Assoc Prof Jamus Jerome Lim: This House has just debated that HDB (Amendment) Bill in January where my Sengkang teammate Louis Chua spoke about the disparity in the number of coffee shops typically found in mature estates versus relatively new ones such as Sengkang. He did so again today.
Today, I wish to speak about not so much the difference in quality but also the difference in price faced by our residents. Data that my volunteer team and I had painstakingly gathered suggest that hawker food in Anchorvale, the division of Sengkang that I represent, is significantly more expensive compared to more mature estates by an average of around 50 cents. One reason for this is that there are simply less coffee shops and hawker centres in newer estates. Hawker centres are a unique feature of our heartlands and in many mature towns, these often become focal points for the neighbourhood, together in the source of affordable sustenance for families. Yet, in the whole of Sengkang, there has only been one hawker centre and it is not even an NEA-run one, at least thus far.
But private control of hawker centres throws up yet another reason for expensive hawker food. The current bidding for HDB commercial spaces including coffee shops and hawker centre spaces follows the standard price quality method (PQM). The price component will maximise the tender price while the quality component which could be weighted to take up as much as half the score includes considerations such as affordability, productivity initiatives and availability of healthy options, as shared earlier.
In principle, the PQM allows non-price factors to come into play. In practice however, it is not difficult to game the system. An entire coffee shop may have just one store that offers a single healthy option. Or store holders may price just one so-called “loss leader” item competitively, thereby qualifying for the higher quality score, but the remainder of the items may remain expensive.
I have heard anecdotes from real estate insiders that quality scores for such spaces are typically very similar which suggest the quality scores could indeed be gamed, effectively defaulting the auction to a price-based one.
More crucially, feedback from my residents suggests that healthy options are few, as are reasonably priced items, with many items priced dearly. I wonder if MND has received similar feedback, and if the Minister would be willing to share how quality will be ensured, both during auction, and on an ongoing basis.
Open bidding for coffee shop spaces encourages high bids, which is generally passed on to individual store owners through higher rents and subsequently to the end consumer via higher prices. As the $41-million winning bid for a Tampines coffee shop last year reminds us, such an escalation of bidding is a reality, as is the higher rents that result.
While it is true that the higher bids are not completely forgone by the public purse – after all, they go into general revenue – this amounts to a cross-subsidy, from the residents of newer estates to the general population.
One approach is to adapt rental pricing to demand conditions. In our manifesto, the Workers’ Party called for such dynamic rental: when the development is first launched, rental prices can be kept lower, prior to demand being built up. This also compensates hawkers for taking on the additional risk of being a pioneer vendor.
Another strategy, which this Government has already considered and implemented in other dimensions of public policy, is to move away from the highest, or the lowest, as the case may be, to setting the sealed bid to the second price. This is a so-called Vikrey auction, so named after the academic and Nobel prize winning economist who first formally described the mechanism. In a nutshell, the top bidder in the auction still wins, but the price is set at that of the second highest bid. I would not go into the technicalities of this approach, as to why it is desirable, but suffice it to say that auction participants will tend to reveal their true willingness to pay in such a setting, while simultaneously being resistant to a gaming of the system.
Vikrey auctions have been used in a number of real world settings, including, famously, on eBay. It is also used much closer to home, for our existing Certificate of Entitlement (COE) system. Applying the self-same principles for coffee shop bids may help mitigate the race to the top or the bottom, depending on one’s point of view, present in first-price auction bidding, and help keep coffee shop prices much lower for our residents.
Ministry of National Development
2 March 2023