Lifetime Income and Housing Affordability in Singapore

Abstract

Most commonly used measures of housing affordability are essentially short-run indicators that compare current income with house prices or housing costs. Despite the emphasis in the literature on the importance of long-term affordability, researchers have not developed measures of lifetime income because of data constraints. Many developed countries publish annually household income by age of household heads. Using these data for Singapore, the paper presents a methodology to compute lifetime income from predicted annual household earnings over the working life for each birth cohort in the dataset. The lifetime income of Singapore households by three income quantiles sheds new light on widening income gaps. The affordability index, defined as the ratio of lifetime income to house price, reveals informative trends and cycles in housing affordability in both the public and the private sectors. The paper argues that residential property price escalations need to be avoided. an impressive record of homeownership under the public housing programme. 1 Facilitated by various government policies such as the Approved Housing Scheme introduced in 1968, subsidised new public flats supplied by the Housing and Development Board (HDB) and subsidised housing loans, 2 private ownership of public housing reached 79 per cent of the total resident population of Singapore in 2007 (Yearbook of Statistics Singapore, 2008).

Housing Preferences in Various Stages of the Human Life Cycle

“…The tendency to deepen the specialization of considerations led to the search for determinants of changes inf the real estate buyers' preferences and decisions. One might find research related to economic factors (Abeysinghe & Gu, 2011), or cultural and social ones (Costa, Oliveira & Hochheim, 2001;Jabareen, 2005;Roe, Irwin & Morrow-Jones, 2005). Preferences are also shaped by external factors, e.g.…”

Labor, Productivity and Singapore's Development Model

“…Thus, CPF employer contributions provided for wage flexibility, and CPF savings enabled a very high degree of home-ownership, including of publicly-provided HDB flats. But today nearly half of Singaporeans lack sufficient savings at retirement, the high share of income spent on housing reduces consumption in other sectors and limits the stabilizing effect of domestic demand (Abeysinghe and Choy, 2004;Abeysinghe and Gu, 2011), and the bottom quartile of wage-earners finds it increasingly hard to make ends meet, 38 even as some GLCs make record profits (including from property) and Singapore's world-leading sovereign wealth funds Temasek and the Government of Singapore Investment Corporation (GIC) accumulate valuable assets around the world.…”

Fertility, immigration, and lifetime wages under imperfect labor substitution

“…The focus here on the lifetime wages of birth cohorts has implications for intergenerational equity in that the lifetime wages can affect wealth accumulation, consumption, home ownership, retirement incomes, inheritance, health, and life expectancy [Abeysinghe and Gu (2011), Tamborini et al (2015), Attanasio and Pistaferri (2016), Haan et al (2019)]. Intergenerational equity has become an increasingly prominent issue in public discourse in many advanced countries in the context of concerns about public debt levels, population aging, house prices, and climate change-all of which have intergenerational equity implications [McDonald (2000), Thompson (2003), Stern (2007), Garnaut (2008), Parr (2015), Stebbing and Spies-Butcher (2016), Kendig et al (2019)].…”

“…The focus here on the lifetime wages of birth cohorts has implications for intergenerational equity in that the lifetime wages can affect wealth accumulation, consumption, home ownership, retirement incomes, inheritance, health, and life expectancy [Abeysinghe and Gu (2011), Tamborini et al . (2015), Attanasio and Pistaferri (2016), Haan et al .…”