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The Social Contract: Singapore’s Public Housing and Progression towards Welfare Statism

 10 min read / 

While Singapore is deemed an authoritarian democracy, one cannot argue the city-state’s progression towards welfare statism as a result of the increasing provision of housing welfare on a large scale. Through Singapore’s extensive housing system, the government has succeeded in raising savings and homeownership rates significantly as well as contributing towards a sustained economic growth. As a densely populated high-income city-state inhabited by 5.4 million people in a land area of only 697 square kilometres; few would argue the portrayal of Singapore’s housing policies and, as a result, rapid economic growth as anything but ‘phenomenally successful.’ Since declaring independence in 1963, Singapore’s economic growth in the past five decades has transformed the city-state from the third world to first world status, with its GDP having grown by a factor of 26x and income per capita having increased by a factor of 63.7x. The administration’s successful government-centered housing welfare system has played a major role in Singapore achieving high economic growth rates complemented by full employment, with a fitted labour market necessitating the importation of foreign workers. Although Singapore has a relatively free economy, its housing market is far from being perfect as it is dictated by the public sector and takes into account external factors beyond its control.

The government relies predominantly on the Central Provident Fund (CPF); a mandatory savings scheme implemented to finance various welfare services through housing, healthcare, insurance, tertiary education and retirement. Additionally, through the implementation of the Housing and Development Board (HDB), the government is directly involved in the direct provision and control of housing stock, regulation of eligibility criteria, housing finance, rentals, and transaction costs. According to Pugh, the fact that over 85% of the resident population live in HDB housing has been portrayed as a ‘symbol of pride, of nationhood, of the political achievement of the People’s Action Party, and of the government benevolence towards the public interest.’ The question remains whether Singapore’s housing policies are feasible in the long-run as it is leading the way towards welfare statism. This paper investigates Singapore’s public housing policy and in particular whether the housing welfare system is beneficial towards the city-state.

Public Housing Tenure Forms in Singapore

20150808_wom926Singapore incorporates a two-tier housing market composed of a public sector and a private sector. The public housing sector provides new starter houses at subsidised rates for first time home buyers who meet specified social, demographic and income criteria. Such criteria is determined by major social policy initiatives through the Housing Development Board (HDB) and the mandatory savings scheme known as the Central Provident Fund (CPF).  The city-state’s economic success is further aided by Singapore’s housing and social security policies as it stimulates the development of an active resale market for government dwellings as well as other forms of housing asset markets.

Notwithstanding over 80% of Singapore’s population residing in public housing tenures and this distinctly being governed by the HDB, housing policy remains exceptionally complex. The dominant housing sector in Singapore is the HDB owner-occupied sector. Housing demand is regulated by eligibility rules using variables such as household income ceilings, non-ownership of private properties at the time of application and citizenship status. Effectively the state remains involved even after the HDB housing is sold, albeit not in a direct controlling way. The second form of public housing tenure is the public housing rental sector, which embodies the social housing sector in Singapore. The rental public housing policy focuses on the relations between state and citizens, providing those in contention for rental public housing with privileges and social benefits that are restricted to others. Lastly, land ownership is further defined by whether the housing has a freehold, state-owned leasehold (which again is defined by the number of years of remaining leasehold), fully owned or part owned (strata-title) status.

Developments in Housing Prices and Aggregate Consumption

Improvements in the urban environment and housing standards in Singapore illustrate the success of the economic development and housing strategy adopted by Singapore’s government. HDB’s housing stock increased from 120,138 units in 1970 to 898,532 units in 2010, representing 82% of the resident population at the time. Moreover, since the inception of the CPF homeownership scheme in 1968, the Gross National Saving to GNP ratio increased from 19.3% in 1970, which was insufficient to fund the city-state’s investment needs equivalent to 32% of GNP, to 48,4% in 2010, which is evidently a top ranking savings rate. The housing welfare approach further enabled Singapore to mobilise long-term resources on the demand side. This was needed to finance the rapid supply of housing by the public sector with minimal government expenditure. The sector was considered a publicly managed private sector that resulted in an improvement of living standards transformed the housing environment, and resulted in the formation of housing and real estate wealth.

20150718_SRC686The development of an efficient mortgage market is often cogitated as the gateway towards achieving a high homeownership rate. Through the government provision of affordable subsidised HDB housing and HDB mortgage loans, the CPF’s mandatory savings scheme has made home purchasing the most proficient option for most Singaporean households. Supporting the CPF’s mandatory savings scheme is Singapore’s sustained income increases and low unemployment rates, allowing homeownership rate to drastically increase.

Singapore’s housing approach has resulted in an increase in savings rates and homeownership rates, mobilised resources for the housing sector and facilitated an increase in housing loans, as well as supported the development of the primary mortgage market. Conversely, Singapore’s housing model is inherently policy-driven and centrally-controlled with all the key decisions regarding savings rates, savings allocation, land use, housing production, and housing price being determined solely by government institutions. This is a neoclassical economists’ nightmare and accordingly queries whether Singapore engages in authoritarian paternalism or welfare statism.

Singapore Economic Model and Public Policy

The ideology of a welfare state emphasises the relations between state and citizens, effectively as individuals and social groups. The original implementation of organised welfare policies as the political, economic strategy was under Bismarck in Imperial Germany in 1883, aiming to increase loyalty amongst the population as well as to promote economic growth and increase revenue streams of the private sector. Likewise in Singapore, the welfare system initially targeted civil servants through non-contributory pension schemes and other social benefits such as free accessible education. Rapidly this developed beyond the intentions of merely improving literacy rate and human capital. Instead, it was “used as a tool to enable control over ideology, religion, and any thinking that will suit the system’s drive towards national unity.”

According to Aspalter, Singapore has an economic model that is a “welfare state in a class by itself,” providing job security, housing provision and educational standards that fundamentally aim to generate a society with high-quality human resources. The extensive housing scheme in particular has been central towards raising savings and homeownership rates, as well as contributing towards sustained economic growth and development of the housing sector specifically. The management of supply and the applied criteria-based selection policies underline the ‘phenomenally successful’ housing policy. While the public housing policy is aimed at the resident and not the accommodation, Singapore yet considers the geographical constraints the small city-state faces by focusing on building public housing condominium-style to save space.

Moreover, Singapore’s social security scheme falls under the CPF, which remunerates those of working age with an economic goal to maximise work effort, whereas in most countries welfare funding is addressed through social insurances aimed at times of unemployment or pension funds. Unlike the pay-as-you-go social security schemes most countries implement, the CPF provides a comprehensive range of benefits ranging from mortgages for the homeownership scheme, children’s education, healthcare and investments. The government regulates the allocation of such funds to achieve what is best for the economy. Despite the management of supply being key towards Singapore’s housing model, government regulation implements policy, such as that of the CPF savings scheme, based on the resident and not on the accommodation by welfare statism. Because the capital in the CPF comes from compulsory savings the social security scheme in Singapore is nearly fully funded and implements a social contract providing a tacit agreement to trade social security for political compliance. Singapore would not be characterised as a welfare state if dependent on comparing the ratio of public spending to the private share of public goods. In its place one should consider the extent to which Singapore’s government is directly involved in the allocation of resources towards public goods, as a result portraying Singapore as one of the most effective and productive welfare operators.

The tradeoff in categorising public housing

Singapore’s public housing policy is categorised into three main types: taxation policies, public housing financing policies through for example the regulation and deregulation of HDB mortgage loans, and public housing subsidies through CPF Housing Grant’s. Due to the wide spectrum of housing policies, strategic planning to mobilise resources and to guide key investments has lead to a successful housing welfare model. Singapore’s government has also put emphasis on the importance of the management of supply as well as the policies that formed further markets and the accommodation of private initiatives to fill the gaps. Through such policies, the public housing sector has helped the city-state avoid any destructive outcomes as a result of the extremes of central planning and unplanned growth. Singapore’s planning process and active role in creating markets

Through such policies, the public housing sector has helped the city-state avoid any destructive outcomes as a result of the extremes of central planning and unplanned growth. Singapore’s planning process and active role in creating markets have allowed the city-state to avoid inefficiency. In contrast, to the political and social instability pooled with high unemployment, rampant crime and a poor educational system from which numerous city governments in former socialist countries suffer, Singapore has prospered and greatly improved the standards of living following the government’s rapid modernisation and industrialisation. Singapore’s government-centered housing welfare system takes into account the local political and social context, specifically, the government’s ability to control migration and the strain migration could impose on the housing service sector. Additionally, policies such as compulsory savings, state land ownership and state provision of housing allows Singapore to rely on an extensive public sector, which could have also spawned widespread inefficiency and corruption instead.

The quality of public administration in Singapore depends on the institutions put into place to govern and control the policies employed by the government. The need for, and in Singapore’s case the presence of, strong legislation and a proper fund governance structure ensures that the interests of the resident population are protected, whether that relates to the public housing sector or various other sectors controlled by the government. As the ideology of a welfare state emphasises the relations between state and citizens, it is evident that Singapore’s housing sector plays a key role in the protection and promotion of the economic and social well being of its citizens.

Policymakers in Singapore need to realise, though, that certain tradeoffs need to be made with the lack of unemployment safety nets and the possible inadequacy of personal resources for retirement and healthcare in the long-term highlighting the risks of over stressing the extensive housing system in the Singapore’s welfare system. It remains doubtful whether tradeoffs can reduce the dominance of housing welfare without adversely affecting housing asset markets. As a result, contending whether the housing welfare system has been beneficial towards Singapore’s city-state or not.

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