Of shoeboxes and others

June 14, 2012 / By  

Shoe boxes have been the talk of the town in Singapore. The recent issue that social and print media have been ranting about is whether the government should control the size of these tiny apartments. With the recent spike in smaller units sold, Singaporeans have been concerned over the proliferation of this trend across the rest of the market. The arguments range from the erosion of family values as it encourages single family households rather than the extended family, to the humanity of living in such a small space.

The concept of shoeboxes came about from the basic economic driver of demand and supply. Average island-wide prices of apartments increased by 50.2% between 1Q09 and 4Q11, while average land prices for residential projects also increased from SGD 121 million in 2010 to SGD 247 million in 2011 (based on recent government land sales). These were all fueled in part by the low rate of housing stock growth in contrast to a much bigger growth in the immigrant and expatriate population. Coupled with two years of supply drought in the public housing market as a result of the Build to Order scheme, alongside the high global liquidity and low domestic interest rates, the environment was ripe for an asset price spike.

The private market responded to this demand and price hike by cutting back unit sizes to make private units more affordable for first time homebuyers. However, the citizenry is afraid that this trend of shrinking apartment size, if not contained, would rob them of the quality of living space and hence are calling for the state to intervene.

In my opinion, there is no need for the state to interfere. Firstly, the size of this market is relatively small. The supply of shoebox developments is currently estimated to be just 2,500 units or 1.2% of total existing stock, and forecast to reach between 8,200 and 9,700 units by end-2015. These small unit sizes also encourage housing mobility as they give young couples the chance to participate in the asset growth cycle early, allowing them to build up their capital and subsequently upgrade to other housing types. Being a city state implies Singapore must not only provide homes and jobs but all other supporting national needs within the urban space e.g. water catchment, military, airports, recreational etc. As prices increase, naturally the size has to drop. We have seen a similar situation happening in New York and Tokyo, where apartment sizes are even smaller than those in Singapore. We have to allow the market to respond to this need by allowing developers to supply smaller units to meet the changing needs of the populace. Finally unlike other global cities like New York, London and Hong Kong where there is a hinterland where residents can escape to when home prices become unaffordable, Singaporeans do not have that luxury. The state could tap into the creativity of the private market to ensure that homes remain decently affordable.

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