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.”

Follow the Listener on Twitter or Facebook.

Latest

Housing NZ to reimburse hundreds evicted on flawed meth testing
96594 2018-09-20 10:03:55Z Politics

Housing NZ to reimburse hundreds evicted on flawed…

by Jo Moir

Housing NZ has committed to compensating hundreds of tenants it evicted from state homes based on bogus meth testing, some of whom were made homeless.

Read more
Shortland Street is turning into a metaphor for the Trump White House
96588 2018-09-20 09:27:11Z Television

Shortland Street is turning into a metaphor for th…

by Diana Wichtel

An extra night of Shortland Street won’t change the psycho storylines or the mad characters who act without consequence.

Read more
Why GE grass will be the next divisive issue for the coalition Government
96475 2018-09-20 00:00:00Z Politics

Why GE grass will be the next divisive issue for t…

by Jane Clifton

As the Government gropes all over in reports and reviews for answers, it looks like GE grass may not be one.

Read more
Funny Girls gets serious about suffrage in new comedy special
96571 2018-09-20 00:00:00Z Television

Funny Girls gets serious about suffrage in new com…

by Russell Brown

A comedy special with the Funny Girls sheds light on New Zealand women’s historic winning of the right to vote.

Read more
How to ease symptoms of IBS and endometriosis with the right diet
96373 2018-09-20 00:00:00Z Nutrition

How to ease symptoms of IBS and endometriosis with…

by Jennifer Bowden

Diets low in fodmaps are a saviour for people with irritable bowel syndrome and endometriosis, helping to manage the gastrointestinal symptoms.

Read more
The web browsers’ war on user tracking
96529 2018-09-19 13:01:40Z Tech

The web browsers’ war on user tracking

by Peter Griffin

The reach of tech giants Facebook and Google goes well beyond their own websites to capture your web browsing. So how can you stop them tracking you?

Read more
Emails between Clare Curran and Derek Handley to be revealed
96499 2018-09-19 08:04:02Z Politics

Emails between Clare Curran and Derek Handley to b…

by Gia Garrick

Copies of former minister Clare Curran's personal emails to tech entrepreneur Derek Handley are expected to be released to Parliament this afternoon.

Read more
Suffrage 125th: We're not there yet, but with each generation we get closer
96160 2018-09-19 00:00:00Z Social issues

Suffrage 125th: We're not there yet, but with each…

by Genevieve O’Halloran

It's 125 years since women got the vote, but full equality eludes us. The motherhood penalty curtails careers and the gender pay gap remains.

Read more