Why Bto Supply Not Curbs Key Cooling Hdb Resale Prices
The article, entitled “Why supply, not curbs, is the key to cooling HDB resale prices”, discusses the recent surge in HDB resale flat prices despite government efforts to curb demand. It argues that the limited impact of demand-side interventions is due to a lack of supply, and suggests that ramping up the launch of Build-To-Order (BTO) and Sale of Balance Flats (SBF) is a more effective approach to managing the resale market.
HDB Resale Prices Keep Rising Despite Government Interventions
Despite several government measures aimed at curbing demand, HDB resale flat prices have continued to rise, with a staggering 50% increase since hitting a low in the second quarter of 2019. This upward trend is a reflection of a deeper issue: demand-side interventions have little impact when there is a shortage of housing supply.
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Limited effectiveness of demand-side measures
In 2021, the government implemented three measures to curb demand: tightening the loan-to-value (LTV) ratio for HDB loans, raising the medium-term interest rate used to compute the mortgage servicing ratio (MSR), and imposing a 15-month wait-out period for private property owners (PPOs) and former private property owners before they could buy a resale flat.
While these measures may have temporarily slowed down purchases, they did not significantly decrease genuine demand, especially for resale flats that serve an essential housing need. Once eligible, buyers returned to the market, leading to continued price increases.
Supply-side measures have a lasting impact
On the supply side, the government typically responds by increasing the launch of BTO and SBF flats. These flats, offered directly by HDB, are more affordable than resale flats and can help absorb demand.
Historical data supports this approach. In FY2011, there was a record 30,602 new flat bookings (BTO and SBF), which coincided with a decline in resale price growth to 9.6%, from 12.8% the year before.
This trend continued in FY2012 and FY2013, with flat bookings remaining high at 24,191 and 28,789 units respectively, while resale price growth moderated further and eventually contracted by 3.4% in FY2013.
From FY2015 to FY2018, HDB scaled back its BTO supply, with annual flat bookings hovering above 21,000 units, down from the average of 25,000 between FY2011 and FY2014. As a result, only 81,000 new flats were released from FY2015 to FY2019, leading to a bottoming out of resale prices in FY2019 when buyers turned to the resale market due to limited BTO supply.
Pandemic shock and supply response
The Covid-19 pandemic was an unexpected and unprecedented event that pushed homebuying activity into overdrive due to construction delays, work-from-home arrangements, and disruptions in the supply chain. This resulted in a surge in resale prices of 8.1% in FY2020 and 12.2% in FY2021, a cumulative increase of more than 20%, despite efforts to boost BTO supply.
Recognizing the impact of the pandemic, HDB increased their new launches in FY2022 and FY2023, booking 25,574 and 24,020 new flats, respectively. This led to a decline in resale volume and a slowdown in price growth to 8.8% and 5.8% in FY2022 and FY2023, respectively, from the high of 12.2% in FY2021. These figures demonstrate that robust BTO supply is necessary to moderate the heat in the resale market.
Key factors that affect the resale market
Supply matters more than demand: Demand-side measures have only short-term effects, while sustainable cooling requires consistent BTO supply.
BTO matters more than SBF: While SBF flats are faster to be occupied, BTO bookings more consistently influence resale price movements.
The 21,000-unit threshold: Historical trends show that booking volumes above this figure are needed to moderate price growth.
MOP flats: Newly MOP flats may uplift resale prices one to two years later, and policymakers must carefully monitor this pipeline of supply.
A balancing act
The HDB faces a complex challenge of managing the affordability of public housing while maintaining demand for executive condominiums and private housing. An oversupply of BTO flats now could lead to a softening of resale prices, but it could also result in inflation later when these flats re-enter the market post-MOP.
In conclusion, to ensure housing affordability and a stable resale market, the key is clear: consistent and sufficient BTO supply. The evidence shows that supply, not restrictions, is the more effective lever in managing the HDB resale market.