Policy Innovations for Affordable Housing in Singapore

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6-2018 Policy innovations for affordable housing in Singapore: From colony to global city Sock Yong PHANG Singapore Management University, [email protected] DOI: https://doi.org/10.1007/978-3-319-75349-2

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Citation PHANG, Sock Yong. Policy innovations for affordable housing in Singapore: From colony to global city. (2018). 1-215. Research Collection School Of Economics. Available at: https://ink.library.smu.edu.sg/soe_research/2203

This Book is brought to you for free and open access by the School of Economics at Institutional Knowledge at Singapore Management University. It has been accepted for inclusion in Research Collection School Of Economics by an authorized administrator of Institutional Knowledge at Singapore Management University. For more information, please email [email protected]. Palgrave Advances in Regional and Urban Economics Sock-Yong Phang Policy Innovations for Affordable Housing In Singapore From Colony to Global City Sock-Yong Phang School of Economics Singapore Management University Singapore, Singapore

Palgrave Advances in Regional and Urban Economics ISBN 978-3-319-75348-5 ISBN 978-3-319-75349-2 (eBook) https://doi.org/10.1007/978-3-319-75349-2

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This Palgrave Macmillan imprint is published by the registered company Springer International Publishing AG part of Springer Nature. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland For my husband Andrew and our daughters Rachel and Christine Foreword

An ancient Chinese proverb asserts that while a government has strategies, citizens have counterstrategies. Those words concisely frame the challenge society faces in choosing from among the range of possible government policy regimes. In a market economy, equilibrium prices and quantities as well as the distributions of wealth and income that they generate depend on a government’s tax and regulatory policies. The challenge is to choose a policy regime that produces equilibrium prices and quantities that maximize an accepted measure of social welfare. Designing policy well requires a good understanding of how citizens’ counterstrategies depend on government strategies: it requires an economic theory that works. This book tells how public authorities in Singapore designed and adapted policies for allocating land, capital, and labor in order to create good places for Singapore citizens and residents to live and work, setting the infrastructure for people in Singapore to create a poster-child East Asian economic miracle of the late twentieth century. The book describes economic models underlying policy makers’ strategies, their purposes, and their expectations. It sorts through intended and unintended conse- quences, and how policy makers adapted to unintended ones. The book is, among other things, a fascinating analytical economic history about how Singapore purposefully deployed a suite of interrelated public

vii viii Foreword

policies about land use, life-cycle savings, taxation, regulation, and ethnic toleration. A personal note: because Harvard’s late John R. Meyer advised both of our PhD theses, Professor Sock-Yong Phang is my (much younger) academic sister. John Meyer was a master at combining economic theory, data, and econometrics to discover how things worked. In Sock-Yong Phang’s book, I think I see a part of John’s legacy that he would like. John was very interested in US economic history and, with Alfred Conrad, wrote a founding paper about the economics of slavery in the United States. I think that the striking contrast between how the US federal government gave away vast holdings of lands or sold it at below market prices and Sock-Yong’s detailed account of the very different way that Singapore has managed its land would fascinate John. I know that it fascinates me.

New York, NY, USA Thomas J. Sargent February 19, 2018 Preface

As a global multiracial city-state with a land area of 720 square km and a population of 5.6 million, Singapore has managed to develop a framework for affordable housing that has resulted in a high homeownership rate of 91%. How did Singapore manage to achieve this in a fiscally sustainable way? What were the roles of land acquisition and land use planning policies? How was homeownership subsidized and financed? How did market deregulation impact house prices? What policy instruments were used to contain housing price bubbles? How did policymakers deal with ethnic preferences for segre- gation? What has been the impact of housing policies on wealth distribution? How do elderly homeowners extract home equity for retirement financing? What can other countries learn from the experience of Singapore? I have spent much time over the past three decades researching the above issues from the perspective of an urban economist. This book is the culmination of my previous publications and current research on Singapore’s housing policies. In this book, I distil the key housing policy innovations, provide implementation details, analyse the impact of these polices, explain the local context as well as necessary conditions for these policies to work, and conclude with an assessment of their transferability. In the process, I provide the answers to the above questions by presenting the history and policy innovations introduced into Singapore’s housing policy framework over five decades. The reader should note that part of

ix x Preface

Singapore’s housing history has already been covered in some of my earlier publications (as well as by other authors); however, repeating part of the history is necessary for this book as it would not tell the full story otherwise. In sharp contrast to the situation in Singapore, the availability of affordable housing for low- and middle-income households is a challeng- ing social problem that many countries and cities continue to grapple with. Recent rapid house price inflation has further deepened the divide in urban societies between those who own properties and those who do not. New housing sector regulations to curb housing demand by foreign- ers have been recently implemented in several hot-spot cities across the world. Although it is a small city-state, Singapore’s experience in transforming its housing sector since independence can be relevant to larger countries as the urban housing market is a highly localized market. Singapore’s experience has also been of particular interest to Commonwealth countries, as it inherited a western institutional structure from the British colonial government when it gained independence. Developing as well as former socialist economies that are exploring alternative systems of affordable housing can also draw useful lessons from Singapore’s experience. This book provides an in-depth economic analysis of Singapore’s housing policies and it is my hope that it will be a useful reference for policymakers, city leaders, students and academic researchers in universi- ties, think tanks, and international organizations who work on affordable housing policies.

Singapore, Singapore Sock-Yong Phang Acknowledgements

In the process of researching and writing this book, I have accumulated many debts along the way. First, I would like to thank Mr Liu Thai Ker (Chairman of the Centre for Liveable Cities, CEO of the Housing and Development Board between 1979 and 1989, and CEO and Chief Planner of the Urban Redevelopment Authority between 1989 and 1992) who suggested that I write a book on the economics of Singapore’s housing system in 2014. This prompted me to sketch the first outline for the book. However, numerous other commitments in the intervening years led me to put off embarking on a book-length project. In the interim, I accepted several invitations to write and speak on Singapore’s housing policies from the Asian Development Bank Institute, China Executive Leadership Academy in Pudong, Fudan University, Hong Kong University, Korea Development Institute, Korea Research Institute for Human Settlements, the Lincoln Institute of Land Policy, the Singapore Economic Review, Southwestern University of Finance and Economics, Tsinghua University, and the World Bank Institute. I would like to thank these organizations for their interest in my research on Singapore’s housing policies and my co-authors during this period, David K.C. Lee, Kyung- Hwan Kim, and Matthias Helble for helping to shape my views. I am also grateful to Zhi Liu for the invitation to give a series of lectures on real estate policies at the Peking University-Lincoln Institute Center for Urban Development and Land Policy in the summer of 2017. Preparing xi xii Acknowledgements the material for these lectures helped me conceptualize Chap. 5 on land use planning and regulations. My colleague, Wen-Tai Hsu, provided extensive comments on the chapter and I have benefited greatly from his valuable suggestions as well as our discussions on the regulatory tax. I delivered the Celia Moh Chair Professor public lecture at the Singapore Management University (SMU) on March 23, 2015 on the topic of “Superstar Cities, Inequality and Housing Policies”, upon which Chap. 8 is based. I would like to thank my colleagues at SMU, in particular, SMU President Arnoud De Meyer, then Provost Rajendra Srivastava, and Dean Bryce Hool, for conferring upon me the honour. Chapter 9 is based on a talk, “Monetization of Housing: 3 puzzles”, that I gave at the Housing Roundtable organized by SMU’s Centre for Research on the Economics of Ageing (CREA) on August 16, 2017. I am grateful to Professor Bryce Hool, Director for CREA and Dean of the School of Economics at SMU, who has been the key person behind CREA and the Singapore Life Panel® survey from which the statistics used in Chap. 9 are drawn. The research for Chap. 9 (which draws on data from the Singapore Life Panel® survey) was supported by the Singapore Ministry of Education (MOE) Academic Research Fund Tier 3 grant MOE2013-T3-1-009. The book only came together when Laura Pacey approached me in 2016 to consider publishing a second book with Palgrave Macmillan. She has been a very patient and supportive editor, and I am grateful to her for getting me to embark on the journey. I am grateful to Stephen Hoskins and Naqun Huang at SMU for excellent research assistance. I would like to thank Hites Ahir, senior research officer at the International Monetary Fund, for very kindly reading the manuscript in its entirety and providing helpful comments and edits. I am deeply honoured that Professor Thomas J. Sargent very graciously agreed to write the Foreword for the book. I have learned a great deal more than economics from Professor Sargent who is not only a man of exceptional learning but also embodies the enormous generosity and kindness that are the hallmarks of a true scholar. As always, my husband Andrew, my constant cheerleader, critic, and sounding board, read the entire manuscript. His advice, comments, and encouragement have been extremely helpful and his enthusiasm for the project helped to spur me on. This book is dedicated to him and to our daughters Rachel and Christine. Contents

1 Introduction 1

2 Land Acquisition for “Any Public Purpose” 13

3 Public Housing for Sale 27

4 Provident Fund Savings for Housing Finance 51

5 Facilitating Higher Housing Densities Through Land Use Planning 67

6 Market-Responsive Housing Regulations 93

7 Building Diverse Neighbourhoods Through Integration Policies 111

xiii xiv Contents

8 Redistribution and Housing Wealth Formation 125

9 Home Equity Extraction for Retirement Financing 149

10 Transferability of Singapore’s Housing Policy Innovations 187

Appendix: Singapore’s Consumer Price Index, Exchange Rate (S$/US$), and Interest Rate for Housing Loans, 1988–2017 201

Index 203 Abbreviations

ABDS Additional buyer’s stamp duty AHG Additional Housing Grant BSD Buyer’s stamp duty BTO Build-To-Order CBD Central Business District CC Construction cost CPF Central Provident Fund CPF LIFE CPF Lifelong Income For The Elderly DBSS Design, Build and Sell Scheme DC Development Charge DGP Development Guide Plan DTI Debt service-to-income EC Executive Condominium EIP Ethnic Integration Policy FHA Federal Housing Administration GDP Gross Domestic Product GLS Government Land Sales GST Goods and Services Tax HDB Housing and Development Board HECM Home Equity Conversion Mortgage HELOC Home equity line of credit HOS Home Ownership Scheme HPF Housing Provident Fund

xv xvi Abbreviations

HUD U.S. Department of Housing and Urban Development HUDC Housing and Urban Development Company IUP Interim Upgrading Programme KHFC Korea Housing Finance Corporation LAA Land Acquisition Act LBS Lease Buyback Scheme LTV Loan-to-value LUP Lift Upgrading Programme MAS Monetary Authority of Singapore MC Management Corporation MIR Monthly mortgage payment to gross monthly household income ratio MRT Mass Rapid Transit MUP Main Upgrading Programme NIMBY Not-in-my-backyard NPV Net present value NTUC National Trades Union Congress OCBC Bank Oversea-Chinese Banking Corporation Limited PAP People’s Action Party PCP Project Completion Period PHG Proximity Housing Grant PIR Median house price to median annual household income ratio PM Prime Minister PPP Public Private Partnership PR Permanent resident REIT Real Estate Investment Trust RM Reverse mortgage S&CC Service and conservancy charges SARS Severe acute respiratory syndrome SERS Selective En bloc Redevelopment Scheme SHB Silver Housing Bonus SHG Special Housing Grant SIT Singapore Improvement Trust SLP Singapore Life Panel® SOE State-owned enterprise SPR Singapore Permanent Resident SSD Seller’s stamp duty TDSR Total Debt Service Ratio URA Urban Redevelopment Authority Unless otherwise stated, $ in this book refers to nominal Singapore Dollars. The reader may refer to the Appendix on page 201 for data on Singapore’s Consumer Price Index, exchange rate vis-à-vis the US Dollar, and interest rate for housing loans for 1988 to 2017.

xvii List of Figures

Fig. 1.1 Housing price-to-income ratios for Singapore, 2000–2016 (Notes: For estimation of PIRs, I used the weighted average of median resale price across HDB towns net of housing grant for a 4-room HDB flat in 2016. The prices in earlier years (2000–2015) are derived using the HDB resale price index. The income data is the median household income inclusive of employer’s CPF contributions for (i) all resident households, and (ii) employed resident households; Data sources: HDB and Singapore Department of Statistics websites) 7 Fig. 3.1 Stock of available housing in Singapore by dwelling type, 2017 (Source: HDB and Singapore Department of Statistics websites) 32 Fig. 3.2 HDB and private housing price indices, 1975–2017 (Source: Singapore government websites) 39 Fig. 4.1 Central Provident Fund contribution rates (% of employee wages), 1967–2017 (Source: Data from Central Provident Fund) 53 Fig. 4.2 Central Provident Fund mobilization of domestic savings for housing (Source: Phang (2013, modified)) 57 Fig. 4.3 HDB share of mortgage loans outstanding, 1995–2016 (Source: Data from Singapore Department of Statistics) 57

xix xx List of Figures

Fig. 5.1 Stock of available private housing units, 1988–2017 (Note: Includes Executive Condominiums; Source: URA REALIS Database) 77 Fig. 6.1 HDB income ceiling and median household income ($), 2000–2016 (Note: Median Household Income refers to monthly household income from work (including employer CPF contributions) among resident employed households; Source: Data from Singapore government statistics) 98 Fig. 8.1 Comparing nominal house price indices for global cities, 2000–2017 (Sources for data: As for Table 8.2) 131 Fig. 8.2 Household sector assets and mortgage loans to GDP ratios, 1995–2016 (Source: Data from Singapore Department of Statistics) 141 Fig. 8.3 Housing wealth ratios, 1995–2016 (Source: Data from Singapore Department of Statistics) 142 Fig. 9.1 Singapore total fertility rate (children per woman), 1960–2016 (Source: Data from Singapore Department of Statistics) 151 Fig. 9.2 Singapore life expectancy at birth (resident population), 1980–2016 (Source: Data from Singapore Department of Statistics) 152 Fig. 9.3 Distribution of wealth components (median values) by age group, 2016. (a) Wealth components of 4-room HDB flat homeowners (median $) by age group, (b) Housing equity as % of total net wealth by age group & dwelling type (Note: Housing wealth includes the primary residence and other properties; Source: Data from Singapore Life Panel®) 156 Fig. 9.4 Median annual income and nondurable consumption by age group ($), 2016 (Note: Annual income includes total income from investment, wage, CPF, annuities, pension, and government support in 2016; consumption only includes nondurable consumption from Jan to Dec 2016; Source: Data from Singapore Life Panel®) 157 Fig. 9.5 Obstacles to participating in the Lease Buyback Scheme (% of respondents), 2017 (Source: Data from Singapore Life Panel®) 174 Fig. 9.6 Self-reported barriers to selling housing to fund retirement (% respondents), 2017 (Source: Data from Singapore Life Panel®) 177 List of Tables

Table 1.1 Price-to-income ratios (PIRs) for HDB flats at Sengkang Town, 2017 5 Table 3.1 Housing stock, housing supply, and homeownership rate, 1970–2017 31 Table 3.2 Programmes under HDB’s estate renewal strategy 34 Table 4.1 CPF contributions and withdrawals by purpose, 2016 ($ millions) 55 Table 4.2 The HDB-CPF framework (2016 statistics) 58 Table 5.1 Standard gross plot ratio / storey height typologies 75 Table 5.2 Concept Plan population projections 76 Table 5.3 Ten largest en bloc sales between 1995 and July 2017 (by sales proceeds) 80 Table 5.4 Government land sale for residential development: Waterfront@Faber 84 Table 5.5 HDB residential building works contracts, 2017 85 Table 5.6 HDB flats: resale prices and new flat prices, 2017 86 Table 6.1 Housing market segmentation for housing affordability 95 Table 6.2 Household income ceiling revisions for HDB and middle-income housing 97 Table 6.3 Measures to curb house price increase, 2010–2013 105 Table 7.1 Residents in Bedok by dwelling type, 2016 115 Table 7.2 Ethnic limits under HDB’s Ethnic Integration Policy 118 Table 8.1 Household income Gini Coefficients for 5 global cities 128

xxi xxii List of Tables

Table 8.2 House price annualized growth rates for 5 global cities, 2000Q1–2017Q1 130 Table 8.3 Comparing housing outcomes in 5 global cities, 2016 132 Table 8.4 Types of housing grants for homeownership 133 Table 8.5 Grant amounts for housing purchase by household income, 2018 136 Table 8.6 Buyer’s stamp duties (BSD) payable for purchase of residential properties 139 Table 8.7 Progressive property tax structure for residential properties 140 Table 8.8 Housing wealth and house price changes by HDB and private housing sectors 143 Table 8.9 Distribution of housing wealth by dwelling type, 2015 144 Table 9.1 Housing wealth, mortgage debt, and housing equity by dwelling type, 2016 154 Table 9.2 Wealth components of households (aged 65–69) by dwelling type (homeowners, median values, $’000, 2016) 155 Table 9.3 Contrasting US’s HECM and Singapore’s NTUC reverse mortgage designs 165 Table 9.4 Lease Buyback Scheme: options for lease period 170 Table 9.5 Illustration of Lease Buyback Scheme 170 Table 9.6 Eligibility for Lease Buyback Scheme 173