Firsthand Takes On: Housing is a new series by Mothership, diving into the topic of housing in Singapore with in-depth articles and videos.

We’ll explore the uniquely Singaporean housing system by experiencing it for ourselves, gathering expert opinions, and hearing the perspectives of young Singaporeans, to present the points of view that matter, firsthand.

Here, sociologist Chua Beng Huat explains how the recent debate over the affordability of Housing and Development Board (HDB) flats may point to something underlying at the root of the HDB housing system — ownership is tied up with retirement adequacy. 

Chua, who is a professor of urban studies at Yale-NUS College and the National University of Singapore's sociology department, also explores the limits of the government's current measures to control future housing prices, despite early signs that both the resale and rental markets are cooling down.

By Chua Beng Huat

The current sustained rise of prices for new and resale HDB flats inevitably raises concerns of public housing affordability.

Questions of how new HDB flats are priced, implicitly questions the claim of subsidy provided by the government.

In Dec 2022, the Ministry of National Development provided details on how new BTO flats are priced and the gross subsidy for a recent batch of flats. More debates ensued around how land cost is to be factored into BTO pricing, resulting in online exchanges between Senior Minister of State for National Development Sim Ann and Non constituency Member of Parliament Leong Mun Wai, and culminating in a two-day parliamentary debate on keeping public housing accessible and affordable for Singaporeans in February 2023.

While individualised items, such as land, construction and administrative costs, are important, the relative prices of new and resale flats are more systemically determined within the public housing system as a whole.

How is HDB able to do what it does?

The HDB is able to provide 99-year leasehold public housing flats to 90 per cent of the residential population is due to two essential factors.

Nationalisation of land

First, the nationalisation of land by the state which makes land readily available at the state’s disposal.

If the government has to purchase land at market value for every public housing estate, provision will at best be residual, limited to those who are unable to afford market rent on their own. Indeed, it is likely to forego provision altogether and, instead provide cash subsidy for the needy to rent in the private rental sector, as in many developed countries.

Mortgage system facilitated by CPF

Second is the affordable mortgage system available to all, as it is facilitated by permitting pre-retirement withdrawal of the CPF savings to pay the long-term lease. Technically, to lease is to rent. However, in this case, the entire 99 year rent is paid at one-go.

It is arranged as in a conventional homeownership mortgage system, with a down payment and a monthly payment over a fixed period of time.

Furthermore, the leaseholder is accorded the equivalent rights of a homeowner, including the right to sell the lease (and thus the flat) to another who is eligible to buy public housing.

There is therefore a conflation of the status of a leaseholder and that of a homeowner with the common reference of a HDB leaseholder as a homeowner.

Is Singapore’s public housing a victim of its own success?

Ironically, the two essential factors that enable the near universal public housing program are also the same factors that generate systemic contradictions in the pricing of the new and resale flats.

With the nationalisation of land, the government has erased all possibilities of alternative affordable housing for the working and lower income groups; there are no more kampongs and other informal settlements.

Except for the wealthier 10-15 per cent of the population, who reside in the small private housing sector, all Singaporeans are dependent on the HDB for their housing.

When it promises that public housing will be affordable to 90 per cent of the population, it is really stating an obligation it cannot avoid.

The failure to provide is not an option.

The HDB is practically synonymous with the People's Action Party (PAP) government; HDB flats are still referred to as "government flats" in dialects. Consequently, failure of the HDB to provide for any sector of the population readily translates into a political problem for the government.

For example, in 1981, when then Minister of National Development, the late Teh Cheng Wan, refused to allocate flats for the Blair Plain residents who were being evicted from their homes by the expansion of the PSA, the PAP lost the Anson by-election to J.B. Jeyaretnam, breaking its total monopoly of parliament since 1968.

Similarly, the affordability and accessibility of HDB flats were contributing factors to PAP’s relatively poor election results in the 2011 General Election.

HDB ownership is tied up with retirement adequacy

With the facility of CPF payments, all but a few working Singaporeans have invested the major proportion of their CPF savings in their HDB flats.

Flat ownership has effectively substituted itself for the original function of the CPF, in lieu of a national pension.

Consequently, the flat has to be monetised eventually to fund the owner’s retirement years.

The HDB recognises this and has developed various schemes to enable senior citizens to recover their investments to fund their retirement years, including the lease-buy-back scheme in which a leaseholder sells back a portion of the tail-end of the lease to the HDB for a lump sum and an monthly annuity payment.

On the other hand, flat owners are motivated to use the flat as an instrument for wealth accumulation to improve their retirement fund, thus introducing a profit motive and a speculative element into HDB homeownership.

If the flat is to provide for the owner’s retirement years, then, its market value must be preserved or better, improve over time to keep up with the accumulative annual inflation.

Prices of new and resale flats are inextricably linked

As all existing HDB flats are potential resale flats, any radical reduction in the prices of resale flats across the board will write-off a very significant chunk of the national accumulated capital that is embodied, or embedded, in the blocks and blocks of flats. It will also jeopardise the quality of retirement life of all existing flat-owners. Both consequences will reverberate politically, with imaginable electoral consequences.

New flats therefore have to be priced with reference to equivalent resale flats, as in the commercial real estate market.

According to the HDB, new flats are priced lower than their resale equivalent by a "market discount".

Unfortunately, this pricing arrangement has a tendency to produce an upward price spiral: prices of resale flats act as the base from which prices of new flats are set, the prices of new flats in turn serve as the base on which sellers decide the asking prices of resale flats and so on.

Thus, when Khaw Boon Wan took over as the Minister of National Development, after the 2011 General Election, he acted immediately to remove the 20 per cent market discount peg, then in practice.

This contributed to a gradual lowering of resale flat prices for several years before the pandemic. However, according to the Ministry’s recent released figures, the market discount formula has been reinstated and is now at about 13 per cent.

Not an option to decouple new and resale flat prices

In spite of the tendency to an upward spiral of prices, a separate pricing formula for new flats that does not take reference from resale flat prices is not really an option.

To radically lower new flat prices by taking out land cost will immediately bring down values of all existing flats, with the above-mentioned economic, financial and political consequences.

To maintain resale prices the government’s "solution" is to provide cash grants to enable the new entrants to the public housing market to buy their flats. As part of Budget 2023, the government announced an increase of up to S$30,000 in grants for first-time buyers who wish to purchase resale flats at prevailing market value. Grants, therefore, are not aimed at bringing down resale prices.

Furthermore, as real estate agents are quick to point out, enhanced grants may in fact lead to higher prices for resale flats, as the sellers factor the grant into their price demands.

The government is aware of this possibility and promises “to monitor the situation”.

Government can directly control “affordability”, but only for new flats

There are early signs that both the resale and rental markets are cooling down, especially after the clearing of the current backlog of delayed BTO flats, Minister for National Development Desmond Lee told The Straits Times in a recent wide-ranging interview on Mar. 20.

Where the government has some price control is in the pricing of BTO flats. Here, affordability is defined and fixed by the proportion of the leaseholder’s monthly wage that goes to pay the monthly mortgage.

HDB said it is “committed” to keeping BTO flats affordable and pointed out that last year, almost nine in 10 new BTO flats were priced at less than 25 per cent of the total household income of the leaseholder of respective flat types, after the grant assisted down-payment.

At this level, the mortgage can be covered by the monthly CPF deductions, without affecting the take-home income and routine consumption of the leaseholder.

However, this pricing policy does not disrupt the above-mentioned upward spiral of prices of resale and new flats, as it does not solve the contradictory demands of existing public housing homeowners seeking higher prices/profits for their flats and new entrants looking for affordable housing.

Additionally, as raised in parliament, the continuous enhancement of grants is not sustainable in the long term, let alone permanently.

Finally, regardless of grants and the 25 per cent wage level pricing, prices of both new and resale flats may still be perceived by young Singaporeans to be less reachable, especially compared to their parents’ generation.

Affordability remains a perennial issue, with uncertain impact on the popular electoral support for the PAP in future elections.

Top photo by Nigel Chua