World Policy Journal begins each issue with the Big Question, where we ask a panel of experts to provide insight into the cover theme. The question for the summer 2016 Renegade Cities issue is: How can governments collaborate with the private sector to provide affordable housing? Below, Sock-Yong Phang explains how the government of Singapore has taken on the role of land use planner and housing developer to ensure affordable housing. Click for additional perspectives from Jordan and Brazil.
By Sock-Yong Phang
Numerous instruments have been devised by governments to provide affordable housing. These can be classified into four broad categories: taxes and subsidies, land use and market regulations, public-private partnerships, and institutions that supply housing or provide financing.
The Singapore government deploys all of the above, but its principal role is that of a land use planner and housing developer. Singapore’s Housing and Development Board has built three-quarters of the housing in the country. The HDB acquires and clears sites for development or redevelopment, resettles and/or compensates affected households and businesses, and coordinates with other government agencies for provision of infrastructure and local amenities. The HDB provides detailed land use plans and building designs, and private sector building contractors are selected for HDB construction projects through competitive tenders. The HDB Building and Development Division was corporatized in 2003 and has since evolved into an international building consultancy company, Surbana International Consultants Private Limited. Surbana provides consultancy services to the HDB as well as internationally, with offices in 16 cities.
Ninety-four percent of HDB flats have been sold below market prices on 99-year leases, and the homeownership rate for the resident population is 90 percent. Households can make the down payment and mortgage payments from their Central Provident Fund accounts. The fund is a mandatory retirement savings scheme that was transformed to incorporate a major housing finance component in 1968. The household income ceiling for couples buying a new HDB flat is 12,000 Singaporean dollars ($8,870) per month; this is 38 percent above the 2015 median monthly household income of 8,666 Singaporean dollars ($6,400). Resale to another Singaporean or permanent resident household at market value is permitted after a minimum occupancy period of five years. There are no income ceilings for buyers of HDB resale flats.
The HDB also provides housing grant subsidies that vary with household income to buyers of both new and resale HDB flats. The housing grant for a first-time homeowner with monthly income below 1,500 Singaporean dollars ($1,100) can be as much as 80,000 Singaporean dollars ($60,000). This is up to 50 percent of the listed subsidized price of a new three-room HDB flat, and up to 30 percent of the market resale price of a three-room HDB flat.
The HDB also acts as a housing finance institution by providing loans to HDB flat buyers at 2.6 percent interest rate. As the Central Provident Fund Board makes mortgage payments on behalf of members directly to the HDB or commercial banks, the payment system itself reduces default risk and lowers the cost of borrowing. Commercial banks compete with starting interest rates that are below 2 percent, and currently have more than 80 percent share of the housing loans market.
The government collaborates with the private sector to increase the housing supply for the remaining population through a number of other interventions. As the largest landowner, the government sells land at regular intervals by tender to private housing developers under its Government Land Sales program. This program provides housing for higher income or foreign households as well as for investors. Legislation that facilitated the en-bloc sale of older properties with multiple owners for redevelopment has also contributed to increase the supply of new housing.
In addition to supply-side interventions, numerous regulations have been introduced to curb speculative and investment demand, helping to maintain housing prices at more affordable levels.
Affordable homeownership in Singapore is the result of multipronged land and housing policies, collaboration with the private sector, and careful regulation of housing markets.
Sock-Yong Phang is Celia Moh Chair Professor of Economics at the Singapore Management University, and author of Housing Finance Systems: Market Failures and Government Failures (Palgrave Macmillan, 2013).
[Photo courtesy of Formulax]