ZERO GROWTH IN CAR POPULATION AND AFFORDABILITY OF CAR OWNERSHIP IN SINGAPORE

Abstract

In light of the recent revision made to the Vehicle Quota System (VQS), the reduction in vehicle population growth rate will result in a fewer amount of Certificate of Entitlement (COE) quotas available. Despite the high cost of car ownership, there is still a high demand for cars in Singapore. With fewer COE quotas available coupled with high demand for cars, COE prices will increase. The increase in car cost will directly impact the low-and-middle-income households who essentially need a car but are unable to afford one due to the rising cost. Hence, the paper seeks to study the impacts of the reduction in the vehicle population growth rate on car affordability in Singapore.

The paper evaluated the impacts of the new revision in the VQS on car affordability based on three research questions. Firstly, whether a reduction in the number of COE quotas in general, and category B and E lead to more bidders and higher prices in category A COE. Secondly, whether a decrease in the quotas would result in a significant price gap between COE prices of category A and B. Lastly, how the authorised car dealers’ respond to the changes in the number of quotas in terms of pricing their cars for sale.

As the VQS and car cost changes over time, a time-series analysis research methodology is employed in the study. Through a VAR model, the results conclude that a decrease in quotas in other categories do increase the number of bidders and COE prices in category A, but these increases are minimal and diminished over the long run. There is also no long-term negative price gap between COE prices of category A & B and category A & E, which shows that car affordability for small car buyers remains largely unaffected. For authorised car dealers, they are quick in their responds by decreasing car prices when the number of quotas increase. Their rapid actions show that they want to increase their share and presence in the car consumer market.

For policy makers, these findings are useful to help them find a balance between controlling the car population in Singapore and at the same time ensuring cars remains affordable.