A STUDY by an economist, which found that Singapore's bottom 30 per cent of households spend more than they earn, has been disputed by the Ministry of Finance (MOF) and a veteran statistician.
The study by National University of Singapore (NUS) economist Tilak Abeysinghe compared households' expenditure against their incomes from work. Professor Tilak said that according to his research, the bottom 30 per cent of households spent 105 per cent to 151 per cent of their income last year and the main cause of rising expenditure was housing.
But MOF took issue with Prof Tilak's methodology as he used imputed rentals as a measure of expenditure on housing.
Prof Tilak said he did so as most households were unlikely to have fully paid up their mortgages, so imputed rent captured some of these outstanding payments.
He also cited an earlier study he did which compared housing price to lifetime income. He said that too showed a long-term deterioration of housing affordability.
Imputed rentals measure how much a household would have to spend on rent if they did not own the house they live in.
MOF said it disagreed with the use of imputed rentals as a proxy for mortgage payments on three grounds.
First, mortgage payments have been lower than imputed rentals for lower-income households because of government grants.
Second, mortgage payments and imputed rentals have diverged significantly in recent years, with imputed rentals rising much faster in line with the property market, while mortgage interest rates have fallen.
Statisticians internationally also remove the principal component of mortgage payments as it reflects an investment. They only count as expenditure the interest payment portion, which is much lower.
MOF released figures to show how imputed rentals over-estimate how much lower-income households spend on housing.
The figures showed that for a family on a monthly household income of $2,000 who buy a three-room flat, their actual expenditure on housing is $134 a month, far lower than the average imputed rental of $700.