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What should be the government’s role in the primary mortgage market?

What should be the government’s role in the primary mortgage market?. Sock-Yong Phang Singapore Management University Housing Finance Panel 5 July 2002 AsRES/AREUEA Conference Seoul. What should be the government’s role in the primary mortgage market?.

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What should be the government’s role in the primary mortgage market?

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  1. What should be the government’s role in the primary mortgage market? Sock-Yong Phang Singapore Management University Housing Finance Panel 5 July 2002 AsRES/AREUEA Conference Seoul

  2. What should be the government’s role in the primary mortgage market? Governments should be involved because of • positive (social, political, neighbourhood) externalities of home ownership • Risks due to moral hazard and incomplete and underdeveloped insurance markets

  3. Credit or default risk Price or I.R. risk Prepayment risk Operational risk Mortgage insurance Cap on loan to value Mandatory housing fund Development of VRMs Securitization Title insurance Escrow Clear legal framework Supervisory bodies Lenders’ Risks Measures

  4. Housing P affordability Mortgage P affordability Liquidity of asset Labour income risk Housing wealth risk Housing price expectations Supply of affordable housing Supply of affordable mortgage loans Reducing transaction costs Employment creation and economic growth Reducing P volatility LR housing P appreciation Determinants of Dd Measures to for mortgage loans strengthen demand

  5. Public Housing 81.3% 1,061,906 100% Private Flats 12.5% Private Houses 6.2% Singapore Housing Stock 2001

  6. Privatization of state housing • Built by the public sector (HDB) • Rent or owned by households Percentage of public sector built housing that is owner-occupied: 1970 21% of 120,138 units • 64% of 337,198 units • 87% of 574,443 units 2001 93% of 849,422 units

  7. Nominal and real housing price indices

  8. Real GDP

  9. Stock of housing loans to GNP

  10. Housing Loans

  11. Table 1 Housing Stock in 1999 Housing Wealth Distribution

  12. Estimates of housing wealth

  13. Net equity in housing relative to GDP

  14. Problems with the CPF • Constraints distort household behaviour leading to overinvestment in housing • CPF liberalization in 1981 and 1993 contributed to housing price bubbles • Households are housing asset rich and cash poor at retirement • Hindered entrepreneurship • Low real return on CPF balances is an implicit tax Recent policy changes to allow diversification of CPF balances into stocks, bonds, unit trust, and insurance products

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