Tag Archives: HDB

PM tweaks troublesome policies, underlying problems remain

“Major turning point”, “strategic shift” and “an epochal speech”. These are some of the terms used by the PAP and their supporters in an attempt to make out that after a year of “National Conversation”, the government had listened and was willing to make drastic changes to improve the lives of Singaporeans. Others however were less impressed – myself included – not least because the policy announcements clearly did not live up to the hype, but most importantly because the superficial changes announced did nothing to address the root causes of the problems facing ordinary Singaporeans.

The policy changes announced came under three predictable headings – housing, healthcare and education. The changes to education policy – forty places at every primary school reserved for P1 students with no ties to the school, and quoting PSLE results as grades rather than raw scores – seem particularly inconsequential. To housing and healthcare however PM Lee dedicated the majority of his speech and it was in these areas that the government’s inability to identify or address the real problems facing Singaporeans was most obvious. Two phrases used by the PM in particular caught my attention – to help people “level up” and to “share the risks”. But in neither housing nor healthcare policy do these phrases rings true, in fact the opposite is closer to reality in Singapore, and therein the supposedly “game-changing” qualities of PM Lee’s National Day Rally speech are quite underwhelming.

Housing – Leveling Up?

PM Lee dedicated a large portion of his speech to playing the role of a HDB housing agent, trying to convince listeners that flats are affordable. Being the good salesman that he is, he repeated the phrase that housing is “affordable” or that we can “afford” it no less than nineteen times. Is the provision of affordable housing suddenly a “major turning point” for the PAP? It seems unlikely, since the government has ostensibly been providing such a service for decades. In his role as HDB housing agent, PM Lee dutifully reeled off a list of grants and benefits available to purchasers, but one would have to try hard to distill a “strategic shift” out of what was mostly a PR exercise in reminding Singaporeans of the numerous schemes already in existence. Only after re-reading the transcript of Lee’s speech was I was able to detect one new policy announcement – an increase in the Special Housing Grant (SHG) of $10,000.

Existing, just the present arrangements, you will have $45,000 of grants already, various things. But now because we have changed our SHG, you will get an extra $10,000 of grant
PM Lee, National Day Rally Speech, 18 August 2013

This couldn’t possibly be the game changer, could it? Increasing existing grants of $45,000 to $55,000? It sounds exactly like “more of the same” rather than a strategic shift.

Ironically, if one wanted to find a strategic shift in housing policy, one would only have to look at PM Lee’s NDR speech from 2011. It was on that occasion that Lee announced an increase in the HDB income ceiling from $8,000 to $10,000. While that $2,000 increase is not in itself a large amount, this policy change was actually much more drastic than it seems, simply because the ceiling had not been increased for seventeen years previously. Accounting for inflation, that $8,000 income ceiling was worth over $10,000 seventeen years ago, but the question to consider is whether or not someone earning that much in the 1990s needed help from the government to purchase a home. “Condo” used to be one of the “5 Cs of Singapore”, and it was surely the expectation of the government in those days that anyone earning more than the income ceiling would be able to afford private housing in an ostensibly rich country like Singapore. Furthermore, by chosing to keep the income ceiling fixed for almost two decades, there was likely an implicit expectation that more Singaporeans could “level up” as their wages increased over the $8,000 threshold to move into private housing.

In fact however, housing and other cost of living factors have outstripped wage growth in recent years, so more and more Singaporeans who earned over the old income ceiling found themselves stuck – earning too much to buy a HDB but not enough to “level up” and buy a condo. This is the underlying problem that PM Lee ignores in his NDR speech – he has done nothing to address the fact that Singaporeans’ wages lag inflation. By instead chosing to give out more government grants, he merely kicks an increasingly painful can down the road. Without solving the problem of low wage growth, what can PM Lee possibly have in mind for 2015 or 2020? Increase government grants, again and again? Similarly to the short-sighted policies of the population white paper, this is a thoughtless non-solution to one of the biggest challenges facing Singaporeans.

Healthcare – Sharing the Risks?

It’s well documented that healthcare spending in Singapore is funded disproportionately out of the pockets of citizens rather than through general government spending, and this reflects the fact that the risk of falling sick here is borne mostly by citizens as opposed to being shared with the government. According to WHO figures from 2011, the proportion of healthcare spending met by the government was 31% in Singapore compared with an OECD average of 61.4%. Even more shockingly, the Singapore government appears to use this predominantly patient funded healthcare system as a source of revenue. If you only learn one thing this week, let it be this: between 2001 and 2010, MediShield collected over $2 billion in premiums and paid out less than $1.3 billion in claims, for a net revenue gain of $850 million. That in Singapore, a supposedly rich country with vast financial assets and reserves, the government not only forces the burden of healthcare spending onto residents, but then in fact sees significant net revenue generation from the healthcare system is inexplicable.

In light of this, it is obvious that MediShield can take on greater responsibility, but the policy announcements made were again underwhelming and neglected to address the root cause of Singaporean’s concerns. As noted by others, extending MediShield to become MediShield Life is an improvement, but an obvious and long overdue one at that. Further changes to increase the circumstances in which MediSave funds can be used to pay for outpatient treatments are also welcomed, but cannot be seen as an increase in government risk sharing, rather these changes merely allow one to use ones own accumulated funds for healthcare spending rather than paying out-of-pocket.

The most telling change announced to healthcare policy however was a commitment to provide “better protection for very large hospital bills”, although in announcing this, PM Lee went to great lengths in asserting that “very very few” people suffer such large bills under the current scheme. One wonders if he himself didn’t see the irony in launching a scheme while at the same time trying to assert that almost no-one would benefit from it – less than 1 in 140 patients if PM Lee’s own MPS are a statistically valid sample. Of course, the details of how this change will be effected were not spelled out, so it is not clear how much increased risk the government will bear, but it is assumed that this will involve an increase to the “claimable limit”. In fact, the very existence of this claimable limit betrays the fact that the entire risk (although not the entire cost) of healthcare funding in Singapore is borne by patients. Once the cost of treatment exceeds this “claimable limit” threshold, the patient is responsible for 100% of the cost. So while the government may assist up to some pre-calculated point, the unbounded upper limit on expensive treatments is in fact borne completely by the patient.

To be truly game-changing the PM’s speech would have needed to address two areas – the profit element and the risk element. Firstly, MediShield should not be a revenue generating operation – as it has been over previous years – but Lee did not appear to address this point.

But because it does more, because the benefits are better, therefore, the MediShield Life’s premiums will have to be higher. It has to be, because it has to break even and I think for most people that will not be a problem.
PM Lee, National Day Rally Speech, 18 August 2013

Of course, there was the expected rejoinder that MediShield premiums would have to go up to reflect the enhanced coverage offered, and PM Lee did make reference to breaking even, but this does not appear to be a statement of budgetary policy so much as an attempt to manage expectations – don’t think you are getting these MediShield enhancements for free. Certainly, PM Lee made no mention of a move away from net revenue generation and no mention of the hundreds of millions in premiums MediShield has accumulated to date, so it would be presumptuous to assume such a significant shift will occur unannounced.

Secondly, on risk, it is hard to avoid the conclusion that residents shoulder an unreasonable share of the cost and risk of falling ill. A more helpful, more significant change would be a commitment to increase the government’s share of healthcare spending much closer to the rich country average (61.4%) when it current languishes at a level almost exactly half that. For a country as wealthy as Singapore, there is no obvious reason (other than political ideology) for healthcare spending to even be less than the average of other rich countries because Singapore is in fact much better off than those other “rich countries”. But unfortunately there is no commitment to make a long-term change in spending policies, no intention to shift the burden from the individual to the state, no hint that revenue will not continue to be generated by MediShield and no clue as to what will happen to the premiums already collected. And most tellingly, while there may be changes to the claimable limit, it appears that MediShield Life will continue to abandon those patients with the highest bills just when they need their insurance coverage the most, so when it comes to “sharing the risks”, the ruling party in fact continues to shirk their responsibilities.

* * * * *

Despite the great fan-fare of a national conversation, and the extraordinary hype of this speech being both a major turning point and a strategic shift, the truth is that nothing much has changed. The government appears to have no policies in the pipeline to solve the underlying problems of low wage growth and the ever-increasing cost of living. While increased grants are likely to be popular today, failing to solve the root cause means the exact same issues will inevitably recur year after year. The government can’t surely see this as a long-term, sustainable plan, but it appears to be all they have. There was also no real indication that the government intends to make an ideological move away from revenue generation. MediShield has accumulated hundreds of millions over the years, but the announced increases in coverage were tempered with a predictable warning that premiums would have to increase in line. “It has to be” said PM Lee. And still, the majority of the risk and cost of falling sick will fall on residents rather than be covered by government policies. Under the PAP, it has to be.


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Shortage Economy in Singapore’s Housing Market

Singaporeans queued for up to two nights after rumours spread that the Housing and Development Board was planning to make flats available for sale

Singaporeans queued for up to two nights after rumours spread that the Housing and Development Board was planning to make flats available for sale

I would like to introduce you to a famous economist, János Kornai. He pioneered thinking and research on economic behaviour of communist governments that engaged in central planning – particularly in eastern Europe. One of the defining feature of such economies was shortages of everyday household products including food. Growing up in Hungary János had first hand experience of such shortages – queuing in shops was common. Kornai’s breakthrough idea was essentially that shortages were not just a failure of central planning in the sense that planning could be improved with better insights or more careful analysis, rather he showed that shortages were an inherent result of attempting central planning itself. Prices and wages were fixed by the state and producers were typically also state-owned monopolies, allocated some fixed quantity of goods to produce. With a guaranteed market and no competition, companies had no incentive to produce products tailored to the needs of customers. There were no bonuses or profits to be gained by selling more products or opening new markets. If the government production order was for ten thousand shirts, then ten thousand shirts would (usually) be produced. If the fashion was for blue shirts, but red shirts were easier or cheaper to produce, red shirts would inevitably be produced and factory owners would be paid regardless. A shortage of blue shirts would inevitably develop, and customers would ultimately be faced with a few unsatisfactory choices – either try to wait and queue up for a blue shirt, buy a red shirt instead, or go with no shirt at all.

At this point let us take a time out. First of all, I am not an economist. Second of all, Singapore doesn’t have food shortages or people queuing up for bread – in fact Singapore is hardly comparable to communist Eastern Europe at all. But there are a few curious similarities. One thing that caught my eye in the Wikipedia article on Shortage Economies [5] was the statement that queues were not just limited to everyday essentials. Even people wanting to buy cars and houses had to queue – in the Eastern Block the waiting time for a government apartment was measured in years. Up to thirty years in Poland, six to eight in Czechoslovakia and a mere three to four years in East Germany.

Anyone who remembers the Singapore Housing and Development Board (HDB) “walk in selection” debacle of 2007 knows what is coming next – until relatively recently Singapore did literally have people queueing up for the chance to buy a house. In early February of that year, a rumour started that HDB would soon be releasing a block of flats for sale in desirable locations. Almost immediately a queue started to develop outside the HDB office in Toa Payoh – but the pent-up demand for housing was so great that things quickly turned ugly.

A 26-year-old professional, who gave his name only as Dave, said he and his fiancée had taken urgent leave to join the queue.

He said: ‘Most people were satisfied with the organiser. Since no one was taking charge, it was good that someone tried to make sure there was no queue-jumping.

Said one man: ‘There was more than one queue and a group thought that theirs was the ‘official’ queue. So they started behaving like gangsters.’

‘People were shoving and pushing. We don’t want trouble. We just want a flat,’ said Ms Tan X M, 25, a housewife.
Unofficial queue list sparks evening ruckus at HDB – The New Paper – February 03, 2007[1]

To clarify momentarily, while the story above mentions people queuing for a few days, the reality is that the backlog for housing in Singapore is, just like in communist eastern Europe, measured in years. It was only at the moment that houses were rumoured to be released into the market that the people who had been waiting for years actually formed a queue. Since 2007 the system has changed – while there are no longer physical queues, overall waiting times are just as long. A story from early 2013 about young couples breaking off their engagements because they had initially rushed into marriage in a bid to be eligible to join the electronic queue for housing was particularly moving.

You could put it like this – the third party was HDB. I feel like I was forced to decide to get married early because if I waited until I was, say, 30 and ready to settle down, to wait another three to four years to get a BTO flat would leave me no time to start a family.

“I was so scared I couldn’t breathe, but I knew I had to do us both a favour and call it off. Before the course, I was so caught up in his ‘idea’ of getting a flat – everyone was saying how difficult it was to get a good unit, horror stories about a five year wait stuck in bad rentals, I just got carried away, I guess.”
Runaway brides in Singapore – Yahoo – January 2 2013[2]

Even more recently, from February 2013, we have a story of families in subsidised rental flats being required by the state to pair up and share accommodation with other families.

“HDB told The Straits Times it had capped the number of occupants in a three-room flat at eight, and in a four-room flat at 10”
Families paired in rental flats see benefits – The Straits Times – 18 February 2013[3]

So the presence of multi-year waiting times for housing in Singapore is very much a reality. But what of the central planning angle? Kornai’s key insight remember was that central planning inherently causes shortages. In Singapore housing is very much planned by the government. In its simplest form this is reflected by 85% of citizens living in government built flats. The government owns and supplies the land to HDB – a statutory board under the Ministry of National Development – and the number and types of houses to build is very much government policy.

National Development Minister Khaw Boon Wan has announced measures to build more Housing Development Board (HDB) flats and at a faster pace in Singapore.

Minister Khaw said that he has ordered the HDB to ramp up capacity and to bring forward projects scheduled for early next year to this year.

He also directed the HDB to sustain the new pace of building, suggesting that at least another 25,000 flats would be built for next year or a total of 50,000 flats over a two-year period.
HDB ordered to ramp up building of flats – Yahoo – 28 May 2011[4]

So the two key pieces of János Kornai’s shortage economy puzzle are in place in the Singapore housing market, we have the central planning and we have the shortages, just as in communist eastern Europe. This is obviously concerning – it means that the struggle Singaporean’s face in getting a flat are inherent to the planning system and not just a function of incompetent government that can be fixed by replacing one minister with a better one. But first let us take a slightly broader look at shortage economies. It could just be a co-incidence that Singapore has these features, so it seems wise to take a step back and look at what else Kornai said.

The common results of these shortages for consumers are forced substitutions between goods which are imperfect substitutes and forced savings as consumers are unable to fully utilize their current purchasing power. The institutional outcomes involve the so-called soft budget constraint, in which production units under a planned economy form expectations of always being bailed out by central authorities, paternalistic behaviour on the part of the planners who blame the shortages on the fact that consumers demand “wrong things”, and in macroeconomic terms, repressed inflation resulting from pent-up demand.
emphasis Added [5]

This paragraph, from Wikipedia, contains many insights into the Singapore housing market and wider economy. Forced substitutions refers to the case where someone wishing to buy a HDB but cannot, may have to rent privately, purchase from the resale market or accept some other alternative. The point about forced savings is probably only interesting to conspiracy theorists who fear CPF insolvency and may like to point out that preventing people from withdrawing to purchase a house helps to keep CPF balances in the black. The argument about soft budget constraints is quite complex, and I may have misunderstood it myself, but imagine a government-owned company tasked with implementing government policy, if the policy suddenly becomes harder to implement, the company finds itself in a position where it can negotiate for a larger budget to implement the policy. Since the government generally only judges the success of the company on how able it is to support the implementation of policy, it tends to suit both parties to over rather than under-allocate resources. So state companies tend to grow in size and become bloated and inefficient. In this instance the parallels with government handouts to bus operators are more obvious than in the housing market, but the point is still interesting. The most telling point however for Singaporeans is likely to be the one about “paternalistic behaviour” on the part of the planners who “blame the shortages on the fact that consumers demand ‘wrong things'” I imagine this is hard to believe for people outside planned economies, but in fact this is exactly what we see in Singapore. How often does a government minister come out to manage our expectations, or tell us we are being “too choosy”. The final point is about inflation being repressed under a centrally planned economy with shortages. This is presumably a side effect of people being forced to save and wait rather than spending now, so while it may be interesting to note that Singapore struggles with high inflation and further that the situation may be worse without pent-up demand for housing, this is more a symptom rather than a cause.

János Kornai had plenty of other observations to make on shortage economies which I will only touch on briefly. He noted that companies tended to become unproductive and bloated and suffered persistent shortages of labour – these are all results of the “soft budget constraint” wherein state enterprises are continually able to benefit from government handouts to smooth the path to effectively implementing policy. It is instructive to note that low productivity and on going labour shortages are exactly what we see in the Singapore economy today, so I think it’s not unreasonable to suggest that the shortage economies of eastern Europe appear, at least in part, to be replicated in Singapore.

[1] http://finance.groups.yahoo.com/group/RealEdge/message/2655
[2] http://sg.entertainment.yahoo.com/blogs/singapore-showbiz/runaway-brides-singapore-janice-story-part-1-035439074.html
[3] http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={173429169-16181-3188832401}
[4] http://sg.news.yahoo.com/blogs/singaporescene/hdb-ordered-ramp-building-flats-071846737.html
[5] http://en.wikipedia.org/wiki/Shortage_economy

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