Governance of a City-State
Rethinking Singapore’s Housing Policies

By Donald Low

Public housing policies in Singapore have been highly successful in enabling home ownership for the majority of Singaporeans and in giving citizens a stake in the country. The proportion of the resident population living in public housing is about 85%, with the large majority (around 95%) owning the flats they occupy. Equally notable is the fact that the opportunity to own homes has not been limited to those in the higher or middle income groups; lower income Singaporeans too have benefited from policies to encourage home ownership.

Singapore’s unusual success in providing affordable housing for the vast majority of a highly urbanised population is the result of innovative, activist government policies rather than a reliance solely on market forces. Along with education and healthcare, public housing was seen as a merit good deserving of state provision and subsidisation. Various other factors also contributed to the successful provision of affordable public housing.

Housing for All

First, strong economic growth enabled rising incomes across the board and generated social improvements for all segments of the population. The People’s Action Party (PAP) came into power in 1959 on a manifesto of providing employment and housing for all. Unlike most other developing country governments that saw housing as a social problem to be addressed only after economic growth has been achieved, the PAP government considered both objectives (of growth and housing) of “equal and symbiotic importance”.[1]  The provision of affordable public housing is perhaps the clearest manifestation of Singapore’s “growth with equity” story.

The government also pursued housing policies that were comprehensive and effectively integrated with broader socioeconomic objectives. The Housing and Development Board (HDB) did not see itself just as a developer of rental housing for the poor who could not afford privately developed housing. Instead, the HDB sought to “encourage a property-owning democracy in Singapore and to enable Singapore citizens in the lower and middle income group to own their own homes.” (HDB Annual Report, 1964).

The government’s comprehensive approach to public housing is also reflected in the policy to allow Central Provident Fund (CPF) savings to be used for financing house purchases. This allows many first-time home buyers to pay their monthly housing loan mainly, if not entirely, from their CPF savings. The integration of the CPF system and the housing system has not only promoted high levels of home ownership in Singapore, but has also been an important source of financial security for Singaporeans. Indeed for lower and middle income Singaporeans, the homes bought with their CPF monies are the most visible expression of social security, Singapore-style.

Inclusiveness was also achieved by ensuring that HDB flats were affordable for their intended target groups. The government committed to set the price of new four-room flats at a level that was affordable for 70% of Singaporean households while the price of three-room flats would remain affordable to 90% of households. Singapore’s housing programme catered to almost all segments of society. All Singapore citizens who do not already own homes and whose monthly household income falls below specified income ceilings are eligible to rent HDB flats and are also eligible for special subsidies in the form of grants to make it possible for them to close their financing gap for a new home.

New Socioeconomic Realities

The social contract that has enabled home ownership for the vast majority of Singaporeans is now coming under stress. In recent years, house prices have risen at a much faster rate than median or average incomes. The reasons for this phenomenon are complex, but most agree that the explanation may lie in part with wider economic and policy factors– rapid economic growth, more liberal immigration policies, and low interest rates resulting from loose monetary policies in the aftermath of the global financial crisis. One response would be a combination of well-timed policy interventions. On the demand side, this involves prudential or anti-speculative measures aimed at cooling the property market. On the supply side, the government will release more residential land and ramp up the development of public housing flats.

While these policy interventions are useful, a more fundamental rethink of public housing policies in Singapore is also necessary. This is because alongside the cyclical factors, there are significant changes to many of the socioeconomic and demographic assumptions that guided the formulation of public housing policies in the first forty years of nationhood. For instance, while Singapore’s population was young and growing rapidly up to the 1990s, the growth of the population is likely to be more moderate (if we exclude the impact of immigration).

Singapore is also ageing rapidly. This will have far-reaching implications not only on the rate of household formation, but also on the types of public housing we provide, the community-based services that have to be developed to help older Singaporeans age in place, and the ways in which older households are helped to monetise their housing assets. These longer-term, structural changes suggest that housing policies should not be overly driven by cyclical or short-term considerations, but should be informed by longer-term trends. For example, as the population ages, the current policies to encourage home ownership have to be adjusted to enable Singaporeans to “de-cumulate”. At a minimum, the government has to develop more options for the majority of older Singaporeans who own public housing to monetise their assets, as well as develop an affordable and adequate rental market.

Beyond demographic changes, policymakers must also consider whether home ownership is still the best way of providing social security and of building a stake-owning society. In the context of greater inequality, slower income growth for the lower and middle strata of society, and increased economic and employment volatility, it is by no means clear that home ownership is still the most appropriate way for the state to redistribute incomes or to provide a measure of retirement security to Singaporeans.

The primary way in which home ownership might contribute to retirement security is if house prices appreciate over time. Public policy so far has encouraged this; the government assumes that rising house prices represent an increasing store of wealth that can be unlocked by home owners to finance their retirement needs. But this assumption can be seriously questioned on at least two levels.

First, it is by no means assured that the elderly who need to monetise their housing assets can do so at the right time in the housing cycle. In view of how volatile house prices can be, it seems rather risky to expect Singaporeans to lock up so much of their wealth in housing on the (questionable) assumption that they can easily monetise a relatively illiquid asset a time of their choosing. As the population ages rapidly in the next two decades a surge of elderly Singaporeans (the population above 65 is expected to more than triple in the next twenty years) seeking to monetise their housing assets might easily cause prices to fall sharply.

A second and more fundamental objection to the use of housing as a form of retirement security is that it is highly regressive and inequitable. The people who benefit the most from housing as a form of social security are those who have the means to own more than a single property. It seems quite unfair that a citizen’s retirement security should be so dependent on whether the individual had the resources and risk appetite to invest in housing at an earlier age. House price appreciation is, at best, an indirect and highly uncertain way of providing retirement security – since one can never be sure that house prices would rise in perpetuity. At worst, it accentuates inequality as the current system favours those with more housing assets.

The government has a general aversion to intergenerational transfers through the fiscal system (of taxing the young to pay for the benefits of the old); this is why Singapore does not have the tax-financed pensions found in most developed countries. But the current approach of relying on house price appreciation to finance the retirement of the elderly is de facto a form of intergenerational transfers too since it is always the next generation that has to bear the burden of rising house prices. The question then is not whether we should have the young pay for the retirement of the old; this already occurs under the current system of relying on housing as a form of retirement security. Rather, the real question policymakers should ask is whether the country is better off with an explicit system of taxes on the working population to pay for the retirement benefits (say, basic pensions) of the old or with the current implicit system of relying on house price appreciation to finance the retirement needs of the old. Framed this way, it is by no means obvious that the current strategy of providing retirement security via housing is more sustainable or superior.

The collapse of the housing bubble in the US in 2007-20009 also provides a cautionary tale of how an unhealthy fetish for home ownership, combined with relatively weak social safety nets and low interest rates, can be a source of economic and financial instability. The former chief economist of the International Monetary Fund, Raghuram Rajan, argues that the main governmental response to rising inequality in the US was to expand lending to households, especially low-income households, to support the expansion of home ownership. He suggests that promoting home ownership became a convenient substitute for the policies that really address the problem of inequality – improving access to quality education and strengthening social safety nets. Although politically expedient, the government’s home ownership objective fuelled increasing leverage and drove financial deregulation, setting the stage for the collapse of the housing bubble and the financial crisis. [2]

Unintended Consequences of Housing Policies

Policies to promote home ownership in Singapore are mostly still prudent and financially sustainable; Singaporean households are also not heavily leveraged in making their home purchases. Neither do we have policies, such as the tax deductions for mortgage payments in the US, which artificially boost demand for housing. Nonetheless, the US’ experience suggests that the home ownership is not an unambiguously good thing that the government should aim to maximise. While home ownership is generally desirable given its benefits in terms of socio-political stability and giving citizens a stake in the country, we should also be cognisant of its limits.

In particular, home ownership is probably not appropriate as a substitute for social insurance against the risks of unemployment, ill health or retirement. We should also be careful about encouraging home ownership for all segments of the population. Among lower income households in particular, home ownership may neither be financially prudent nor the best way of providing them a measure of social protection.

Yet another structural issue that policymakers need to consider is the relationship between home ownership and asset appreciation. As the majority of Singaporeans became home owners, policymakers may have conflated the goal of home ownership with that of asset appreciation. This is mostly misguided. While house price inflation provides a boost to consumption because of the wealth effect, this benefit has to be weighed against its costs. Not only do rising house prices cause anxiety for new households looking for a home, but they also have socially corrosive effects. For example, if house prices increase more rapidly than wages over a sustained period, people may begin to view financial speculation or investing in property as a more reliable way of securing income gains than through their own labour. The increase in speculative activity and the shift in social attitudes with respect to how money can be made (rental income and capital gains instead of wages) erode society’s work ethic, increase status competition and envy, and divert society’s resources from productive activities to less productive and potentially destabilising ones.

The basic dilemma for our housing policymakers is that as global city with liberal immigration policies for highly skilled individuals and open capital markets, high-end private property prices in Singapore will rise towards those in other global cities. These forces in turn exert upward pressure on mass market private home prices, and to some extent, HDB resale prices. Given Singapore’s newfound status as a global city, the government has to be a lot more deliberate and activist in managing both HDB and overall house price appreciation. Sky high private property prices exacerbate the sense of inequality, reduce social mobility, and increase the risks of destabilising housing booms and busts.

A New Paradigm 

These structural changes suggest that a new paradigm in public housing is needed. The new paradigm for public housing should include the following features. First and foremost, the HDB should once again embrace affordable housing for the majority of Singaporeans as its primary mission. While improvements in the design of HDB flats are desirable, they should not come at the expense of affordability.

To ensure affordability, the government should strive to keep the house affordability index (which is the ratio of house price to the buyer’s annual income) well below four, preferably around three. New entry-level three-room flats in non-mature estates should be affordable for the 21st-30th percentile of households with annual incomes of around $40,000. This suggests a new flat price of around $120,000, which was the price of such flats about a decade ago. Given the real possibility of slow median wage growth relative to house prices, the first order of business for HDB should be to restore and maintain the affordability of housing for the majority of citizens. Indeed, the prices of new build-to-order (BTO) flats and recent announcements by the Minister for National Development strongly suggest that this is the direction the government is already taking.

Second, the government should discard its implicit but long-standing goal of asset appreciation and end its reliance on housing as a de facto form of retirement funding. Compared to other markets, the housing market is particularly prone to speculative booms and busts. Relying on such a volatile market to deliver retirement security – where one of key goals of public policy must be to insulate citizens from the vagaries and uncertainties of the market – not only creates too much risk to citizens, but is also highly regressive and inequitable. Instead of pursuing asset price appreciation, the proper goal of housing policy should be to maintain price stability. The lesson from Japan’s lost decade in the 1990s and the 2000s is not that a country is destined to stagnate because of its ageing demographics. Rather, the real lesson is that a real estate boom often has long-lasting, deleterious effects on the economy.

Third, public housing policy needs to be rethought in the context of significant demographic and economic changes. When the population was young and incomes were rising across the board, public housing was an efficient and incentive-compatible way of spreading the fruits of economic growth. It was also a good way of helping Singaporeans achieve social mobility and build up their assets for retirement. But the rapid ageing of the population suggests that focus of government policy has to shift from enabling asset accumulation to helping Singaporeans unlock and monetise their housing assets. Just as importantly, slower income growth and relative wage stagnation for a sizeable segment of our workforce highlight the need for more social transfers and direct redistribution via the conventional route of taxes and social transfers. Public housing can no longer effectively serve as the de facto instrument of income redistribution.

Fourth, the government also needs to ensure an affordable rental market for a wider range of households (and not just lower income groups). The undersupply of housing in recent years, combined with liberal immigration policies, has made rental housing in Singapore increasingly unaffordable. This risks making Singapore unattractive to the middle-skilled immigrants that it wants to attract. The relative dearth of affordable rental options also makes it harder for young Singaporean couples to settle down and raise families. Given the country’s global city ambitions and its desire to encourage Singaporeans to marry and have children, the single-minded obsession with home ownership is becoming quite anachronistic. More than before, housing policies in Singapore need to offer a greater variety of options to meet the increasingly diverse needs of its population.

All the changes proposed here require us to discard our old paradigms about housing, and recognise that the context Singapore faces today is quite different from the context it faced in the 1960s when the country’s policies and institutions in housing were first established. While these policies and institutions worked remarkably well in the first forty years of independent Singapore, they are becoming increasingly ill-suited for the country in light of rapidly changing social, economic and demographic realities.  Relative to how much the context has changed and is changing, housing policies and institutions – and the objectives which they are designed to serve – have not kept up.

This gap between what the context requires and what policy delivers is at the heart of explaining why after 50 years of undoubted achievement in the provision of public housing, housing is once again a source of uncertainty and insecurity among citizens. This gap cannot be closed simply by the property cooling measures the government has introduced (there have been seven rounds of such measures to date) in the last two years; nor are the laudable efforts by the government to increase supply and maintain the prices of new BTO HDB flats likely to be sufficient. Instead, as this paper has tried to argue, what is required is quite a fundamental and thorough relook at the goals and principles that underpin housing policy in Singapore.

[1] Belinda Yuen (2007), “Squatters No More: Singapore Social Housing”, Global Urban Development Magazine, Vol. 3, Issue 1
[2] Raghuram Rajan (2010), “Fault Lines: How Hidden Fractures Still Threaten the World Economy”, Princeton University Press


Donald Low is Senior Fellow at the Lee Kuan Yew School of Public Policy and a vice president of the Economic Society of Singapore. This essay will be part of a new book, Necessary Contests: Reframing Debates in Singapore’s New Normal, edited by Donald Low and Sudhir Thomas Vadaketh, and which will be published at the end of this year. The book will also feature contributions from Linda Lim, Devadas Krishnadas and Jeremy Lim.

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