Upward Mobility And The Private Housing Market In Singapore

Introduction:

Our paper examines the determinants of new private residential units sold in Singapore during the 1990s. The Singapore private housing market is characterized by the coexistence of a dominant public sector and a small, growing private sector with relatively higher quality housing. The distinguishing feature of our model is that we account for the impact of the former on the latter, and the interaction between the two.

Our analysis generates three principal conclusions:

first, there is a statistically significant ‘‘wealth effect’’ driving the sales of new private residential properties.

Second, the real loan interest rates have a statistically significant negative impact on these sales.

Finally, an increase in the rate of change of public housing resale prices has an important and significant positive impact on the sales of private residential units. This is due in part to mitigation of down payment constraints of upwardly mobile households.

The Singapore private housing market:

Historically, the Singapore private housing market has catered to those groups that were not eligible to buy subsidized housing from the government, generally the top decile income group in Singapore, including affluent Singaporeans, foreign investors, and the expatriate community. On the supply side, private developers constructed bungalows, semi-detached houses, and terraced houses mainly for the rich.

Modeling the Singapore private housing market:

Determinants of private housing market activity:

Our model is designed to explore the determinants for the number of new private residential units sold, PRS, defined to be the total number (flow) of new private residential units sold in the primary market by homebuilders per quarter. The increase in private housing demand, particularly during the early 1990s, may be explained at least in part by the existence of a ‘‘bubble’’ in both the property and stock markets. According to this view, changes in expectations coupled with wealth effects from public housing sales and equity stock appreciation fueled purchases of new, relatively higher quality, private housing market units.

Statistical modeling issues and the MARMA approach:

Autocorrelation may exist in some exogenous variables because they are slow moving stocks (e.g., population, number of units, etc.). Another problem may stem from the omission of many potentially important exogenous variables that capture the unique aspects of the sub-markets in Singapore. There is latent simultaneity between private and public housing activities, an issue that we address in the course of the empirical work through instrumental variables. The sparse time series sample limits our ability to examine the dynamic properties of the model. Private housing sales—PRS, is a stationary variable, but the fundamental independent variables are not. We therefore include the independent variables in a percentage change format, wherein they are all stationary.

Conclusion:

An understanding of the interplay of the public and private housing market in Singapore is potentially of great relevance for the study of housing in many other countries. A number of developing and transitioning countries, such as Russia, China, India, and a host of East European countries have large public housing projects, or at the very least a major role for government policy in housing.

This public sector coexists with a growing private sector. This paper represents one of the first explicit econometric analyses that traces and evaluates the impact of the linkages between the public housing sector, dominated by public policy, and the competitive private housing market. A major omission of housing literature is an explicit recognition of the linkages between the public and private housing market. Our approach, in contrast, explicitly models the linkage between the public and the private housing market. A public–private sector interaction variable is utilized to capture upgrading mobility, changes in the linked private housing market, and household expectations.

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