The rent was too damn high: Singapore edition

As my more devoted readers know, I am very interested in the relationship between housing costs and historical living standards and have shown that incorporating estimates of housing costs in a measure of the real wage in colonial Dakar makes a substantial difference to the story. I’m trying to accumulate more evidence for the proposition that housing costs matter, and in particular the proposition that housing costs likely swallow up a substantial fraction of the increase in real urban income in cities in developing countries where housing supply is relatively inelastic. One part of the developing world which is relatively easy to demonstrate this for, it turns out, is colonial Singapore, for which the British authorities compiled a set of price indices that were disaggregated by category. Choy and Sugimoto, in their study of real wages in Singapore, seem not to make use of this index, though they use the weights from the overall price index to slightly bump up the rental share of the consumer basket they use to construct their own price indices. They find a generally stagnant real wage for unskilled workers in Singapore, even during the rubber boom of the 1920s, though a very pronounced increase in the real wage for skilled labourers.

Interestingly enough, this is the decade when housing prices diverge considerably from other prices. Housing costs roughly doubled from 1920 to 1930, while the prices of more or less every other part of the consumer basket fell. Nominal housing costs plummeted at the onset of the Great Depression but never reached their level in 1920. The exact effect on the unskilled real wage in Singapore is hard to quantify because Choy and Sugimoto’s data isn’t yet publicly available and I’m not going to reconstruct it just for a blogpost, but probably would not be extraordinarily large: if we take the initial (1914) CPI weights as accurate, then housing was about 6% of total expenditure in 1920, increasing to about 18% of expenditure in 1929. While it represents a tripling of housing’s share of expenditure over the course of a decade, the difference in the overall index would not be all that different if we removed housing from it. If we calculated a housing-exclusive CPI, the decline from 1920 prices would be about 35 percentage points by 1929, whereas the decline is only 25 percentage points if we include housing. But this is really a function of the low initial weight, based, presumably, on a household budget study about which we know very little. And as I will argue in a blogpost very soon, there might be a reason to doubt the low housing shares that many household budget studies give to housing, at least in developing countries.

Published by Tom Westland

PhD student in economic history at Sidney Sussex College, Cambridge

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