PSP argued that high land cost is the reason for high BTO prices in mature housing estates. It said that the Government could further lower the BTO prices if HDB could purchase land from the state at historical prices.
The Government explained that BTO pricing is decoupled from resale housing prices. National Development Minister Desmond Lee explained that BTO prices are set to ensure that most households can afford to pay for the flats. Based on the mortgage servicing ratio of 25 per cent, close to 70 per cent of BTO flats launched in 2022 were affordable for households with a median income of S$8,400 per month, he said.
The Housing and Development Board (HDB) incurs losses when selling BTO flats below land and construction costs. The subsidies that keep BTO prices affordable will increase significantly in a rising housing market. The HDB’s financial deficit in supporting the home ownership programme rose sharply to S$3.85 billion in 2021, almost double the S$1.953 billion deficit recorded the previous year.
If HDB were to reduce BTO prices while keeping the same BTO supply, its fiscal deficit would widen even further. The Government may have to allocate more fiscal funding to support the public housing programme at the expense of other public services. Otherwise, the supply of new BTO flats may have to be cut if the fiscal resource is finite, which could further aggravate the supply-demand imbalances.
Pricing is a blunt tool that could distort the distribution of limited resources. Lowering BTO flat prices could improve affordability levels for low- and median-income families. High-income families with a monthly income ceiling capped at S$14,000 will also benefit by paying the same prices for the BTO flats.
Low- and median-income first-time families are more constrained by the affordability issue in the BTO market. A direct approach to supporting these families is to channel more Enhanced CPF Housing Grants (EHG) targeting these first-time families.