October 19, 2022

Passed by Parliament on 19 October, 2004, the Building Maintenance and Strata Management Act 2004 was meant to provide for proper maintenance and management of buildings, especially condominiums and apartments. As the population density of Singapore continues growing, the crowdedness of the building is becoming a major issue Singaporeans must consider before purchasing an apartment.

In ‘How Much Do Households Dislike Local Density? And Do Developers Fully Consider Their Preferences? Evidence from a Policy Change in Singapore’ (Institute of Labor Economics, 2021), Associate Professor Eric Fesselmeyer (Monmouth University), Associate Professor Haoming Liu (NUS Economics and Institute of Labor Economics), and Ms Louisa Poco (NUS Economics) examine how much households dislike high population density in their neighbourhoods. They argue that households may dislike densely populated neighbourhoods for various reasons, such as higher chance of transmitting infectious diseases, more competition for facilities and common areas, less privacy, more noise and so on.

To assess the value of the premium that is placed on less crowded neighbourhoods, the authors assembled a dataset consisting of 140 private residential developments in Singapore. Density of a development is measured by the total number of housing units in the development per square metre of land. To estimate the influence of density on housing prices, the authors compared the change in prices of the developments before and after the implementation of a policy restriction on the maximum number of housing units that could be built in certain selected lots.

Comparing the price adjustments for the selected lots with those unaffected by the new policy, they found that higher density lowers the housing price. A 10% increase in within-development density lowers the price per square metre by up to 4%. However, the mean price per square metre of the average development increased by 1% to 3% after the implementation of the new policy. This is potentially because developers tend to build higher quality houses in lower density developments. Moreover, while developers of the selected lots were building developments with a very high proportion of shoebox units (i.e., units with area less than 50 square metres) before the policy came into effect, they decreased the proportion of shoebox units and increased the proportion of medium and large units subsequently to adhere to the policy. Consequently, the average unit size of a development increased, thereby pushing up the mean price per square metre in the development.

The authors went on to observe that the higher overall price per square metre after the policy change brought more profits to the developers. Neither the developers nor the authority making the policy expected this, probably because they underestimated the value of a less densely populated neighbourhood to homebuyers.

Read the chapter here: https://ideas.repec.org/p/iza/izadps/dp14730.html