A tale of two sectors: Upward mobility and the private housing market in Singapore

Abstract

Our paper examines the determinants of new private residential units sold in Singapore during the 1990s. The Singapore housing market is characterized by the coexistence of a dominant public sector and a small, growing private sector with relatively higher quality housing. The distinguishing feature of our model is that we account for the impact of the former on the latter, and the interaction between the two. Our analysis generates three principal conclusions: first, there is a statistically significant “wealth effect” driving the sales of new private residential properties. Second, the real loan interest rates have a statistically significant negative impact on these sales. Finally, an increase in the rate of change of public housing resale prices has an important and significant positive impact on the sales of private residential units. This is due in part to mitigation of downpayment constraints of upwardly mobile households.