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Thread: ST's attempt to measure affordability

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    Default ST's attempt to measure affordability

    http://www.straitstimes.com/Insight/...ry_431748.html

    Sep 19, 2009 Saturday

    ST's attempt to measure affordability


    THERE are many ways of calculating affordability, and every organisation that is interested in doing so - property firms, governments, banks - probably has its own individual index.

    But one of the most internationally recognised measures is the price-income ratio, which is recommended by the United Nations and the World Bank. The ratio divides the price of a private home by a potential buyer's annual income.

    It is widely used because it is simple and uses readily available data on home prices and incomes. However, it is not as straightforward as it looks. While only two factors are involved, they can each be calculated in a variety of ways.

    For instance, should median income and median prices be used? The median is the figure at which half the number of values are higher and the other half lower. Or would the average figure for both better reflect the range of home prices? For prices, is it better to take the total price of a home - which, after all, is the amount buyers will use to determine affordability - or to use the per sq ft price, which also takes into account the fact that homes are getting smaller?

    There is also the question of which measure of income to use: individual income or household income? And should it be the income of all households in Singapore, or only the income of employed households in which at least one person is working?

    Finally, all comparisons must be done in reference to an earlier period. But which previous year should be used as a reference point? Using a boom year or a slump year could skew comparison equally and in different directions.

    To compute the price-income ratio, The Straits Times took the prices of all private home sales since 1995, obtained online from the Urban Redevelopment Authority's Real Estate Information System. This is preferred over using a basket of properties, as some analysts do. Income figures were obtained from the Department of Statistics. Monthly incomes of all resident households were multiplied by 12 to get annual incomes.

    We took the median measures of price and income, to avoid skewing the result. On top of that, we also did the same calculations using average prices and incomes and found that the conclusions were largely the same.

    Property consultants also agreed household income would be a better measure, since most households pool their money to buy a home.

    We took the median income of all households in Singapore, because it is not only working households that need a roof over their heads.

    To overcome the issue of which year to choose as the best reference point, we drew up a time series showing the price-income ratio over the years, dating back to 1995. Beyond it, home price data is not publicly available.

    This period covers the epic boom of 1996 and 1997, the plunge in 1998, a mini-boom in 1999 and 2000, the subsequent slump that started in 2001 and led to the 'dry years' of 2002 to 2005, and the most recent boom and bust of 2006 to 2008.

    From the chart, it is clear housing prices, as measured in terms of annual incomes, declined last year to match the comparatively affordable levels of the early 2000s. Even during the peak in 2007, affordability was higher than in previous peaks of 1996 and 2000.

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    Wow. Just wow. How can ST just wipe 1990-1997 price stats from their calculation when it involved incredible price hike in 1996 & 1997? What do they mean by saying the data in this period is outdated and not representative of our current situation? They need to elaborate much more than they had in their article.

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    Quote Originally Posted by avo7007
    Wow. Just wow. How can ST just wipe 1990-1997 price stats from their calculation when it involved incredible price hike in 1996 & 1997? What do they mean by saying the data in this period is outdated and not representative of our current situation? They need to elaborate much more than they had in their article.
    huh? which part says wiped out data for tt period?

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    Quote Originally Posted by mr funny
    To overcome the issue of which year to choose as the best reference point, we drew up a time series showing the price-income ratio over the years, dating back to 1995. Beyond it, home price data is not publicly available.
    Then ask the agency keeping the data to make it public.

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    Quote Originally Posted by sabian
    Then ask the agency keeping the data to make it public.
    Oh that one, k noted ... not exactly the period from 1990 - 97 (it's beyond '95).

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    I love it how quite a few people are always using the mid 90ś as a starting argument to justify "how affordable" property is. Pretty amusing.

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    There is no need to keep data before 1995 because such data is no longer meaningful.

    Like Lee Kuan Yew said to his former foe in 1995, who proposed a resolution of their conflict, that "there was no need for a resolution as the conflict was over".

    The people (or rather their descendants) who bought Bukit Timah bungalows in the 1950's when they cost $30,000 had won, while those who did not had lost.

    Those who bought prime-district apartments in the 1970's when they cost $100,000 had won, while those who did not had lost.

    The next big move from the mid 80's to mid 90's again separated out the winners and the losers.

    The present group of investors are hoping to propel their children away from HDB. That explains the desperation and the blank cheques.

    Mr Fang, of the former Malayan Communist Party (MCP), had met SM Lee Kuan Yew in Beijing in 1995 to discuss a resolution of the conflict.

    Mr Lee said there was no need for a resolution as the conflict was over.

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    Quote Originally Posted by cheerful
    huh? which part says wiped out data for tt period?
    You need to read the whole article. The portion paste here is only a part of an article justifying the "affordability calculation" by SPH...........

    Basically what they are saying is that based on data from 1998 to now, property price increment is on par with household income increment. But if you take data from 1990's onward, household income lags property prices. Guess which method they prefer to use?

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    Quote Originally Posted by avo7007
    You need to read the whole article. The portion paste here is only a part of an article justifying the "affordability calculation" by SPH...........

    Basically what they are saying is that based on data from 1998 to now, property price increment is on par with household income increment. But if you take data from 1990's onward, household income lags property prices. Guess which method they prefer to use?
    Oops ....
    Price-to-income?

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