HDB Part 1: Where to from here

The HDB program in Singapore has been immensely helpful in the proliferation of home ownership in Singapore. In 2008 just over 3 million people lived in HDB flats, and in 2014 more than 3.2 million. With the Singapore resident population at 3.9 million, the vast majority (82%) of Singapore residents live in HDB flats. Affordable and accessible home ownership has been a constant social and political contract that the ruling PAP has maintained with the Singaporean people since the beginning. At the 2011 General Elections, with the cost of housing on the rise, Singaporeans sent a strong reminder to the Government that they felt that the social contract had been ignored. The elimination of 2 sitting Ministers and 3 other MPs in the crucial Aljunied GRC was a lesson that the PAP would eventually learn from, implementing housing market cooling measures, more subsidies for new homeowners and cheaper flats in new estates.

My intention in sharing that anecdote was to set the context for the discussion of housing in the context of Singapore and in particular the roles that HDB play in housing Singaporeans as well as economic and social development. I’ll be focusing on 3 pillars of housing’s role in Singapore, namely, (1) Costs, (2) Economic impact and (3) Social development. Today we will cover (1) Costs.

Costs and the HDB Mission

The original purpose of the HDB mission was the creation of rapidly creating affordable and accessible public housing to re-home Singaporeans out of Kampungs (villages) and shanty towns (slums) in the mid 50s, with the original program started by Chief Minister David Marshall then expanded during independence by Prime Minister Lee Kuan Yew. The objective was largely focused on providing clean and modern facilities to the public. Houses were cheap. This was a worthy and meaningful goal to work towards. They were very cheap and in the early years they were a great form of an investment for everybody as the country prospered, and property prices increased, it was a source of pride for everybody.

In the last 15 years, the system has started to falter. It has become rather expensive to own a home. Part of the increase in prices stem from a mismatch of demand and supply. If you look at Graph 1 below, you can see that the number of flats that were actually being built dipped and stayed low, even as the population continued to grow and grow rapidly.

HDB (flats vs population)

Graph 1

This competition for homes drove prices up, in the process, enriching an older generation while impoverishing future generations. With more money going into housing, this will mean that that same money will not be spent on starting businesses, investing in continued education, investing in new skills and in providing a financial buffer in the event that couples consider having children. As the government complains that more Singaporeans aren’t taking the next step to be the next generation of entrepreneurs, one can argue that they can’t because their assets are all locked up, in their CPF accounts and in their homes.

There is a reason numerous reports place Singaporeans as one of the wealthiest people in the world, by and large, a lot of Singaporeans make a lot of money but that money strangely enough goes towards the cost of government services such as housing, education and retirement.

Apartments at Cost

An argument can be made that the government should be selling flats to Singaporeans at cost and to some extent even less than cost. As the provision and building of flats in Singapore is provided by a government service (i.e. a service that is tax funded), flats in Singapore should be provided in a sustainable model for both the government and the buyer (taxpayer). In recent years the government has said on numerous times that they are actually losing money on a year to year basis in the provision of flats. One should not doubt that, and it is true that on a year to year basis, the government loses money in building flats. These are the reasons why:

  1. Land is purchased from SLA (another government agency), and that purchase is made at prevailing market rates. This means that the land to build a condo is valued the same as the land to build a block of flats (though in actual implementation, HDB probably pays less than a regular developer). They also buy land that they won’t be building on for a few years.
  2. HDB spends money 2 ways. (1) When they build the flats themselves and (2) when they lend money to individuals to buy the flats they build. By doing so they are quite literally are spending the same dollar twice on an item though they’ll get most if not all back through the loan repayment (with interest).

Social Service or Investment

HDB faces the classic problem that has plagued most economist for years which is how do you square Keynesian government intervention with the aspects of free market pricing. The problem is what you see today, with the older generation sitting on assets worth a lot of money but unwilling to monetise it while the younger generation looks for a place to live where most comfortable units remain either out of reach, or where sacrifices to other consumption must be made.

If we see HDB as a social service, then it should be sold at a cost+ model because that’s the only way a tax-payer funded system like this could work and account for the opporunity cost of not using that funding for example healthcare or education.

If we see HDB as an investment, then the government should not extend certain low-income social services to individuals who own their flats and encourage them to sell and downgrade to a smaller unit (or retirement communities – to be discussed later). This “harsh” and “unkind” approach will have the benefit of adding more flats onto the market and would have a normal (natural) market impact of moderating prices since this allows for more “supply” into the open market.

Either way there is an implicit cost. Asking the government to absorb that cost could be possible in the short term but that would probably deny funding in the long-term to other projects and proposals that would potentially have greater value. Of course the problem is that this “long-term” option is unknown and as humans we don’t usually prepare for that opportunity or risk.

I’d appreciate any comments or ideas that people might have to the thoughts that have been presented here in this essay. Thanks for reading.

 – thebumblingtechnocrat

Reference Articles:

  1. http://www.straitstimes.com/news/opinion/more-opinion-stories/story/rethink-house-price-policies-20141117


  1. Resident HDB population: https://data.gov.sg/dataset/estimated-resident-population-living-in-hdb-flats