Where have all the COEs gone?

When it comes to the management of traffic in a city, Singapore has been a trailblazer in many respects. Starting from the days of the Area License Scheme (ALS) where drivers had to pay to enter the Central Business District (CBD) unless there were 4 people in the car (the original carpooling scheme!), to raising the prices of private passenger cars through taxes like the Additional Registration Fee (ARF) and the Preferential Additional Registration Fee (PARF) – nothing preferential about getting taxed more!

And then came the Certificates of Entitlement (COEs). A world’s first, where car owners had to purchase the right to own a car. And finally, the solution to all sorts of traffic congestion, Electronic Road Pricing (ERP). ERP was meant to replace all the other schemes and policies to control traffic congestion, but ended up merely adding to the layers of fees and charges involved in driving.

Even if all these measures and policies have not fully addressed the problem of traffic congestion in Singapore, at the very least, they have monetized and financialized the very act of driving and car ownership. This is certainly like nowhere else in the world! And attract the world’s attention we have indeed, when the cost of a COE (without the car, mind you) soared to an eye-watering S$150,000 this year. How can the humble COE, which languished at a price of around S$10,000 for most of the 2000s, become so expensive? Is it due to scarcity? If so, where have all the COEs gone?

Grab your COEs while you can!

Why have COEs gotten so expensive?

Let’s start off by thinking about why COEs can be expensive. At the heart of it, it is just a basic supply and demand problem. For the past 10 years, Singapore has had a zero growth policy for private passenger cars. As the end of 2022, there are 650,667 such cars (actually up from 617,570 in 2012 – apparently the zero growth policy is flexible too!). in the same period, the number of households in Singapore grew from 1,152,000 to 1,399,600! Obviously, the meagre growth in the private passenger car population is not going to meet the demand from the growing population!

In a normal demand-supply situation, where supply can increase over time, growth in demand (DD and D’D’) will result in both a rise in prices and an increase in the quantities bought and sold. This is shown below:

Prices of COEs in a normal situation

But in a situation where the supply of COEs is fixed (i.e. a vertical supply curve SS), there will be no changes in the quantity bought and sold, and only the price will change.

Over time, as the country and the people get richer, we expect the prices of COEs to grow in line with economic growth as well. For example, the nominal GDP of Singapore grew by roughly 5.75% per year between 2013 and 2023. The peak COE prices for Cat B cars also grew by roughly 4.56% a year between 2013 and 2023. The nominal GDP of Singapore grew by 5.5% a year between 2008 and 2018 (years low COE prices). In the same way the COE prices rose by 9% a year between 2008 and 2018 for both Cat A and Cat B cars. However, as transport infrastruture gets built over time and it becomes more and more convenient to use public transport, the demand for COEs will fall as well.

Net, it appears that over the past 10-15 years, the increasing demand of passenger cars due to growing wealth and population has outstripped the convenience gains from better transport in fracture, resulting in a growing trend of COE prices.

The impact of fluctuating supply

But that is not the whole story. A closer look at the prices and quantities of COE quotas over the years show that the variability of the COE supply over time also plays and important role in driving up prices of COEs. Looking at the charts below for Cat A, Cat B and Cat E (Open) COEs, it is quite clear that the supply crunch is responsible for driving the wild swings in COE prices.

COE supply and prices 2002 – 2023 (Source: https://coe.sgcharts.com)

Category A

Category B

Open Category E

It is quite evident from the charts above that:

1. The price of COEs is inversely related to the COE quotas. That is, the more COEs are issued in a single year, the lower the price.
2. The COE quotas have a cyclical pattern, from years of excess to years of shortage

For example, based on LTA’s numbers, for December 2023, there were 3,420 COEs across Cat A, B and E released. And this is after the COE quota had been increased to deal with the high prices. Compare that to the 2,062 COEs across Cat A, B and E back in December 2022. But some mental arithmetic is in order here. If there are 650,000 private passenger cars, i.e. 650,000 COEs in issue with a lifespan of 10 years each, the average yearly quota should be 65,000. this means a monthly average COE quota of 5,417! So even with the increase in the COE quota in recent months by “borrowing” COEs from the future, we are still falling way short of the number of COEs needed to steady the COE prices.

And if we are getting 2,000 COEs less than the long term average monthly COE quota now, that would mean that at some point, we will be getting 2,000 COEs more than the average, or 7,420 per month, in the not too distant future!

Will these additional COEs alleviate the prices we see today? Yes, but not by much. Judging from the last cycle, COE prices in all relevant categories more than doubled from the low of 2008 (< $20,000) to the low of 2018 (>$40,000). As population growth has slowed, and transport infrastructure has improved, we are unlikely to see another doubling of “low” COE prices by 2028 to $80,000. But we are certainly not going to return to the era of $40,000 COEs either!

Inequities in car ownership

Finally, without doubt, car ownership has gotten more unequal in Singapore in the past few years. According to the Ministry of Transport, in 2013, 40% of households owned a car, while in 2023, only 33% did so. This does not mean that fewer households own a car, because there are more households in 2023 compared to 2013. Hence in 2013, 460,800 households owned at least one car, while 461,800 households did in 2023.

However, with 650,000 private passenger cars in Singapore, this implies that the car-owning households have an average of 1.41 cars each. Basically, out of every 2 car owning households, one owns 2 cars and one owns one. But a look around the HDB/condominium carparks tell us that the vast majority of households own just one car each. This means that a small minority of households own 3 or more cars. For example, each household owning 1.41 cars each implies that out of every 10 households, 9 own just one car, and one family owns 5 cars!

This should not be a surprise as the auctioning of the COEs simply means that they tend to go to those with the means to pay for them. Regardless of the actual need of the households. And this is perfectly in line with the increasing inequality of both income and wealth in Singapore. So this is a feature, not a bug. But is it good for us as a society?