THE IMPACT OF LAGS IN LAND & HOUSING SUPPLY ON PROPERTY PRICES

Abstract

While most housing studies focus on the demand-side factors and their various impacts on prices, the supply-side factors are usually overlooked. This paper examines the supply lags of the housing market in Singapore. These are demonstrated on two levels, government land supply through the Government Land Sales (GLS) programme, and housing supply through private developers’ supply of units launched. Using the VECM method, it is found that the revenue maximization theory of the GLS is true. Also, the land banking theory holds true in Singapore as significant results were found that GLS land volumes are not translated into new housing supply launched by developers. There is also a lack of policy regulating such supply such that private developers can easily take advantage of this. However this lack of translation also acts as a buffer such that land restrictions such as zoning or developmental restrictions do not impact property prices as well. Results also showed that GLS land supply granger cause property price index change in the long and short run. Therefore, with the supply side lags and the discovery of the link between land and housing supply, it is recommended that the government formulate integrated policies to better control property price movements in the housing market. It can also be concluded that the GLS program can be used as a direct tool to control change in long and short run property prices and thus bring about stability to the housing market when needed. However this must be carefully and diligently managed as this tool is sensitive and can just as easily do harm to the housing market without sufficient understanding of its functions.