Rent too damn high, move to Singapore (New York Times)

From the New York Times by Shaila Dewan (April 29, 2014)

Anyone in the market for a luxury apartment in Hong Kong, London or Washington toward the end of last year was in luck. The rents on prime flats were sagging a bit. Billionaires could lock in leases on pieds-à-terre at a slight discount. You might suppose that those savings would trickle down to regular working Joes, but no — middle-market rents in those cities continued their apparently inexorable upward march.

The developed world’s wealthiest cities are facing housing crises so acute that not only low-income workers, but also the middle and creative classes, find them increasingly difficult places to afford. Redfin, the real estate website, recently found that there was not a single home on the market in San Francisco that would be affordable on a teacher’s salary. And that was just for buyers; in many cities, renting is even more expensive.

The rules of the market say that in this situation, people should simply opt to live someplace cheaper. But in today’s economy, that’s not so simple. Detroit has very cheap housing, but unfortunately, all of it is in Detroit. Alternately, more desirable cities could build more housing to satisfy demand, but new developments don’t tend to have that effect.

Luxury towers are sprouting up, adding density to unlikely places, from the Brooklyn waterfront to San Francisco’s Mid-Market district. But adding inventory to the high end does nothing to help the middle — one of the many irritating peculiarities of the 21st-century boomtown housing market. Building new apartments can actually push rents higher, and amenities for the masses, like transportation and parks, may have the effect of pricing them out. Everyone wants to live in these places, so no one can afford to. What’s a global city to do?

There is one city that has managed to surmount this problem. The achievement of near-universal affordable housing in a place with limited land mass might be a beacon of hope, were it not for the fact that it is Singapore, a sovereign city-state with one-party rule, wonky leaders, an economy that has grown rapidly in the last half-century and one of the highest per-capita incomes on earth. There, more than 80 percent of the population lives in public housing designed with walkability, ethnic diversity and green space in mind.

The Singapore solution required drastic action of a sort that most other places could not countenance: In the early 1960s, the government started building big, uniform apartment buildings, then pushed workers to move out of overcrowded shophouses and huts. Some herded their livestock along to their new flats. And at first, many residents were afraid of the higher floors.

Today, cities that want to actually solve their housing problems will have to stomach similar forms of psychic dislocation, not necessarily for those being housed, but for those with strong ideas about what their city should look and feel like. Many of the things that we cherish most about urban living are the very things that make housing more expensive. San Francisco, certainly one of the world’s loveliest cities, has restrictions that keep much of residential construction under 40 feet. And even in New York, no stranger to height, the high-rises to be built on the site of the old Domino Sugar refinery in Williamsburg have prompted teeth-gnashing from the guardians of the “urban fabric.”

New York’s new mayor, Bill de Blasio, who promised, on the campaign trail, to build more than 100,000 affordable apartments, seems to have an inkling of what will be required. “It’s going to take a willingness to use height and density to the maximum feasible extent,” he has said. “I don’t have a hang-up about it.”
But then, lots of people think they know what to do to fix housing: Stick it to the landlord with rent controls. Require developers to set aside low-cost units. Build more subsidized housing. Distribute more rent vouchers or, as San Francisco has recently done, funnel taxes and fees into a housing trust fund. For those with more faith in market forces, there is always the loosening of zoning regulations, in imitation of sprawling Houston — which is indisputably cheap, so long as you don’t factor in the cost of driving.

Yet many of these solutions are dwarfed by the sheer size of the problem. London alone needs, by one count, 800,000 new units by 2021 to meet both pent-up and new demand. Sydney, where the median rent on a two-bedroom apartment is now $2,600 a month, aspires to build more than half a million units by 2031, a goal for which it would have to double its normal pace of construction. New York needs more than 300,000 units by 2030. By contrast, inclusionary zoning, a celebrated policy solution that requires developers to set aside units for working and low-income families, has created a measly 2,800 affordable apartments in New York since 2005. It’s not clear we have the fortitude to deal with these shortages head-on.

But unshackling the private sector may not be a complete solution, either. Many housing advocates, even conservative ones, insist that the free market will never provide housing that low-income families can afford, because apartments are simply too expensive to build nowadays. Some form of subsidy is needed, they say.
But the size of a subsidy that actually covered the demand would be immense. The Bipartisan Policy Center in Washington figured out that giving all low-income families vouchers large enough to make their rents affordable would require federal rent supports, now at $62 billion a year, to more than double.

Of course, rents don’t always go up. Even San Francisco’s rents fell off a cliff after the dot-com bust last decade. But increasingly, there are economic forces at work that seem to move in only one direction: More people are moving to cities, and wealth is distributed more unequally. Apartments have become a global commodity, a safe investment for the well heeled, no matter where they actually live. Todd Sinai, a Wharton economist, says that just as cities have always had fashionable neighborhoods where only wealthy people can afford to live, now some “superstar cities” have become just like those places, the affluent districts of the globe. When housing is worth so much on the open market, it becomes harder to hold some of it back for regular workers. And eventually, Sinai says, the rich could find themselves displaced as well — by those who are even richer.
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Some food for thought:

1) From the supply side of the equation, looks like Singapore has ample supply of housing!  So, where are property prices headed?

2) Singapore leads the world in solving our housing problem.  I ever read that HDB has won United Nations Public Service Award for public housing achievements.

3) Article recognizes Singapore for being green.  In fact, we are the greenest city on Earth (in terms of green spaces), according to one survey commissioned by the Mayor of London. 

4) London needs so many units to even meet pent-up demand.  

5) High prices of many things in Singapore.  Is it because of land prices?  I don't know.  But here are some reflections as I sat in Cafe Rosh in London last year. 

6) Did you know that Fine Dining is less expensive in London than in Singapore?  Check out this blog post.

Do share your thoughts on this issue at my community forum thread here.

Happy investing!