HOUSING INVESTMENT AND ECONOMIC GROWTH IN SINGAPORE

Abstract

Housing investment is closely related to macroeconomic performance in many ways. While increased housing investment leads to more jobs and income for workers, positive economic growth bolsters households’ spending on residential properties and drives housing investment (Jackman, 2010). Given the potentially bi-directional linkage between these two variables, it is critical to understand the behavior of housing investment in relation to economic conditions in Singapore and shed further light on the government’s policy implementations amid the current economic turmoil. This study examines the linkage between housing investment and GDP in Singapore over the period 1987Q3-2012Q3. Using a Turning Point analysis and a Vector Autoregressive model with exogenous variables (VARX) test, the findings highlight the causality from GDP to residential investment. Specifically, GDP appears to lead both the total and private residential investments by 1 or 4 quarters, while leading the public residential investment by 2 quarters. It reflects the fact that the Singapore’s government plays a significant role in the housing market. Given the country’s limited land area, both the private and public housing sectors are closely monitored by several regulations. The study’s results suggest that the government and investors in Singapore should pay more attention to other factors besides housing investment to better predict economic recessions and limit their adverse impacts. Furthermore, the government’s pump-priming initiatives should rather place emphasis on other infrastructures than the housing sector to effectively stimulate the economy.