skilling is astonished that New Zealand’s central bank has only recently signalled that it is investigating the possibility of debt-to-income ratios.

“I think the Reserve Bank has been slow off the mark,” says Skilling, who bemoans New Zealand’s reluctance to learn from the policies of other countries in dealing with the housing crisis. “We’ve been sleepwalking towards this for a long time.”

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