On 14 July 2011, The Straits Times published the research studies by NUS Singapore for Applied and Policy Economics (Scape) on a different perspective of calculating the housing affordability in Singapore.
Traditionally, the proportion of monthly income that goes into paying the mortgage, called Debt-Service-Ratio is used to indicate the affordability of a house purchase. If the ratio is less than 30%, or 0.3, it is considered as affordable.
In this study, it goes further by calculating the total life-time income of a 30-years-old till age 65 on the affordability of the home loan. Therefore, if the total mortgage to be paid is less than 30% of the total lifetime income, then the housing is considered affordable. In this study, it detailed the affordability based on 3%, 5% and 7% mortgage interest rate. The conclusion is that only the bottom 10th percentile will not be able to affordable a 3-room HDB flat. Those household in the 30th percentile earning household income of $5,250 should be able to afford 5-room HDB flat.
Short-term accessibility is also presented to measure the shorter-term measure of affordability. It is defined by the ratio of the cash a 30-year-old buyer needs to make all the upfront payments for a new home to his household savings at that point in time. Upfront payment includes down payment for a property and any COV payable for resale HDB flats. Savings includes CPF balances. If the ratio is less than 1, meaning, savings is more than the upfront payments, then it is accessible.
The study found that the current problem with property prices is accessibility and not long-term affordability. For example, a 3-room HDB resale flat in Yishun and Woodlands are inaccessible to the bottom 20% of the income earners.
1) The Straits Times, 14 July 2011 Page B4