THE GLS PROGRAMME AND ITS EFFICACY IN MODERATING PRIVATE HOUSING PRICES

Abstract

The Government Land Sales (GLS) programme is the main source of land supply for private residential development in Singapore. This paper studies its effectiveness in moderating private housing prices. This paper examines the long-run and short-run relationships between land supply and house prices over 80 quarters from 1997 to 2016 using the Johansen co-integration approach and the Vector Error Correction Model respectively, controlling for various demand- and supply-side variables. The empirical findings show that private housing prices are negatively influenced by the cumulated amount of state land released. Further, house prices Granger-cause land supply, demonstrating that the state is responsive to house price inflation. The GLS programme can be an effective market stabilisation tool in correcting house price deviations in the long-run. However, increases in land supply do not lead to short-run price corrections due to a supply-lag in the housing market. Housing producers can time the market and actual supply can be different from that anticipated by the GLS programme. Hence, market imbalances arising from short-term demand shocks are only corrected eventually by adjusting the current GLS quantum. The delayed impact of GLS supply can result in future housing shortages and unwarranted spikes in private housing prices when demand picks up. Hence, it is pertinent for the government to monitor the market closely and to be constantly releasing an adequate quantum of land supply to achieve sustainable housing prices in the long run.