SINGAPORE: In a post over social media on Wednesday (Mar 19), Workers Party Member of Parliament Jamus Lim (Sengkang GRC) recounted how residents have been talking about how costs of living remain a major challenge for many.
He pointed out that this has been true not only for households but also for businesses. “One small business owner, whom I had met several times before, shared about how her industry (IT retail) was being killed by high rental costs,” added Assoc Prof Lim.
In the course of engaging with residents at 259B Compassvale as well as part of 351A Anchorvale together with the volunteers and members of WP’s team at Sengkang over the past week, the MP wrote that one of the people he had spoken to was a woman who communicated her concerns for her company.
This spurred Assoc Prof Lim to write about an issue he has brought up in the past: Singapore’s land pricing model. He argued that high rental rates and real estate prices, which are common in Singapore, do not only get passed on to consumers by way of higher sticker prices for goods and services.
“The government’s position on this, based on their responses in parliament, has been that rental and real estate prices are only a small part of the total costs of running a business, which is dominated by the wage bill. Ergo, their argument goes, it cannot possibly drive inflation,” he wrote.
For Assoc Prof Lim, who teaches economics at ESSEC Business School, this perspective “misses the bigger picture,” given the inevitability of rental and land costs, compared to labour costs, because it is a fixed cost that requires payment regardless of profitability. Even when a company is not earning enough, a business owner will tend to continue with operations to recover this fixed cost.
“And if the firm has some pricing power, it will raise prices to make sure this happens,” he wrote.
He also explained how labour is a variable cost, with businesses hiring and letting go of employees depending on profitability “until they figure out how to make the business model work.”
Assoc Prof Lim added that he believes land could have a multiplier effect, which he explained as what happens when a company has to pay more rent and, therefore, raise the prices of their own goods and services. This, in turn, causes workers to ask for higher pay so that they can keep up with higher living costs.
“This could have a cascading effect and add fuel (the word du jour these days is ‘turbocharge’) to inflation. I believe that keeping a lid on land costs is essential to keeping our economy healthy and competitive,” he wrote.
Netizen reactions
Janus Lim’s post sparked a flurry of reactions online, with some netizens applauding his efforts while others questioned his views, reflecting a wider debate on the affordability of rental costs in Singapore
“A true MP who walks the ground listens to the people and speaks up in Parliament. He asks tough questions, suggests ideas—only for them to be mocked and later copied by the MIW,” one commenter wrote, among the many who praised him for being connected with residents and for continually raising important issues in Parliament.
Some pointed to deeper systemic issues, particularly income inequality. “While wages are controlled, ministers and top executives continue to rake in big money. They invest in property, buy multiple cars, and drive up prices,” a netizen noted.
Not everyone agreed with the Assoc Prof’s take. “Do you really think businesses will lower prices just because rent goes down? Even pioneer hawkers with cheap (rentals) charge market prices. Lower land costs won’t mean cheaper houses—developers will still maximize profits,” another argued./TISG
Read related: Jamus Lim Stresses the Need for Affordable Public Housing and a Fair Land Pricing Strategy