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Episode 28: Singapore's Public Housing with Chua Beng Huat

Chua, "Navigating Between Limits: The Future of Public Housing in Singapore"

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Episode Summary: “The government and its housing agency are thus constantly, indeed permanently, engaged in acts of balancing competing demands.” This is the situation that the Housing & Development Board, which builds public, owner-occupied housing for the vast majority of Singapore’s citizens and permanent residents, has created for itself. And they’ve been phenomenally successful at maintaining that balance: 85% of Singaporeans own a public housing unit — on a 99-year lease, not permanently — and prices for new homes have stayed relatively affordable for decades. What did it take to get there, where has Singapore’s leadership fallen short along the way, and what lessons can be exported to other nations? Professor Chua Beng Huat of the National University of Singapore and Yale-NUS College gives us a detailed history of the small island nation’s public housing program, and explains how a responsive government and a program of constant policy “patches” keeps it all running.

  • Chua, B. H. (2014). Navigating between limits: the future of public housing in Singapore. Housing Studies, 29(4), 520-533.
    ABSTRACT: The People’s Action Party government of Singapore, which has been in power without discontinuity since 1959, is committed to a national housing program with universal provision of 99-year leasehold homeownership for all its citizens. Since 1961 to 2013, the Housing and Development Board, the public housing authority, has built more than one million high-rise housing units, accommodating approximately 90 per cent of the citizens and permanent residents, of which more than 85 per cent of the resident households are homeowners. This close to universal provision system has generated a set of perennial competing demands. Among them are (i) in view of the absence of a national pension scheme, the need to enable homeowners to monetize their public housing property to finance the retirement years, (ii) in order to facilitate retirement funding, public housing flats must be allowed to increase in asset values, to keep up with inflation and rising costs of living and (iii) new subsidized flats must be kept affordable for new entrants into the housing market. The management of these competing demands requires constant monitoring and intervention by the state in order to maintain a balance and sustainable system.
  • Wikipedia entry on Punggol, Singapore.
  • Read more about the Housing & Development Board.
  • Sin, C. H. (2002). The quest for a balanced ethnic mix: Singapore’s ethnic quota policy examined. Urban Studies, 39(8), 1347-1374.
  • Paavo’s interview with Yip Ngai-Ming on Hong Kong’s public housing.

  • “The Housing and Development Board (HDB) was established in 1961, two years after Singapore was granted domestic self-government, to replace the colonial public housing authority, the Singapore Improvement Trust, which had been too lethargic in its building program to meet the housing demands of a growing population. Starting modestly with the construction of one-room rental flats, the HDB began to sell 99-year leasehold flats in high-rise housing blocks in 1964. In 1968, three years after political independence, citizens were allowed to make pre-retirement withdrawal from their tax-exempt, mandatory social security savings for retirement, the Central Provident Fund (CPF), to pay for the down-payment, monthly mortgage and other ancillary transaction costs of purchasing HDB flats. With the CPF system, a closed loop of financial transaction is instituted: a home-owner saves monthly with the CPF, which is deducted at income source, buys a flat from HDB which holds the mortgage, the CPF pays on his behalf the monthly mortgage directly to the HDB; no commercial financial institutions are involved in the transaction. As the monthly savings rate per capita kept rising, keeping pace with rapid national economic growth, generally the CPF savings of a household would be sufficient to pay the monthly mortgage without affecting its normal consumption. Home-ownership rates increased immediately. Not surprisingly, by the late 1980s more than 85 per cent of the 90 per cent of the population who live in HDB flats owned a 99-year lease on their residence.”

 

  • “Politically, homeowners are inclined to be conservative and supportive of the status quo, in the interest of protecting their property value. The ruling government is well aware of this effect. At election time, it pressures public housing residents to vote for the ruling party, by threatening to withhold funds for upgrading the flats and the estate environment up to a level comparable with newer flats with improved amenities and services in new generations of estates (Chua, 2000), knowing that upgrading is essential to maintain the property value of the older estates. Overall, the very tangible rapid improvement of the citizen’s material life across the board, significantly due to stable housing tenure, has greatly enhanced the political capital and political legitimacy of the People’s Action Party (PAP) and its absolute hold on parliamentary power since 1959. Obviously, the political fortune of the PAP has become inextricably entwined with the public housing system it has established (Chua, 1997). It calls Singapore a ‘home-owning democracy’.”

 

  • “Of course, along with political legitimacy gained, the government is also saddled with responsibility to protect the investment of more than 80 per cent owners of the close to one million public housing flats. The state is compelled first, to maintain but preferably enhance the market value of public housing flats for existing homeowners and, second, to continuously provide, within a ‘reasonable’ waiting time, affordable new flats to all first-time home buyers. The government and its housing agency are thus constantly, indeed permanently, engaged in acts of balancing competing demands systemically generated within a web of interlocking policies: keeping up with demand for new flats but ensuring no oversupply that might hurt market values of resale flats; enhancing property values of resale prices but watching closely inflation and bubble build-up; keeping new flats affordable to especially first-time home owners and low income families without it becoming a welfare entitlement and, increasingly concern with the risk of over investment in housing against adequacy of its retirement and other social security needs of the homeowners. This essay examines the changes in this set of housing policies in Singapore in the last decade as the state struggles to negotiate a balance to meet the demands that are systemically generated, perhaps ironically, by a successful universal public housing program.”

 

  • “It seems now conventional to suggest that Singapore has an ‘asset-based social security system’, with public housing homeownership as its central asset (Chia, 2010a, 2010b; Ronald & Doling, 2010). In fact, the idea did not become an explicitly articulated policy until early 2000s; five decades after the public housing program had already been in place. The government’s encouragement of homeownership has apparently resulted in over-investment in public housing ownership which has left retired homeowners ‘asset rich but cash poor’. A 1995 National Survey of Senior Citizens found ‘48.8 per cent cited their own house as their most important asset’ (Chia, 2010a, p. 107). Over the years, the monetary value of public housing flats has increased very significantly; nevertheless, retirees might have insufficient funds remaining in their CPF to finance their retiring years. It is in response to this problem that the idea of asset-based social security came to be a framework for implementation of social policy in contemporary Singapore. We must therefore disaggregate the process by which public housing flats accrue monetary values to their owners and the linkage between this accumulated wealth and social security.”

 

  • “Further encouragement to homeownership was given by permitting a sitting leaseholder, after five years of residence in the flat, to sell the lease on an open market instead of selling it back to the HDB, and repurchase a new subsidized flat from the HDB. This was based on the assumption that a household might want or need to upgrade to a larger flat as space demand increases with a growing family. A cycle of ‘buy/sell/repurchase’ was created within public housing homeownership. For the HDB, upgrading results in a filtering down of older and smaller flats to new families, lower income households or permanent residents. This reduces the need to build smaller flats that incur greater subsidies than larger flats. Upgrading became so prevalent that by mid-1980s, the HDB stopped building three-room flats, the smallest of the flats for sale. From the mid-1960s till the mid-1990s, all the rules of transactions in public housing might be said to be aimed at fulfilling the PAP government’s social democratic promise to improve the living conditions of the citizens of the new island-nation through affordable housing.”

 

  • “The British colonial government did not establish a pension scheme in Singapore. In lieu, the first locally elected legislature instituted the CPF as a mandatory retirement savings fund. All wage earners must save a portion of the monthly wage with the CPF, with equal contributions from the employers. Beginning modestly with a 3 per cent contribution from both parties, the rate rose steadily to a peak of 25 per cent from each party in the early 1980s, keeping pace with the growing economy and rising income. The equal proportion rule was broken by the mid 1980s recession; employer’s contribution was reduced as a means of cutting labor cost. Since then, contribution rates have fluctuated according to the general health of the national economy, with the employer’s contribution progressively reduced for workers above 50 years of age to a marginal percentage for those above 60. As the CPF is an individual’s saving account, there is no collectivization and redistribution of national savings, regardless of whether one is able to fund one’s own retirement years.”

 

  • “Pre-retirement withdrawal of the CPF has been highly instrumental in Singapore’s national public housing program. Indeed, it is no exaggeration to say that every household tries to withdraw up to the maximum sum permitted out of its CPF account to pay for housing, not only to purchase the first flat but also to finance subsequent upgrading to a bigger flat. Two consequences followed: first is a tendency for over consumption of housing services and, second, due to maximizing pre-retirement withdrawal there is a depletion of CPF fund available for eventual retirement and old age (Asher, 1991).”

 

  • “Until the late 2000s, the government appeared to have managed the three issues raised by the economic review team. First, to prevent the declining values of old estates, it earmarked $15 billion for upgrading the quality of the housing units and the environment of older estates (Chua, 2003). Second, demand for resale flats has been kept high, as have their prices, by restrictively permitting immigrants who have acquired permanent resident status to purchase resale flats only. Finally, the HDB is not entirely without control over price fluctuations in the resale market. In the mid-1990s, it introduced a formula for pricing of new flats. They were to be sold at 20 per cent market discount from the prevailing resale price of equivalent flats. This formula arguably created a vicious cycle of price inflation in public housing flats. Rising resale prices causes prices for new flats to rise, which in turn caused resale prices to increase. Indeed, public housing homeowners generally believe that the value of their flats will always be supported by the government, as they understand the importance of public housing ownership to its legitimacy to rule. Empirically, after every short recession, including the 1997 Asian financial crisis, the peak values of resale flats reached have always exceeded the pre-recession peaks.”

 

  • “Three ‘gentler’ mechanisms have been introduced to enable the aged to ‘age-in-place’, i.e. without having to move out of their residences in retirement. First, a reverse mortgage scheme was introduced by a private bank and an insurance company, in which the leaseholder sells his/her flat to a bank or other financial institutions, for a lump sum which is converted into a monthly draw down until the length of the mortgage or death. This scheme, however, was unpopular and has been withdrawn. Second, there is a ‘lease-buy-back’ scheme introduced by the HDB. Upon retirement, a leaseholder can sell back all but 30 years of the remaining lease to the HDB for a monthly income, without having to vacate the flat. As the financial burden of this scheme is very high for the HDB, it is restricted to households with low income and those who live in the smallest of the sale flats. Third, regulations are relaxed for homeowners to sublet the entire flat. For retirees, who have alternative housing, such as living with married children, this provides a life stream of income and also enables him/her to bequeath the flat to his children, which appears to remain an important value among Chinese parents. With all these alternative ways for retirees to monetize their public housing flat as asset, the issue of retirement funding for flat owners may be said to be solved for the immediate and future term.”

 

  • “Until the early 2000s, the HDB built ahead of actual demand, on the basis of an estimate, in order to maintain a relatively short waiting queue for would-be homeowners. Small surplus of flats at any one time was a common practice. However, in 2002, the HDB found itself laden with 17 500 completed unsold flats (Lim, 2002a), with no prospect of fast sale. Demand for new flats from both new homeowners and resale-upgraders, which until then stood at 15 000–20 000 a year, seemed to have evaporated completely. This was ‘unprecedented in HDB’s 42-year old history’, when the problem had always that of ‘supply of new flats could not keep up with the demand’ (Lim, 2002b).”

 

  • “The cycle of buy/sell/repurchase of public housing flats slowed down [following recessions in the late 1990s and early 2000s], leaving the HDB with a large backlog of completed but unsold flats. Yet, the HDB was constrained in its ability to cut the prices of new flat prices to reduce its surplus holdings. Doing so would unavoidably bring down the prices of resale flats, hurting the assets of the existing homeowners. Indeed, the decline in resale prices was already creating ‘negative equity’ for existing homeowners who had brought their flats at the peak of the previous price cycle. The worst-case scenario would be a complete drying up of the resale market due HDB dumping new flats. This would potentially irreparably damage the asset-based social security system in which ownership of public housing is the central and critical asset.”

 

  • “The HDB, knowing that it is not powerless in moving the completed flats and certain that the surplus flats were a temporary phenomenon, decided to absorb the holding costs of the surplus flats and made changes to its supply strategy. It radically reduced new housing production. Construction of the largest, the five-room, flat was suspended, as by early 2004 10,000 such flats remained unsold (Kaur, 2004). On the other hand, responding to demand it resumed construction of three-room flats, after close to two decades of stopping production. This was likely to remain a long-term necessity as, like all developed economies, the low income groups for whom these smaller more substantially subsidized flats are reserved—households with monthly income below $3000—has been either stagnant or in real decline for two decades and unlikely to improve much in the near future (Table 2). More fundamentally, the HDB switched from building in advance of demand to build-to-order, adopting the private sector practice in which construction only begins when at least 70 per cent of the flats are presold, thus erasing the possibility of oversupply.”

 

  • “As expected, with the supply cut-off, the surplus was mopped up by late 2005. Prices of resale flats began to rise again and supply of new flats were not forthcoming. Prices began to take off and climbed steeply from 2007 until 2011, achieving peak values that surpassed previous peaks. By 2010, the public housing system began to face a different systemically generated problem of hyper inflation, making housing increasingly unaffordable to lower middle class and working class households, calling into question the government’s promise of affordability to all citizens.”

 

  • “In the midst of global recession in 2008, FDI were flowing into Singapore because of its very stable domestic social, political and economic condition. To capitalize on these flows, the government has had to import labor at a rapid rate to fill the employment gap created by the investments. From 2006 to 2008, the total FDI in Singapore grew from $370 to $496 billion. Correspondingly, the foreign migrant population in Singapore increased from 9.7 to 19 per cent, ranging from CEOs of multinationals to unskilled workers and domestic helpers. The population increased from below 4 million in 2005 to approximately 5.18 million in 2011, with the heaviest inflow in the last three of the seven years. An estimate of 3.8 million is Singapore residents, thus making one in four persons on the island a foreigner.”

 

  • “The massive inflow of immigrants inevitably stresses all public services, from school enrollment to transport, healthcare facilities and, of course, housing. There was an immediate severe shortage of housing. By the end of 2011, there were close to a million public housing units with an average household size of 3.5. Using this as base, there were 1.6 million additional people to be housed. The shortage is partially reflected and accommodated in an increase of household size to 4.4 by mid 2013 (Straits Times, 11 May 2013). Demand for public housing among citizens became acute by the end of the 2000s. Unfortunately, this was met with a shortage of supply due to the years of under production since 2002, when the HDB cleared an oversupply of more the 17,000 flats.”

 

  • “Prices for new flats also rose in tandem due to the 20 per cent market discount pricing formula. According to the HDB, in 2006, a new four-room flat located in new towns like Seng Kang would cost approximately between $132 000 to $210 000. In the third quarter of 2011, a new four-room flat in the same location would cost between $246 000 and $337 000. This was an average 70 per cent increase in prices, over the course of five years, against an average annual inflation rate of no more than 4 per cent during the same period. The issue of affordability was captured in one very rough and ready estimate by an ordinary citizen, ‘In 1981, I earned $800 plus as a fresh graduate. At that time, one of my colleagues bought a five-room HDB flat for $35 000. Now, a graduates’ pay has risen about four times but HDB flat prices have risen more than 11 times’ (Lee, C., 2011). The mismatch of housing price increase relative to income increase has caused widespread anxiety among the citizens, especially those who currently do not own a flat and for future generations.”

 

  • “Opposition political parties have called for changes to the ‘market discount’ pricing mechanism to bring down prices of new flats. For example, this could involve the pricing the new flats at ‘cost plus’ level, i.e. construction cost plus other costs incurred or pricing the new flats against median income of the population. However, as in early 2000, the government is constrained in bringing down prices of new flats as it will cause the prices of exiting flats to fall in tandem, causing unhappiness among the existing homeowners, the majority of the population. The political cost would be too high. Instead, it has tried to maintain affordability by providing very substantial ‘additional housing grants’ (up to $40 000 for the lowest income households with monthly income below $1500) to first time homeowners to offset the rising costs and by recalibrating and extending the mortgage period from what used to be 20–25 years to 30 years.”

 

  • “The minor changes did not pacify the electorate. Housing affordability became a critical issue in the April 2011 general election. Anger with immigration policy and affordability of housing was most emphatically expressed on the election-day. On 7 May, the electorate delivered its message. The PAP received 60 per cent of the popular votes cast and lost seven seats, the lowest it has received and the greatest it has lost, since 1959 … For a party that is in the habit of winning around 75 per cent of the popular vote cast and losing no more than two seats in every general election since 1968, this election result was a political ‘crisis’.”

 

  • “The election result is now considered a watershed by Singaporeans. It prompted the government to undertake immediately a series of more substantive changes in immigration and housing policies, among others. The annual growth of immigrant arrivals has been radically reduced from a high of 19 per cent in 2008 to 4.1 per cent in 2010. In housing, the most immediate and obvious effect was to increase the supply of housing units; the HDB reverted to construction in anticipation of demand, alongside the build-to-order scheme. New homeownership rules for permanent residents have been imposed; to be eligible for public housing, permanent residents are required to dispose of any properties they might hold outside the country, including those in their countries of origin. This is an extremely harsh rule that borders on irrationality but it certainly reduces housing demand. To reduce speculation, the down payment for second and third property purchases has been increased from 10 to 30 per cent, reducing radically the mortgage loans for such purchases. First-time buyers are counseled publicly to delay their purchase with the government promising to increase the supply of flats and also, to release more land for condominium construction by private developers; both aim at bringing down prices. Other minor measures include the requirement that existing homeowners must first sell their flat before being eligible to apply for a new flat. This will place the family in accommodation limbo while waiting with great uncertainty when it will be allocated the new flat.”

Shane Phillips 0:04
Hello, this is the UCLA Housing Voice Podcast, I'm Shane Phillips. Today's episode is a very special one to me. With Paavo as my co host, we're getting into the weeds of Singapore's public housing program with Professor Chua Beng Huat, an expert in the field and a former director of research for Singapore's Housing and Development Board. Singapore's public housing program is extremely well regarded in international circles. And if there's one thing you've heard about it, it's probably that 85% of its residents own their own public housing unit. The government is walking a constant tightrope, balancing the need to produce an adequate supply of affordable new housing, with demands to let housing prices rise, so that owners can build up their wealth and have enough resources to afford retirement. These competing goals are also demanded of governments in the US and Canada and elsewhere. But I can't think of a single place that tries to meet them both as faithfully and aggressively as Singapore does. They are always facing new challenges, of course, and their policies are always evolving in response. And we're going to spend a lot of this interview talking about what that looks like in practice. The lesson here is not that other places should adopt exactly the same policies as Singapore, and we will cover quite a few reasons that probably isn't feasible even if it were desirable but there is so much to learn and a lot of inspiration we can take from their example. This episode is longer than usual, but it is packed with history and insights from Professor Chua. The Housing Voice podcast is a production of the UCLA Lewis Center for Regional Policy Studies, and we receive production support from Claudia Bustamante and Olivia Arena. You can send me your feedback or show ideas at shanephillips@ucla.edu, and be sure to tell your friends about us if you'd like to show. Okay, onto the interview. I am very excited to introduce our guests for the second episode of our second season, Professor Chua Beng Huat. Professor Chua is in the Department of Sociology at the National University of Singapore and Yale and US college. And he's also the former director of research for the Housing and Development Board, which builds and manages the overwhelming majority of public housing and therefore the overwhelming majority of all housing in Singapore. While reading up on his background, I also learned that he didn't start out in sociology or urban studies, but actually studied biology and biochemistry during his undergraduate years, which is similar to my own background with a bachelor's in biochemistry. So the pipeline from biochemistry to urban planning is very real. Professor Chua, we are really thrilled to have you here to talk with us about Singapore's public housing program. Thank you so much for joining us.

Chua Beng Huat 2:56
Thank you for having me. I'm happy to actually have a chance to actually share the Singapore public housing program with a wider audience than those who specialize in Singapore itself.

Shane Phillips 3:10
We are very excited about that as well. My co-host of this time is Paavo, our international housing policy aficionado. Welcome, Paavo.

Paavo Monkkonen 3:18
Thanks, Shane, and welcome, Professor Chuer thanks again for for doing this. And good to see you again. We had some technical difficulties yesterday, and so some of this is a rehashing but it's super interesting stuff. So I look forward to the conversation.

Shane Phillips 3:33
Yeah, this is we had a bit of a dry run yesterday, when we talked for about 40 minutes before I realized I did not hit record and broke out into a profuse sweat, just overheated immediately out of shame. But the upside is we are going to have an even better interview this time around, and so I do want to say thank you, Professor Chiba for being so gracious agreed to speak yet again the next day. And we're going to start from scratch and do an hour and a half long interview here so we really, really do appreciate it.

Chua Beng Huat 3:33
No, I think it was a good trial run.

Shane Phillips 4:09
Okay, so we always start by asking our guests to give us a tour of their hometown or a place that's special to them. Paavo and I are very much looking forward to a tour of Singapore or some parts of it. What are some of the must sees for a couple of housing researchers like us if we were visiting Singapore?

Chua Beng Huat 4:26
Yeah, I think then for urban planners and then housing specialists, Singapore is actually a great place to visit. As you know, it's an island nation about 760 square kilometers at low tide, as the Prime Minister would say. And because of because of the size of the island, it is a thoroughly thoroughly planned city, every inch of the land is either already developed and or has It's already potential use being allocated. So the place to start will be at the Urban Redevelopment Authority, which actually has a 3D model of the entire island including planned future spaces and so on. And it's an extremely green island, because the greening of the country is intentional in the sense that is actually highly economically motivated, in that the first Prime Minister Lee Kuan Yew had thought of Singapore as an oasis in the region where globally mobile managers and business people would come to Singapore as sort of the green lung of the region, because the rapid development of the region see a lot of gridlock, cities and pollution and so on. So this will be the place not only to rest and recreation, but also the place to establish operational business center. So Singapore is actually a place of regional centers of a lot of multinational corporations. So it's highly planned and the place to visit of course, as I said, to start with the URA, Urban Redevelopment Authority, visually, the place is practically dominated by public housing. So you would have to visit an old public housing estate, and the most recent one, the most recent one is actually Pongo which is very well designed, it's because it's by the water so it incorporated the water element very well, and also is very up to date in high technology so it's being touted as the smart town, and where a lot of big data of daily usage is being gathered, and analyzed for climatic control and other kinds of usage. In fact, the government has been inviting high-tech companies to come and set up their operates their testing operation in Pongo because the big data will be made available to them. So that that's, that's really important. And of course, Singapore is known for its street food. So you have to go to what we call a hawker center, where is a gathering of food stalls; the richness of food is because we are multiracial society with a mix of Southeast Asian, Indian, Chinese, and Western cuisine. And, you know, the creativity of the local cooks in terms of hybrid food. So that, you know, there's that there's also fortunately, in the 1960s, the 60s and 70s, the urbanization of the entire island has bulldozed down a lot of existing settlements but fortunately, there's three different ethnic enclaves that has been preserved. There's a Chinatown, there is what is called a Little India, and then there's a Muslim Arab section, which has all 19-century housing shop houses that are being restored - it's in somewhat touristy, gentrified touristy, but it's worth looking at the historical, you know, architecture as such. And then, of course, there's the waterfront, which is where the colonial city started, and most of the new imperialist nations, and the buildings are still being used, adapted reused into museums and art galleries. And a new downtown, a new financial district, is being built adjacent to the old commercial town on reclaimed land. So I think those are the, you know, main highlights of two or three days yeah,

Shane Phillips 9:02
I think that would take a few days at least. Yeah, okay so the paper that we are discussing is in Housing Studies, and it's titled 'Navigating between limits: The future of public housing in Singapore'. Similar to our episode with Kathy O'Regan and season one, this isn't so much a study with a complicated methodology and regressions and so forth, as it is a history including an analysis of the politics and the policy behind Singapore's public housing program, and the very complex interests that the program is trying to balance. The paper is from way back in 2014, nearly a decade old at this point, but I first read it maybe three or four years ago, and it has really stuck with me more than anything else I've read on the subject. This article helped broaden my understanding of state-led public housing provision, both the strengths and the weaknesses of that approach. On the one hand, Singapore's political leadership has done a very effective job providing an affordable home to almost every citizen in the country, and one they're able to own and build wealth in. But on the other hand, this occurred in a political context that is, I think, pretty unimaginable here in the US. Planning and development is extremely centralized in Singapore, and that centralization can give us some really unique and valuable insights into how housing markets and housing policies interact. Those kinds of interactions are just really hard to observe in more decentralized contexts like those found in the US. Here in the US, we have multiple levels of government that aren't well coordinated, and that are often even at odds in terms of their goals. Plus, we have a lot of private actors, like banks and developers and landlords who exert a lot of influence as well. In Singapore, you have just one government that does really everything, not just what we have multiple tiers of government doing here, but also taking on a lot of the roles that are usually reserved for the private sector in other countries. Even if this isn't a system we could transplant into the US wholesale, and I don't think it is, we can learn a lot by watching the Singaporean government move different levers and try to balance the conflicting goals they have of housing affordability on the one hand, and wealth building through home value appreciation on the other. So that is why I think our audience should care about this topic, not that they probably need any convincing. But now let's talk about how Singapore's housing market works and how its public housing program works in particular. I'll start with a quote from the conclusion of the paper, you say, "Singapore's National Public Housing Program is one of the few success stories in universal provision of housing around the world. Tell us what that program has provided to Singapore residents, and give us sort of an overview of what the housing market looks like for them.

Chua Beng Huat 11:50
I think that the the success of the program depends on several elements. And one of which, as you have mentioned, is the single tier political system that we have, because it is a very small island, and the entire island is conceptualized as one single planning unit. So it's not divided into urban, suburban, and rural because we basically have no rural area at all.

Shane Phillips 12:20
Just so people can conceptualize this a little bit. Singapore's population is around 5.3 million people, and it's 60%, of the land area of just the city of Los Angeles. So, you know, imagine if the city of Los Angeles was its own country, and you're kind of on the path toward understanding sort of the setup here.

Chua Beng Huat 12:41
Yeah, right, so essentially, you know, it's thoroughly urbanized Island, and the efficiency of the planning actually is highly dependent on the fact that is a single-tier government. The ruling party has been governing Singapore since independence or before independence in 1959, which means it has been in power for 65 years which is, you know, from the outside, I mean, it's something that is quite unbelievable. So one needs to explain the longevity of this government, to a certain extent. And I think it's precisely because he has been in power for 65 years, and taken out, you know, a lot of decision unto itself rather than with wide consultation, and also the personality of the first prime minister, Lee Kuan Yew, who was Prime Minister for 30 years. I mean, all those elements combined, that result in Singapore constantly being addressed as an authoritarian state but it's an authoritarian state that is not conventionally one, when we think of authoritarian state, we tend to think of military-backed, violent, corrupt political systems. Whereas in Singapore, if you come to Singapore, for all of these so-called authoritarianism, you don't even see police on the street, let alone soldiers. So the system runs since the 1950s, there's always been periodic four to five years general elections so the government is legitimately elected by popular franchise, and in Singapore, voting is compulsory, rather than elective, you have to vote. So Election Day is always a public holiday so everyone has a chance to vote. So you're not deprived of the right to vote because you have to work or such things, it's a public nationality. And there are multiple political parties in competition, and the interesting thing is that there is always a minimum of about 30% of the electorate that voted against the People's Action Party. But this 30%, and at one point up to 40%, voted against the party, but the anti-political non-PAP votes doesn't appear in Parliament, because we do not have a proportional representation system. Otherwise, you will actually see that there are opposition's but because it is a British parliamentary system, in which 50% plus one wins the seat. So the result is that the government, you know, the PAP tends to win more than 60% of the seats, in spite of the fact that there is a 40% or 30 to 40% vote against it. That doesn't appear. So the parliament ends up being, you know, at least 60-70% PAP, sometimes is in fact greater than that. At certain point, it was complete monopoly in the parliamentary power, because none of the opposition party got voted in. So in that sense, I mean, the single party government actually has fairly high political legitimacy because of his popular vote. Now, part of the popularity, part of the popular political support electorally, is as a result of a very successful public housing program. Because if you look around the region, Singaporeans are the best housed people in all of Asia, or even beyond Asia. So property owning has a certain conservative political tendencies, home owners tend to vote status quo, if the status quo is working to their benefit, in terms of rising housing price, right, just to protect their private interests - the tendency will be to go for status quo rather than change.

Shane Phillips 17:09
Voter hypothesis is an international phenomenon, right?

Chua Beng Huat 17:13
So the housing system is, you know, in its ability to deliver housing, or homeownership up to you know, 85% of the population is actually fundamental to the electoral success of the government. Yeah,

Paavo Monkkonen 17:30
I mean, I was reflecting on the comparison to Mexico actually, because the the PRI, the Mexican ruling party for 70 years until the year 2000, was often called the perfect dictatorship, because it was democratically elected right. And then we'll maybe get into it, how they have a provident Fund, similar to Singapore and Mexico, but it hasn't been very successful. And the PRI wasn't very successful, kind of managing urban development and quality of life in the same way as as the Singaporean government was. So I think that that caveat about, you know, maintaining democratically elected authoritarianism. It works as long as you're running the country well, right.

Chua Beng Huat 18:08
Yeah, and actually, the irony is precisely that - because in order to stay in power, it actually had to be very responsive to demand, right, I may add, actually able to, you know, absorb the grievances from the ground and act accordingly. So one of the important quality of government, apart from single tier efficiency, it is an extremely non corrupt government, and that's really important because corruption is endemic in most post-colonial societies. So it actually stands out. So for all of those reasons, in spite of the sort of, you know, question of his authoritarianism, it doesn't get a lot of flack from internationally for being authoritarian.

Shane Phillips 19:01
Right, yeah, it's not treated like I think the word was a pariah state. Yeah. What does that lead to on the housing side? You mentioned an 85%, homeownership rate, that's basically all public housing right.

Chua Beng Huat 19:14
Right, so the housing situation is that the ability to provide public housing depends on two very important elements. First is the availability of inexpensive land. If the state has to pay market value for land, it will not be possible to build public housing at that scale. Secondly, is an efficient mortgage system that is available readily for homeowners. So the Singapore government owns 90% of the land in the country through three different processes. First, at the point of independence, the British colonial government transferred all its land holdings to the independent Singapore government, so it inherited what is called Crown land. Secondly, as I mentioned before, there's been extensive reclamation of the coast since the 1970s, including the amalgamation of various of small islands into larger pieces of land. And thirdly, through a very draconian land acquisition policy in which the government is empowered to acquire any piece of land that it deems essential or necessary to national development purposes. And the compensation rate is determined by the statue or market, whichever is lower. So through the 1970s, land has been acquired extremely low prices, as low as 50 cents for a square foot.

Shane Phillips 20:59
Wow.

Chua Beng Huat 20:59
So land is available inexpensively, and secondly, the mortgage system is the really unique system, several country have tried to develop the same scheme but actually never succeeded, and this is called the central Provident Fund. The British government did not develop a national pension, as a colonial government, it didn't really care too much about the future of the British subjects. So just before independence, we develop what is called a central Provident Fund, which is effectively a Social Security saving system. Every wage earner in Singapore must compulsorily save a certain percentage of their monthly income with the Central Bank as the central Provident Fund, it is extracted at the employment source. So employers contributes either equal or less a proportion of the savings. So it started modestly at about 5% savings monthly but as the economy expand and wealth increase, the savings rate also increase in tandem, as a way of withdrawing cash out of the market to control inflation.

Shane Phillips 22:22
And this was the mandatory rate increased, it wasn't just that people chose to save more it was that they were required to.

Chua Beng Huat 22:30
Yeah, it's compulsory. If you're self employed, you have the option to either save or not. But most of employees do actually set up a system, because it's tax exempt. So effectively, and you know, at the point of withdrawal, there's no gains tax either. So there's a certain very high advantage, even though he's paying like only 4% interest. In fact, the interest rate is a lot higher, even its tax exempt status, right. So by 1984, the savings rate was 25%, from the worker, and 25% from the employer. So this is a huge amount of savings where you cannot touch until retirement at 55 years old at the time. And actually, it also becomes a very large sum of money for the government to handle because, you know, I mean, you can imagine monthly is a huge accumulation of the hundreds of thousands of workers, everyone contributing 50% The management of that sum is phenomenal, right?

Shane Phillips 23:43
And you don't want to just put it under the mattress or just, you know, let it sit there. You want to do something with it while it's sitting there.

Chua Beng Huat 23:50
No institution can actually handle that amount of money, actually. So one way was to allow the Singaporeans to make pre-retirement withdrawals of that 65% of that savings, to pay for their housing, to pay for public housing as down payment and as a mandatory mortgage payment. So if you're buying a public housing flat, right, the public housing authority, the Housing and Development Board, carries the mortgage and the CPF pays to the Housing Board directly on your behalf so you own a public housing flat in a very cashless manner because you don't even have to write a check for your mortgage because it's between those two government institutions.

Shane Phillips 24:47
There's no bank involved.

Chua Beng Huat 24:49
Yeah, so there's no commercial financial institution involved in the mortgage system. The mortgage is completely handled by those two institutions. And because it's cashless, and it doesn't affect the consumption, the routine consumption level of the citizens themselves. Many Singaporeans actually do not know how much they pay for their housing, because they don't see a monthly statement.

Shane Phillips 25:19
I'm curious, actually, I can understand the logic behind letting people draw from their retirement account early for like a down payment for a home. Because you know, you're making a return on that investment, and it allows you to buy it earlier. What's the logic for allowing people to make their mortgage payments out of the CPF as well? Because that doesn't seem like the same. Like why not just have people pay out of their paychecks and let them or require them to keep the money the other money in their CPF so that the government can do other things with it so that it's earning the, you know, 4% interest rate? Why do both of them rather than just the down payment?

Chua Beng Huat 26:00
Two things, one is that if the citizens have to pay out of their pocket monthly for their mortgage, then the wage level would have to go up by a lot. And Singapore's competitiveness is actually at the wage level also.

Shane Phillips 26:16
Okay, so I do think that is important. That is really important context that like, yeah, and that's part of why this asset building through the home is so important, not just to make up for the lack of a pension system, like social security, like a guaranteed income system, like social security here in the US, but also to make up for having these low wages, which they want to preserve to remain economically competitive in their revisit.

Chua Beng Huat 26:42
Exactly, so wages would have to go up and at the same time, the National Reserve Accumulation through the CPF, will balloon out to the point where is quite unmanageable.

Shane Phillips 26:58
So they actually want the money flowing out, it's just too much

Chua Beng Huat 27:00
Exactly they want the money to come out at the same time, right, and already, even under that system, the CPF accumulation is transferred to the government in terms of bonds - the government sells security bonds to the CPF to use up that money. And the money that is accumulated through the CPF, part of it is used to precisely fund the housing program and infrastructure development within the country. So Singapore is one of the unique sort of post-colonial society that has no international debt. All the development is self-financed, with the government borrowing money from the people, rather than external agencies.

Shane Phillips 27:00
And was that was that always the case? I mean, I think it's fascinating. Like, I know, Japan had a postal savings bank that they used, you know, people's savings to do big development projects and gave the people a return on their investments. Was the CPF always split in that way, where the money was also used for other projects?

Chua Beng Huat 28:03
So the money is used both for national for internal development, but even that can use up the money. So the money is now in, in sort of government sovereign wealth fund called the Government Investment Corporation, which actually invest in long term equities, and also in international money market.

Shane Phillips 28:26
Interesting.

Chua Beng Huat 28:26
So the return that is gained from the investment of the Government Investment Corporation is what pays the interest to the citizens.

Shane Phillips 28:37
That's makes sense.

Chua Beng Huat 28:39
So yeah, so part of the national wealth build-up is from the collection.

Paavo Monkkonen 28:48
Was it chiefly a way to prevent inflation or once this fund started growing, do you think the government also like the investment part?

Chua Beng Huat 28:58
The CPF now does a whole number of things. First of all, is housing right then a certain portion now is saved as a medical savings fund for hospitalization purposes, and at least a small part of it has to be retained as retirement fund. So that is not completely depleted in use. So given that the land then the cost of housing can be controlled. Given the efficiency peer mortgage arrangement, the homeownership rate went up from like 14% in early 60s to 70% in 70s. By middle 80s, 85% of the people who lived in public housing holds a 99 year lease. Now, I need to explain what is the 99 year lease. In effect, the reason why is a lease is because the land is state-owner so you buy a flat you don't own the land, right. And the lease, as in all lease, lease is actually effectively a rent but in a long 99 year lease, you pay the 99 year lease at one go at the point of purchase, and so it becomes like a mortgage system that you're buying a house where you pay, you know, the price of the house, and then you progressively pay as you go after that.

Shane Phillips 30:29
Just so I'm clear, it's sort of your down payment, you could call it, but maybe that's not the right word. You buy the 99 year lease, you pay the full price of it, but your mortgage is not related to the lease exactly, it's what's actually paying for the unit itself. Is that correct?

Chua Beng Huat 30:48
Yes so what happens is if you buy the 99 year lease, right, there's an upfront payment of 10% or 20% depending on the contract, and then the rest is mortgaged.

Shane Phillips 31:01
Okay, so it is combined. In my head, it was like the 99 year lease in the unit, they are inseparable, basically, and so it's just one price for all of it. So you're paying 10% down, and then the mortgage is paying the rest over time. Okay.

Chua Beng Huat 31:16
And with a 99 year lease, with this particular arrangement, the buyer of the 99 year lease effectively has all the rights of a owner of the flat, owner of the property. So even though its lease is actually equivalent to ownership, right?

It's just not permanent.

Yeah, you have the right of use, you are free to use, you're free to sell.

Paavo Monkkonen 31:43
And at year 100, do you have to repurchase, what will be the price at year 100?

Chua Beng Huat 31:51
We don't know yet because no flats have reached 99 year point

Paavo Monkkonen 31:57
Is there not contractual language, is that TBD once that comes up or is there a plan for what happens?

Chua Beng Huat 32:03
So now, that's a political issue that is being deferred, it has started to come out, because the oldest housing flat is now about 50 years old, but some of them has passed the midpoint of 99 years. So it's going to be an issue that will come up, and currently, there's still a long runway to figure out how to patch. It is an issue in the backburner at this point right.

Shane Phillips 32:35
And we will come back, we'll discuss a little bit more about how the lease is monetized and how people sell it., and as the time is running out, all those kinds of things, but you wanted to introduce this to explain a bigger concept right?

Chua Beng Huat 32:51
So effectively, locally, it's all known as homeownership rather than lease holding. And in fact, because the government owns all the land, 90% of the land, new development by private developers effectively are also on 99 years because they buy land from the government on an 99 year lease. So in Singapore, when you refer to a private condominium, they are also 99-year lease condominiums rather than freehold. The 10 to 12% ownership in perpetuity of the land, it is now so expensive, that unless your parents or grandparents have actually bought the land pre 1960s up to 1980s, you are not able to actually and if you're a wage earner, it is unlikely you will ever own a house on the ground right in perpetuity.

Paavo Monkkonen 33:52
Yeah, it's fascinating how this system from the British Royals has, through Hong Kong also, gone all of mainland China, right is is 99 year leasehold properties as well.

Chua Beng Huat 34:04
Yeah, and Hong Kong, the Hong Kong government technically owns the entire the land on an entire island. And they also sell land for housing. But the Hong Kong government derive its annual revenue from land sale, right. So they allow the private sector to capitalize on the real estate market rather than use the land to build public housing and control the sales of housing.

Shane Phillips 34:33
Well, they have a very big incentive for land prices to keep going up because they sell them...

Chua Beng Huat 34:38
Because that's where their money comes from. And as a result, the real estate market in Hong Kong is highly controlled by six or seven very big developers who have a huge amount of political influence on urban development decisions.

Shane Phillips 34:54
Well, if we can, let's get into a little more of the details of how this all works. So, you know, the housing and development board or HDB, they build the homes, Singapore residents are able to draw from their mandatory savings in the Central Provident Fund or CPF, to purchase these 99-year leaseholds, and also pay those off over time with their mortgage. The money is all, what you, you know called, a closed loop within the government, basically. But I think we'd love to hear more about just this process, especially the home building and everything. So I guess I can start off here first, how does HDB decide how many new flats to build in a given year, how many rooms each unit will have, how they'll be priced? You know, we mostly leave this all to the market here in the US. And that approach, of course, has its own flaws but it seems challenging to reliably forecast these future needs, and you know, if the HDB fails at this, there's no one else there to pick up the slack right.

Chua Beng Huat 35:59
Yeah, actually, it is in some ways, a very difficult operation. The flats out for sale ranges from two bedrooms, sitting room and kitchen are given, right, so when we talk about rooms, so there's two bedrooms, three bedrooms...

Shane Phillips 36:19
So there's no one bedrooms, much less studios?

Chua Beng Huat 36:25
No.I'll come to that. So normally, that's that right. Now, those are for sale, then there is a rental flat, because you know, there is a very low income level aging singles. Currently there's about 1.1 million public housing flats, of which about 60,000 rental flats, and rental flats are the smallest flats available - one room, or two rooms, meaning one room, one bedroom, one sitting room kitchen given right. So the smallest room are actually largely for rental. But now with an aging society, families who are empty nest families are encouraged to actually downgrade from their large flat to two room new flats because it's empty nest, right, so just one way of conserving land, is to encourage those empty nest families to actually downgrade to a smaller space with a much shorter lease. They don't have to buy 99 years, they can buy from 30 to 45 years, which means the buy-in costs has been severely reduced to make it affordable. And so that was part of the retirement plan, we'll come to that. Okay, so we have three- room four-room, and five room flats, basically, what is the quantum to be built every year is a really tricky question, and HDB doesn't always get it right. Because in the past up to 2000, somewhere around 2005 or so, the HDB builds in advance of demand, they project the demand from past trends, and they will, you know, build up in expecting the market the demand to be there. But in 2005, because of some economic downturn, they were stuck with a surplus of about 100,000 flats to be to get rid of quickly.

Shane Phillips 38:32
That's a lot when there were probably less than a million total flats in existence.

Chua Beng Huat 38:36
So they need to sell that quickly, especially the high end ones was hard to get rid of. So as a result of that, they have switched the building program to what is now build on demand, or build to order - they will announce a release of the number of flats to be built but construction will not start until 70% has been pre-sold.

Shane Phillips 39:02
And so rather than having this problem where you might have overbuilt and that might you know the prices might fall. Instead, you have the opposite problem where you might have these long waiting lists and demand might shoot up faster than expected and prices will go up quickly. So it's sort of one or the other and trying to get right in that sweet spot.

Chua Beng Huat 39:23
And part of the bill to order is precisely the length of waiting time because there's no surplus that's waiting for you right.

Shane Phillips 39:33
I'm curious, you know, we've talked about the the 85% of people, of citizens and permanent residents who own homes, who is leftover and in particular, what does life look like and what does the housing situation look like for low income Singapore, residents?

Chua Beng Huat 39:50
No, that's a really important issue. As I said there are about 60,000 rental units, those 60,000 is actually will be like the real poor of the success story of Singapore, right? I mean, Singapore's projection to the world is this, you know, poster boy of Global Capitalism. Those 60,000 made up of two categories of people - one is aging singles, early migrant migrants into Singapore in the 50s, who are now in, you know, 80s or 70s and 80s, who never married who are single, they are in rental flats, and they have they have to share with another single person in a one-room flat. The second category are low educated, single mother with children - their ability to earn income is very low. During the age, they are no longer economically able to earn income, the single mother with children have difficulty in earning income. Now, of course, you know, families who are poor with children. So essentially, the 60,000 household is put in a clear category. The rent is extremely low, rent can be as low as 25 or 40 dollars Singapore a month, which is about 30 USD. And even at the low rent level, there is still a lot of arrears. There are still some families who owe you know, up to, but they will never be kicked out.

Shane Phillips 41:30
Is there a homeless population? Not even with migrant workers?

Chua Beng Huat 41:35
No. Migrant workers actually will never be harmed because the employers have to be responsible for their accomodation. So in a kind of census of homeless people, there's about about 1000, people who slept in the rough. And among those, not everyone is homeless, some actually escaped from home, you know, just didn't want to be because they have to share sometimes they can't get along, they just stay outside. And sometimes, the weather in Singapore, as you know, is tropical, it's probably sometimes cooler to sleep outside than to sleep in a very enclosed small space. Some sleep close to their workplace, because they got to get up early in the morning. So homelessness is not a problem, because the government keeps give them shelter at a very low cost, and even for free effectively.

Shane Phillips 42:38
In terms of the construction, these are high rise buildings 15,20,30 I don't know, 50-storeys tall, very large buildings. Yeah, and in the US, that's certain, as I'm sure it is there, in terms of construction costs per square foot, that's the most expensive housing you can build. You explained how, you know, at least land costs are very low in Singapore. That makes sense. But how do you provide all of these homes, you know, in these high rises at relatively affordable prices? Like, is it standardization where there's just a lot of building the same things, and the construction workers are very familiar with this? Or, you know, are the contractors, government employees, or there's all private and the HDB, just, you know, gives them the contract to build? How does all that stuff work?

Chua Beng Huat 43:25
Okay, so, essentially, the HDB's main job is actually in sort of land use planning of the entire town. The HDB, itself, used to have a fairly extensive architectural section, where the designs of the building are actually made. It still has that to some extent, but some of the architectural work is now outsourced in order to also provide opportunities for local architectural firms to work. All construction costs are by private companies, the HDB doesn't build because he doesn't want to deal with a labor problem, which is massive, right?

Shane Phillips 44:10
What do you mean by the Labor problem?

Chua Beng Huat 44:12
When you when you have are building 25,000 units of housing, the construction labor, that site that, you know, the management of the actual building process is way too much trouble for the for the bureaucracy to handle.

Paavo Monkkonen 44:31
Are the workers often foreign workers?

Chua Beng Huat 44:34
So a lot of construction workers are actually foreign workers? because Singapore has been short of labor since the middle 1970s. So we've been importing, you know, foreign laborers from the region for a long time, I mean, since the 1970s. And currently, most construction workers are South Asian.

Paavo Monkkonen 44:56
And this is like a guest worker program?

Chua Beng Huat 44:59
Yes, they are migrant workers. They come in with fixed term contracts, two years renewable, some of them have stayed on 20 years, but they will never acquire citizen rights. That is one of the moral problems of the country - foreign workers basically even live in ghettos of you know.

Paavo Monkkonen 45:26
Yeah, that was something that struck me when I when I visited Singapore was, you know, walking around the city at night and you do you do bump into vibrant Neighborhoods, but then I realized, I think most of the people in those neighborhoods were not Singaporean citizens.

Shane Phillips 45:39
And just for for my understanding, here are when we say 85% of, are we talking 85% of citizens are homeowners or 85%. of residents of all kinds. I'm guessing it's the former,

Chua Beng Huat 45:53
No, it's citizens plus permanent residents, okay.

Shane Phillips 45:57
Okay, okay.

Chua Beng Huat 45:59
But these guest workers, they live in dormitories, and they are not allowed to bring their families. So they're essentially single person come and work on contract, right. And partly because of the cost of foreign labor is so low that actually the low end wage earners in Singapore, wages has been suppressed artificially because you know, you can always get foreign laborers to do the job. So the low wage in Singapore for low end workers is really quite, it's a political problem right now. But in any way, the construction work is always done by private company with essentially foreign labor force right. So the HDB really doesn't want to have that headache, it's always completely avoided from the start. Now, for a period, I think, increasingly, because of material costs, and so on, there's increasingly prefabricated buildings, components are actually prefabricated on site, and then assemble. So that's cost efficiency kind of issue but the architectural design has become highly varied, as opposed to the early 60s and 70s, where they are very simple slept blocks, cookie cutter kind of block, I mean, it looks practically like Eastern European housing estate if you look at the 1970, pre-1980. But now it's becoming more and more complex, and more architecturally fanciful, so to speak. So what happens is that each successive generation, our public housing actually improved over the past generation. So the public housing quality has been improving all the time. And this pushes the private sector to also compete in quality, especially since they have to sell at a much higher price. Right. So on the whole, the quality of public housing is very good. Now the HDB is beginning to tear down the flats that they built in the early 60s, to the late 70s. A lot of those while a lot of those earliest states were built closer to the city so the land value has improved a lot tremendously so they are demolishing those in order to intensify usage.

Paavo Monkkonen 48:37
Are those buildings more in the like 10 to 15 storey range...

Chua Beng Huat 48:41
Yeah, usually they are no more than 14-16 story, now they're building 40 stories in you know, adjacent locations to relocate the ones that are being demolished.

Paavo Monkkonen 48:54
Something that stuck out to me you in your article was about how the new flats are much less expensive in many cases than the older flats and part of it is location, and part of it's because the resale market is different from the new flat market. Maybe you could talk a little bit about the the what is it, buy-sell-repurchase scheme.

Chua Beng Huat 49:15
Yeah, so okay, I'll come to that. The pricing of HDB flat is actually pricing of new flat is actually unknown to public. We don't actually know how it is priced.

Shane Phillips 49:31
So I was going to ask if if the price if the units are sold at cost or if they're sold at a loss or if there's a profit, it's just not known outside of the government.

Chua Beng Huat 49:40
It is not known.

Shane Phillips 49:44
Are there educated guesses about whether they're losing or making money?

Chua Beng Huat 49:48
No actually, it's is almost impossible. And it's actually sometimest, here are some opposition politicians actually claimed that the HDB is actually profit-making rather than subsidizing because new flat prices have been going up along with market development. So a flat, equivalent size flat in the 80s, is probably 50% of what it is now, at the point of sale. Where we can see a subsidy is that the fact that the government provides a grant and loan to the HDB of up to 1.5 billion every year, and that's not recovered. So there is an operational cost subsidy for sure which means that the system is not generating, recovering the total costs,

Shane Phillips 50:40
How many units are being built in a given year? I'm like trying to divide the 1.5 billion by units to see, you know, per unit subsidy roughly.

Chua Beng Huat 50:49
It varies depending on the demand, so currently, because of COVID, there's a slow down of construction,

Shane Phillips 50:58
How about on average over the past seven years or something like that?

Chua Beng Huat 51:02
On average, HDB will build about 20,000 units a year. But there was a period where they build a lot less than that, which creates a lot of pressure, right? So again, I mean, the number of units to be built, is continuously adjusted, depending on demand, and so on right. So the owner of a 99-year lease can sell the lease to another family who is eligible to purchase. So that flat is what we now call resale flat. And the resale flat generally has a much higher value than a new flat for three reasons. One is that it is locationally much better closer to the city because they are older, because new housing estates tend to be further and further out from the center so there is a locational advantage. Secondly, in a fully developed estate, all the social amenities like polyclinics, schools, public transportation nodes, have shopping facilities, including like industry opportunity, employment opportunity are in place, you know, so all those social amenities are in place. And thirdly, if you buy a resale flat, you skip the long three to five-year waiting period for your flat. So the old flat fetches a higher value than the new flat, and the owner of the lease in selling the flat gets to keep the capital gains, they can then turn around and buy a second new flat when they do that about 6 to 10% of their capital gains is extracted as a levy for HDB. So you get two chances to actually buy subsidized flat.

Paavo Monkkonen 53:02
And that's two chances in your lifetime?

Chua Beng Huat 53:04
Yes, the third flat will have to be in up in the resale market.

Shane Phillips 53:08
And you have to wait five years to sell after buying a new flat, right?

Chua Beng Huat 53:12
Yeah, no, there's a base minimum rent residential period where you have to live in it for five years before you can sell right? So what happens is that the public subsidized flat has becomes a vehicle of private accumulation of capital, which is politically morally problematic, because in the early 1970s, you have to sell the flat back to the HDB rather than in the private market and collect capital gains

Paavo Monkkonen 53:43
In the Hong Kong public ownership sector, you know, within the first 10 years, I think you have to sell it to the to the government. And then even after that, you have to split the capital gains with the government.

Chua Beng Huat 53:54
So you can see right, the popularity of the system is that...

Paavo Monkkonen 53:58
Politically popular? Free money - nobody exactly hates that.

Shane Phillips 54:04
But they do hate when you take it away when you try to reform this system.

Chua Beng Huat 54:08
Yeah, so exactly. So you know, public housing prices have been increasing for the last 30 years without serious disruption. So practically, capital gains on property has been highly democratized, so to speak, right, because everybody has the opportunity to make gains.

Paavo Monkkonen 54:32
Yeah, I wanted to ask you in this in this moment about this research, I read by Dr. Sin from Singapore, I don't know if you know him about the ethnic quota system, how big of a deal is the ethnic quota system and maybe you could just describe how that works?

Chua Beng Huat 54:46
Okay, since the population is practically dependent on the HDB for housing, because unless you are, you know, among the top 10% income, right. The housing policy becomes the place in which the government actually impose other social policies. You see what I mean? So the subpar housing becomes a carrier of other public house other social policies, such as the ethnic quota policy you're talking about.

Shane Phillips 55:18
I think that's something we see in the US to an extent to where you're trying to use housing to solve many other problems beyond housing itself.

Chua Beng Huat 55:26
Yeah, so what happened is that by the 1980s, the government observed that the Malay population tends to congregate into two or three specific housing estates. So in the government's terms, a racial or ethnic enclave is beginning to be formed, and it got nervous about that - it has all kinds of imagine political consequences, like racial tension and all that stuff. So it decided to regulate the redistribution, essentially actually of the Malay population. And so it introduces so-called ethnic order policy, because the Singapore demographically is ethnically about 75%, Chinese, about 15%, Malay, and 8 or 10%, Indians - those are the three major populations. So each block now has a quota, approximately the same proportion as the national level demographic.

Shane Phillips 56:36
And what is a block, is that a single building, is that a group of buildings ?

Chua Beng Huat 56:41
That's a block of building' every every block of building, not just your estate, but every block of building has an ethnic quota approximately ...

Shane Phillips 56:52
Yeah, and an estate is like a, like a town.

Paavo Monkkonen 56:56
many blocks yeah

Shane Phillips 56:59
Because when I hear an estate, I think of an individual building but it's a different definition in Singapore yeah it's a neighborhood

Chua Beng Huat 57:02
An estate is actually a town if it's big enough. So the ethnic quota, essentially is an attempt to redistribute, largely the minority population because you cannot avoid a Chinese majority with 75% of the population Chinese. There cannot be Chinese ethnical conclave right, we are an enclave everywhere. So that creates certain hardship, because once the ethnic quota is filled, say you are a Malay family and you trying to sell a flat, but the number of you know, slots for Malaysia are already feel, you actually have to sell it to another Malay person. So which means you restrict our market severely if you are a minority. That has become a political issue. So what the HDB now says is that if a minority, a Malay family tries to sell a flat at a certain market level, and they cannot succeed in two years, the HDB will buy it from them at that market rate.

Paavo Monkkonen 58:16
Interesting, yeah, I mean, I use it in a class because I think it's such a fascinating example of kind of, you know, the goal of integrating neighborhoods is a good one but then when it's taken to this extreme, I think it's a little bit negative consequences.

Chua Beng Huat 58:35
Yes, yes.

Shane Phillips 58:35
Just for the sake of moving on, we have so many questions here. We've introduced this idea of the 99 year, leasehold, but I'd love to talk about them in a little more detail. You know, I think the leasehold system, it makes sense to me as a way to avoid concentration of wealth for one thing. You know, without that people would buy homes, they would pass them on to their children sort of indefinitely, but the children would already own their own homes in this system. And so it's just sort of accumulating, and it almost like, can't continue, because every household is going to own multiple homes, and that just doesn't work mathematically. I'd be interested to hear you talk about, you know, an important part of this because the homes are the major retirement asset for the aging population, the different strategies that the Singapore government has used to try to allow people to monetize their home because they get in this situation where they are house rich, but cash poor, and they can't just sell their home and live off that money because they have to live somewhere. And mostly, it's all ownership housing so how have they tried to address that problem for folks?

Chua Beng Huat 59:48
Yeah, so you can imagine if you monopolize housing provision, you know, it becomes your responsibility for everything right? Yeah, so you imagine the HDB has encouraged and the governor has encouraged the entire nation to invest in public housing, they now have to be responsible of how to monetize the asset for the retirement years because a large chunk of your social Security is now tied up in the bricks right in the flat. So the simplest thing is to say, okay, sell your big flat move down, we provide, we build smaller flats for you so you can sell sell your flats, keep the capital, use that as your retirement fund. That is a simpler solution. Most people are not willing to do that. So what the government has done is allow the leaseholders to actually become landlords, which again, is politically problematic, because now ...

Paavo Monkkonen 1:00:52
It's a nation of homeowners so how can there be a landlord

Chua Beng Huat 1:00:56
So what happens is that if an empty nest set of parents is able to move in with their children, they are allowed to keep the flat and rent out the entire flat for a live stream of income. So their monthly income is guaranteed, retirement Income is guaranteed through the rent they can collect. That's that right?

Shane Phillips 1:01:19
Right, you can see though how, how it breaks down. It's just you can't have 85% homeownership when people are becoming landlords.

Chua Beng Huat 1:01:32
The third possibility, there is a reverse mortgage that is always a possibility but it's very unpopular. Because two things, one is the inheritance question. Parents still would like to think that they should leave something back for their children. So the lease is inheritable okay. If, you know, the parent passed away after 60 years, the remaining 39 years can be inherited by the children, right. But more interesting is to say that, assuming you bought about 32 years old, and by the time you retire as say, 65, you've only used up something like 30 over years of your flat, you still have about 60 years of lease left. Assuming you live up to 100, you will have somewhere around 30 years of least unused, the HDB will now buy those 30 years of lease from you at market value and translate that sum into an annuity system that gives you a monthly income. So you can age in place a lump sum upfront and monthly income to age 100 or 95.

Paavo Monkkonen 1:02:45
Yeah, I mean, it's a great model, but it seems very much like a reverse mortgage just kind of with more straightforward terms. Let's not call it a reverse mortgage but it's basically we're paying you to get this when you pass away.

Chua Beng Huat 1:02:58
The difference is in reverse mortgage, you kind of have to decide when you might die. In this case, you don't have to, you see what I mean.

Right, right. You can keep living there. Yeah, so there are ways of realizing asset in terms of funding retirement, right. I mean, there's different modes; one is to sell the ads to rent, another is to sell part of your or unused lease back to the government. But the most advantageous is to actually have the old flat demolished and be given a new flat, the old flat is compensated fully at market value, be given priority of a new flat to have at least start from year 0.

Paavo Monkkonen 1:03:46
Wow. Okay,

Shane Phillips 1:03:48
So like having your home being displaced and having your home demolished is like winning the lottery.

Chua Beng Huat 1:03:53
Exactly. Okay, so the new flat is almost always in right in the neighborhood where your housing is being demolished. You move maybe 200 meters, 250 meters, but because the old flats are low rise relatively, ou know, 10 to 12 storey, the new flats are 40 storey high. So you can demolish a whole section, you know, several blocks and just house them in one new tall building.

Shane Phillips 1:04:21
Right.

Chua Beng Huat 1:04:22
And so, it's an absolutely windfall, and everyone is hoping that their old flat will be declared for the renovation. So you see, the HDB has to keep thinking of ways to actually for the investment to be realized for retirement needs, because it has become an asset-based retirement system.

Shane Phillips 1:04:47
Singapore seems to be a very self consciously capitalist country, I hope that's fair to say

Yes

The housing market is basically a managed economy and for the most valuable asset in most peoples' lives. Because of that the public housing program seems to put the government in in a precarious position, and we've kind of touched on this a little bit. But you know, if they build too much prices of existing housing may fall, homeowners will be angry, because they're now less wealthy. But if too few homes are built, then there'll be longer waitlists and prices on the private market might shoot up too quickly, and that could also affect the cost of building new housing and make it more expensive for first-time buyers. And if there's economic growth, halts or slows, you know, there's all kinds of problems that can come from that. Tell us more about this tightrope that needs to be walked by the government - constant vigilance of both supply and demand just seems so difficult to achieve, and if it's going to be managed by public agencies, it seems like it might only be possible where you have the kind of centralized and single government control that you have in Singapore. So what do you think about that?

Chua Beng Huat 1:05:54
Yeah, so I mean, the HDB, started in 1960, right, so we have about 60 years, and this program has been running for 60 years, the policies changes at different times. The policy has to keep changing to accommodate emerging issues. Like now with the aging population, the need to think about how to monetize assets. So the HDB population is not monolithic, so you have to think about different age groups and different demands. So given an aging population, the need for big flats, actually is declining, the needle smaller flats has increased, right, the need to realize capital for retirement has become a serious demand. But it's impossible to reform the entire system. So what happens is like it will have an operating system, you need to continuously develop patches whenever something arises. And when the patch doesn't work, it becomes a political issue, and not just a housing issue because the housing system is so closely identified with the government right? So on the one hand, the government derive legitimacy from his successful provision but at the same time, the government is also the complaint bureau. And so all issues of public housing ends up being directed at the government, and it shows up at the ballot box. So this is where I think, you know, the idea that in spite of its single-party dominant government, it's electorally sensitive. So for example, in 2011, when we have a huge influx of migrant workers, housing prices went up to much because in the previous five years, the construction level was not adequate so prices went up. So the government in 2011 election actually suffered the highest loss of popular vote of 40%, and lose the largest number of seats in the election. So immediately, after the election, the Minister of National Development who's responsible for HDB was changed. In fact, he was retired off from politics. And the new guys come in, changes a whole set of rules to, you know, immediately intensify production, bring it up to 25,000 units every year, provide more cash grants to first-time buyers to get into the system.

Shane Phillips 1:08:37
It highlights how used to success the People's Action Party is that like, only getting 60% of the vote is considered a political threa, they have to respond rapidly,

Chua Beng Huat 1:08:47
And they lose 10 seats, and it was like they can't handle that. And so they increase the grant, and the grant is very interesting, because the grant supposedly help newcomers to buy flat, but in fact, also keep existing prices steady.

Paavo Monkkonen 1:09:04
Makes everyone happy. But I mean, to me, the striking thing was how responsive the government was to the unaffordability of housing. I mean, that's something you know, in the US, we have this mantra of keeping housing prices high because the powerful people own houses right. And I think it's taking a while for us to try to reorient policies to make housing more affordable, but it seems like in Singapore that happened pretty quickly.

Chua Beng Huat 1:09:31
Yeah, because I mean, it immediately will show up at the ballot box and the government being so you know, intending to keep ruling forever right, actually responds very quickly. So it is a constant tight rope, and this question of, as you as you mentioned earlier, if you keep building there will be access flats. So, the HDB is aware of this, and therefore cannot actually continuously build new flats for new demand. They have to actually encourage buying of resale flats, right, even though that is higher cost so a lot of that is done through cash grant systems. And so like, it's a total responsibility of housing needs, and also, you know, because the retirement fund is tied into the, into the ownership, it becomes a management system that is beyond housing. It's almost foucaldian you know,

Shane Phillips 1:10:30
The analogy that came to mind for me when I was reading about this was the Federal Reserve here in the US where they have this dual mandate. And it's a dual mandate to maintain, "full employment as much employment as they can, but also keep inflation at around 2%", and these goals are directly in conflict in some ways. And sometimes, to keep inflation low, you have to raise unemployment, at least, you know, given the tools available to the Federal Reserve, and the HDB. And then the Singapore government has this housing policy to achieve similar but they're trying to balance these two things. And it's just, you never get it perfectly right, and you're always just trying to balance them.

Chua Beng Huat 1:11:11
Not only you cannot get it perfectly right, it's like the system keep generating its own contradictions, as you keep trying to solve one problem after another, right? Because the patches are always contextual. It's not like there's an evil genius that sat there and thought of the whole system from the start. It's like, you know, as you go, issues arise, right? So yeah, so the aging population is something that you can calculate in 1960. But now is becoming the major issue to manage more than, you know, new family formation, because family formation is slowing down right. So a lot of the contradictions are systemically generated, and as I say, the only thing that HDB can do is to keep developing patches to solve their problem. But hopefully, it will not accumulate to the point where the system crash.

Shane Phillips 1:12:11
Yeah, and as Paavo said, I think the fact that the government is able to be so responsive is really their superpower here,

Paavo Monkkonen 1:12:18
Right, yeah, competent governments can ge things done. That's impressive.

Shane Phillips 1:12:24
Okay, so last question here, this paper was published in 2014, there's been almost a decade of change since he wrote it. We talked a little bit about the swings in terms of oversupply, and then under supply that came about, you know, as a result of Asian economic crises and the global economic crises and migration or immigration, how have Singapore's housing policies, and its housing market itself evolved over these past 10 years? You mentioned in the paper, how the fertility rate has been below replacement levels since the 1970s, and the marriage rate is in decline or was in decline at that time in addition to society getting older that, of course, has continued, what do things look like now? What direction are things headed?

Chua Beng Huat 1:13:09
I think that what is interesting is that there is some issue has emerged in this private capture or public subsidy, right, and it has become a way of wealth accumulation, that a lot of young professionals who can actually with some parents support buy in the private sector, will in fact buy their first flat in the public housing sector, with the aim of selling it after minimum residential period and make profit to finesse the private sector purchase, right? Yeah, so this has become a serious political issue especially since they will always buy at the higher end of a public housing, right, the rate of price increase is also higher. So the HDB itself has become an institution that generates income inequality because of high-income bias accrues higher capital gains than the lower end, right, two-room flat will accrue a lot less than a five room flat.

Shane Phillips 1:14:22
And I imagine there's just an inefficiency there too if people are buying where there are new flats, not necessarily where it's closest to their work, which is just not ideal, and they're buying homes that are bigger than they need which means those homes aren't available to other people yeah.

Chua Beng Huat 1:14:36
And now that the flats are now 40-story high, some has incredibly great views of the whole city - unblocked views of teh whole city so those flats have now become million dollar flats. So now, the newspaper regularly reports million dollars public housing flats being sold that were bought at half that price, right So there's a huge windfall profit, and windfall profit goes to the one who are already relatively wealthy so it becomes a serious question.

Shane Phillips 1:15:11
Have they considered like, you know, higher capital gains on larger returns or something like that?

Chua Beng Huat 1:15:17
Ah, so the latest development is , as I said that some of the the older buildings has now been demolished, new ones are being built, right, and these are closer to the cities. And so now there's a new category called prime land housing, which is built by HDB, which is on locations either closer to the coast with potentially great view of the sea, closer to the city, next to mass rapid transit systems, all those places that are built now will have a 10 year residency period rather than five. In addition to that, even the second owner in perpetuity, those flats are not allowed to be rented up. So you cannot be landlord of prime land housing, so that kind of puts a damper on, you know, using or capitalizing on those prime land locations, right. The first set of Prime Land Housing has been announced, but it hasn't been built - the waiting time of the five years down the road, right, but already, there are young people who are lining up for that, you know, expecting to even if it's 10 years, they're already thinking about, you know, profit, right. So, first time buyers into the system, are now constantly profit-minded rather than home as necessary, you know, shelter.

Shane Phillips 1:16:52
Very similar shift to what we've seen over the past generation or two in the US, I think

Chua Beng Huat 1:16:57
So the public housing sector has become financialized institution, you know, like all real estate, right, so these are developing issues, right, that as I say, you will keep developing patches to...

Shane Phillips 1:17:15
Professor Chua Beng Huat, thank you so much for being so incredibly generous with your time. We really, really appreciate it. Thank you so much for being on the show.

Paavo Monkkonen 1:17:25
Thank you so much. This was fascinating, and I'm like, constraining myself. I have a couple more questions but we talked for a while and you're gracious enough to come back.

Chua Beng Huat 1:17:34
Well, thanks for having me. It's been great talking to you guys.

Shane Phillips 1:17:39
Twice.

Chua Beng Huat 1:17:42
All right. Have a good day.

Paavo Monkkonen 1:17:43
Thanks again. Bye.

Shane Phillips 1:17:48
You can read more about Professor Chua's research and find our show notes and a transcript of the interview at our website lewis.ucla.edu. The UCLA Lewis Center is on Facebook and Twitter. I'm on Twitter @ShaneDPhillips, and Paavo is @Elpaavo. Thank you for listening. We will see you next time.

About the Guest Speaker(s)

Chua Beng Huat

Professor Chua Beng Huat is a Singaporean sociologist whose research interests include urban and housing policies, political economy of Singapore, consumerism and popular culture in Asia. He is a professor at the National University of Singapore and the Yale-NUS College, and the former director of the Housing and Development Board.
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