Is the rental occupancy cap relaxation too little and too late? An economic analysis into the housing rental market in Singapore.

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Is the rental occupancy cap relaxation too little and too late? An economic analysis into the housing rental market in Singapore. 2

It was very recently announced that larger Housing and Development Board (HDB) flats and private residential properties will be temporarily allowed to house 8 unrelated persons, up from the current cap of 6. It will be effective from 22 Jan 2024 to end 2026.

This move by the Government is meant to cool down housing rental prices, which surged by about 30% in 2022 and continued to increase in 2023.

What has resulted in such a dramatic rise in rental prices?

My IB and JC economics students would know this! The demand and supply song analysis should be triggered in your heads! And I have left you with a mystery question at the end of this post. Read on!

Demand-Side Analysis

1. Increased Non-Resident Population: 

As of June 2023, Singapore’s non-resident population reached 1.77 million, a substantial increase of 13.1% compared to June 2022. This growth, mainly in foreign employment, significantly impacts the demand for rental housing. Sectors such as construction and marine shipyard saw the most notable increases in foreign work permit holders. This is in line with post-covid economic recovery.

2. Return of Citizens and Permanent Residents: 

The easing of COVID-19 travel restrictions has led to more citizens and PRs residing overseas returning to Singapore. The citizen and PR populations grew by 1.6% and 3.7%, respectively, from June 2022 to June 2023.

3. Temporary Housing Needs: 

The high number of locals seeking temporary lodgings while awaiting new homes further boosted rental demand. This was exacerbated by the delays in BTO flat construction during the years of the Covid pandemic.

4. Shifts in Housing Preferences: 

The trends in Singapore reflect a growing preference for rental housing due to high property prices and a preference for flexibility, especially among younger demographics. A PropertyGuru survey in 2022 revealed that a significant portion of young Singaporeans, particularly those aged 22 to 29, are turning towards renting due to the high cost of home ownership. About 66% of young Singaporeans have shown a preference for renting, and 32% are exploring co-living or shared housing.

5. Completion of Housing Projects: 

The backlog of delayed HDB’s Build-To-Order (BTO) projects is reducing and is expected to clear in about two years, potentially easing the shortage in public housing in the short term. The total number of BTO flats launched in 2022 was 22,780 and in December 2023 alone, more than 6,000 BTO flats were launched. This helps to mitigate the rising demand.

Supply-Side Analysis

1. Relaxed Rental Occupancy Cap:

Most recently, the raising of the cap from 6 to 8 unrelated persons effectively increases the supply of housing rentals available. This is probably a way overdue policy tweak as there had been simply no other supply-side response to the rising demand for housing rentals, resulting in persistent shortages and soaring prices.

Final Thoughts

It should now be very obvious why Singapore’s housing rental prices have been soaring. While there has been some moderation – rental prices for private residential properties increased by 2.8% in Q2 2023, lower than the 7.2% rise in the previous quarter, the reality is that prices have continued to increase and in reality, this has been adding to inflation. As foreign workers and expatriates are a key pool of renters, this also increases costs for their employers and hurts the competitiveness of Singapore’s economy. This is reported to force some European businesses to consider relocating out of Singapore.

Is the recent policy tweak too little, too late? Well, it is a ⅓ increase in the number of unrelated occupants allowed and thus quite significant. I would however be frantically considering more policy options to fire just in case.

Students, there is 1 critical cause of the soaring prices that I intentionally left out. Can you identify it? Share in the comments below! If unsure, do reach out! It is really important that you know!

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